Research
Research
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Working papers
Heterogeneous Beliefs Recovery (with Julien Hugonnier)
Revise and Resubmit at The Review of Financial Studies
In a standard continuous-time economy with heterogeneous beliefs and constant relative risk aversion, equilibrium prices reveal the cross-sectional distribution of wealth and consumption shares across beliefs. Specifically, we establish a novel recovery theorem showing that the equilibrium paths of the risky asset price and the interest rate determine the evolution of these distributions. Motivated by this finding, we develop an optimization-based method to approximate the implied distribution of consumption shares across beliefs, given discrete time series of prices and interest rates. We confirm the accuracy of this method on simulated data and illustrate the versatility of our approach by providing extensions of our basic recovery theorem that allow for learning and multidimensional beliefs.
Presentations: UCLA Macro Finance Lunch, SFI Research Days 2024, SFI PhD Workshop 2024, HSG PhD seminar, EPFL/UNIL Brown Bag seminar, UNIGE Brown Bag seminar
Examples of recovery in simulated markets. The black curve shows the CDF of the true cross-sectional distribution of beliefs used to generate prices, while the blue curve shows the distribution recovered using our methodology.
Work in progress
Dealer Intermediation in OTC Markets with Private Valuation (with Julien Hugonnier)
We develop a general equilibrium theory of dealer intermediation in over-the-counter (OTC) markets with private investor valuations. Trading occurs through a competitive request-for-quote (RFQ) protocol in which dealers submit price quotes without observing investor types. The model nests the standard voice trading channel. We prove the existence and uniqueness of a stationary equilibrium and characterize it through a system of functional equations. We decompose the effects of adverse selection into a scale effect, reflecting the mass of investors on each side of the marginal type, and a composition effect, reflecting how private information shapes the quality of trading opportunities. This decomposition determines how equilibrium allocations respond to changes in supply. In equilibrium, quote distributions generate bid–ask spreads, price dispersion and strictly positive probabilities of trade failure. The model provides a tractable framework to study how dealer competition, supply, investor heterogeneity and search frictions jointly determine liquidity, allocation and welfare.
Leverage Dynamics with Market Segmentation
(Job Market Paper)
Deviation in marginal type relative to a benchmark without private valuations, as a function of asset supply. Differences in composition between the bid and ask sides asymmetrically affect participation and distort price elasticities.
Discussions:
Gülce Opuz. Portfolio Choice with Heterogeneous Risks. 2025. (At 8th Dauphine Finance PhD Workshop.)
Mojtaba Hayati. Scale-Dependent Returns or Dynamics of the Interest Rate?. 2025. (At SFI Research Days 2025.)
Emanuele Luzzi. The Impact of Nonlinearities on Option Portfolios. 2024. (At SFI PhD Workshop 2024.)
Bryan T. Kelly, Semyon Malamud, Mohammad Pourmohammadi, and Fabio Trojani. Universal Portfolio Shrinkage. 2023. (At SFI Research Days 2024.)
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