James McLoughlin

Ph.D. Candidate in Finance

Contact Information:

S545, #1900
Haas School of Business
Berkeley, CA 94720-1900

Curriculum Vitae (.pdf)

Research Interests

  • Market microstructure
  • Asset pricing with asymmetric information
  • Delegated portfolio management


Why trade with Goldman? (Job Market Paper)
Using a model of repeated trade between a long-lived, informed, price-discriminating market maker and risk averse traders with endogenous hedging demands, I first show that traders are weakly better off trading with an informed dealer, as they may learn something about an asset's value in the process of transacting. Second, while long-term incentives can induce an informed market maker to honestly reveal information and increase risk-sharing, they also enable the market maker to hide her information and extract more rents, reducing trader welfare. This less desirable outcome dominates with respect to both the parameter space and a selection criterion. Finally, measures of market quality, such as the transient component of price volatility (illiquidity), may not accurately reflect trader welfare.
How does asymmetric information effect trading costs in a non-anonymous market?
(Work in progress)
When counter-parties trade in OTC markets, such as those for corporate bonds or derivatives, the lack of anonymity implies that future terms of trade can influence prices today. Using a model of repeated trade between an informed trader and uninformed market makers, I show that information asymmetry can affect the markups charged by dealers in two ways. First, for a given market structure (number of market makers), traders with more private information incur lower trading costs because dealers offer better terms to mitigate adverse selection. Second, because more competition improves the informed trader's outside option, information asymmetry limits the viable number of dealers in a market. These opposing effects imply that the comparative statics of transaction costs only make sense conditional on market structure. While large (global) increases in information asymmetry reduce competition and increase trading costs, small (local) increases give the trader more market power and reduce her costs.