Marcus M. Opp, Ph.D.

Assistant Professor

Finance Group
UC Berkeley
Haas School of Business

Marcus_Opp@fas.harvard.edu

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Executive summary

My research spans dynamic contracting, financial intermediation, and international finance. My most recent work on financial intermediation analyzes the interplay between financial regulation and risk-taking incentives in the financial sector. The corresponding papers are published in top general interest journals (Econometrica) and leading field journals such as the Journal of Economic Theory, the Journal of Financial Economics and the Journal of International Economics. The paper "Target revaluation after failed takeover attempts - Cash versus stock" won the 2016 Jensen prize for the best paper published in the Journal of Financial Economics in the areas of corporate finance and organizations (first place). My favorite papers are “Impatience versus incentives,” “Only time tell: A theory of deferred compensation and its regulation," and ''Rating agencies in the face of regulation.'' I have been a board member of the Finance Theory Group since September 2016. I have achieved teaching excellence at Berkeley Haas (Median score = 6 / 7) in every section since 2010 across a variety of degree programs (undergraduate, M.B.A. and Ph.D.). Last rating: 6.3 / 7 in MBA core finance course in Spring 2016. I won the 2017 Poets and Quants "Top 40 under 40" award for professors of world-wide business schools.

Research overview:

Research statement and Google Scholar Profile

1) Financial regulation, financial intermediaries (banks, rating agencies): (4), (8), (9), (10).

2) Contract and relationship dynamics: (3), (5), (6), (9).

3) International/ macro: trade theory, DSGE models: (1), (2), (5).

 

 

Publications:

 

(7) "Target Revaluation after Failed Takeover Attempts - Cash versus Stock," 2016, joint with Ulrike Malmendier & Farzad Saidi, Journal of Financial Economics, 119, 92-106. Winner of 2016 Jensen Prize for the best Corporate Finance paper published in the Journal of Financial Economics. Online Appendix

Main insight: Capital markets interpret a cash offer as a economically large and positive signal about the fundamental value of target resources (in contrast to a stock offer). We expose a significant look-ahead bias affecting the previous literature on this topic.

 

(6) “Impatience versus incentives,” 2015, joint with John Zhu, Econometrica, 83, 1601-1617. Presentation Slides from Econometric Society Meeting, Boston 2015.

Main insight: We study the dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.

 

(5) “Markup cycles, dynamic misallocation, and amplification," 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory, 154, 126-161.
Main insight: We analyze the IO implications of consumption-based asset pricing. In contrast to a risk-neutral economy, oligopolistic competition produces procyclical aggregate markups if valuations are governed by preferences with a relative risk aversion coefficient greater than 1. With heterogeneous industries, aggregate fluctuations may originate purely from myopic strategic behavior at the industry-level.

 

(4) ''Rating agencies in the face of regulation,'' 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61. Winner of the 2016 Emerald Citation Award.
Abridged version of paper for Fame magazine.
Main insight: The regulatory use of ratings feeds back into the ratings of profit-maximizing credit rating agencies. Rating inflation is expected to occur for complex securities.

 

(3) "Expropriation risk and technology,'' 2012, Journal of Financial Economics, 103, 113-129. Winner of the 2008 John Leusner Award for the best dissertation at the University of Chicago in the field of Finance.
Main insight: Property rights (within a country) vary across industrial sectors according to their technology intensity, leading to a pecking order of expropriation. Firms can manage expropriation risk by forming conglomerates.

 

(2) "Tariff wars in a Ricardian model with a continuum of goods," 2010, Journal of International Economics, 80, 212-225.
Main insight: Optimum import tariff rates in the Dornbusch-Fischer-Samuelson model of trade are increasing in both absolute advantage and comparative advantage. A sufficiently large economy prefers the Nash equilibrium of tariffs over free trade.

(1) "Rybczynski's theorem in the Heckscher-Ohlin world - anything goes," 2009, joint with Hugo Sonnenschein & Christis Tombazos, Journal of International Economics, 79, 137-142.
Main insight: The predictions of the Rybczynski Theorem can be reversed in general equilibrium. This "reverse" outcome implies immiserizing factor growth.

Completed working papers:

(8) “Bank capital, risk-taking, and the composition of credit,” January 2017, joint with Milton Harris and Christian Opp. See Video for intuition with graphical illustration.

Abstract: We propose a general equilibrium framework to analyze the cross-sectional distribution of credit and its exposure to shocks to the financial system, such as changes to bank capital, capital requirements, and interest rates. We characterize how over- and underinvestment in different parts of the borrower distribution are linked to the capitalization of the banking sector and the distribution of borrowers' risk characteristics and bank dependence. Our model yields a parsimonious asset pricing condition for firms' cost of capital that sheds light on heterogeneity in interest rate pass-through across borrower types, as well as its dependence on the health of the banking sector.

(9) “Only time will tell: a theory of deferred compensation and its regulation,” December 2016, joint with Florian Hoffmann and Roman Inderst, Presentation Slides.
Abstract: We characterize optimal contracts in settings where the principal observes informative signals over time about the agent's one-time action. If both are risk-neutral contract relevant features of any signal process can be represented by a deterministic “informativeness” process that is increasing over time. The duration of pay trades off the gain in informativeness with the costs resulting from the agent's liquidity needs. The duration is shorter if the agent's outside option is higher, but may be non-monotonic in the implemented effort level. We evaluate effects of regulatory proposals that mandate the deferral of bonus payments and use of clawback clauses.

Work in progress:

(10) “Regulatory reform and risk-taking: replacing ratings,” September 2014, joint with Bo Becker, Presentation slides. (major update soon, new data!)

Abstract: We expose that a reform of capital regulation for insurance companies in 2009/2010 eliminated (to a first-order approximation) capital requirements for holdings of non-agency mortgage backed securities. Post reform, insurance companies allocate 54% of their purchases of new MBS issues toward non-investment grade assets (as opposed to 6% pre reform), a large increase in risk-taking.

References:

Douglas W. Diamond

Nicolae Gârleanu

Milton Harris

Raghuram G. Rajan

 

+1 (773) 702-7283

+1 (510) 642 3421

+1 (773) 702-2549

+91 (22) 2266 0868

 

Douglas.Diamond@ChicagoBooth.edu

Garleanu@Haas.Berkeley.edu

Milton.Harris@ChicagoBooth.edu

Raghuram.Rajan@ChicagoBooth.edu

 

 

 

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