Working Papers

Stocks for the Long Run or Liquidity? Tax Data Evidence and Portfolio Choice Implications (Job Market Paper)

Latest draft

Abstract: Do temporary stock price crashes matter for long-term investors? I use over 25 years of U.S. income tax data to characterize the savings behavior and risk exposures of high-income working-age households. Aggregate stock price crashes coincide with persistent declines in wage and private business income for many of these households, who take large drawdowns from their liquid assets – including stocks – in response. I develop a life-cycle model with consumption adjustment frictions to match this observed savings behavior and determine its portfolio choice implications. Investing in stocks is risky when falling income and rigid expenditures may force investors to liquidate their holdings at temporarily-depressed prices, resulting in low optimal portfolio shares. These results challenge the conventional wisdom that the stock market is relatively safe for long-term investors.

Exchange Rate Risk in Public Firms

with Adrien Verdelhan

Latest draft (May 2025)

Abstract: In their income statements, firms report their foreign exchange (FX) transaction income, i.e., the overall effect of exchange rate-induced revaluations of their monetary items, net of any financial hedging. Using such publicly available data, we find a strong comovement between exchange rate shocks and FX transaction income at the firm, industry, and aggregate levels, implying that financial hedging is limited. The FX exposure increases with international trade and foreign currency debt. The FX transaction income passes through to the firms’ profits, payouts and subsequent investments, implying that operational hedging is also limited, and that exchange rate changes affect firms.

Selected Presentations: 5th Global Research Forum on International Macroeconomics and Finance, Federal Reserve Bank of New York; Federal Reserve Bank of Boston; European Finance Association 2022 Annual Meeting; Inter-Finance PhD Seminar

Academic Publications

Forecasting Macroeconomic Risks

with Tobias Adrian, Nina Boyarchenko and Domenico Giannone

International Journal of Forecasting (2021)

Publisher's version · FRBNY Staff Reports version · FRBNY Outlook-at-Risk

Works in Progress

Industry-Specific Human Capital and the Stock Market

with Maarten Meeuwis, Dimitris Papanikolaou, Leonid Kogan and Lawrence Schmidt

Abstract: Industry-specific factors account for a large share of individual earnings risk. To what extent can workers hedge this risk in financial markets? We estimate the relationship between industry stock returns and worker earnings, using administrative data and stock portfolios constructed from product market similarity measures. Industry stock returns are strongly positively correlated with workers’ future earnings growth. These effects are strongest for higher-income and older workers, consistent with theories of human capital specialization. Within industries, the returns of firms with lower growth opportunities are most informative about earnings growth. We use these estimates to calibrate a flexible nonparametric income process linking stock returns and worker earnings risk. We will integrate this income process into a portfolio choice model to quantify the welfare gains from long-short portfolio strategies that hedge this risk.

Follow or Fight the Fed? Quantifying Monetary Policy Tradeoffs in Small Open Economies

Abstract: U.S. monetary policy has large effects on foreign asset prices, exchange rates, and macroeconomic variables. To what extent can foreign central banks offset these effects by adjusting their own monetary policy stance? I use a new dataset of high-frequency monetary policy shocks for advanced economy central banks and recently-developed econometric methods to estimate the effects of U.S. monetary policy shocks under counterfactual foreign policy responses. Following a U.S. monetary policy tightening, foreign central banks can effectively stabilize exchange rates through proportional increases in their own policy rates, but are less capable of offsetting the spillovers to domestic asset prices and macroeconomic variables through policy rate decreases. The limited stabilization capability of foreign monetary policy is consistent with models in which U.S. monetary policy uniquely affects global financial conditions and aggregate demand.

Selected Presentations: 22nd Macro Finance Society Workshop (PhD student poster session); Inter-Finance PhD Seminar