Marcus M. Opp, Ph.D.

Assistant Professor

Finance Group
UC Berkeley
Haas School of Business

mopp(ät)haas.berkeley.edu

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Executive summary

My research spans dynamic contracting, international finance, and financial intermediation. 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. My favorite papers are “Impatience versus incentives,” “Markup cycles, dynamic misallocation, and amplification," 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.).

 

Research overview:

Research statement

"Should we care about breadth in academic research?'' See article by my advisor Raghu Rajan

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 and Farzad Saidi, Journal of Financial Economics, 119, 92-106. 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.
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.
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.

Working papers:

(8) “ Only time will tell: a theory of deferred compensation,” August 2016, joint with Florian Hoffmann and Roman Inderst, Presentation Slides (Introduction + conclusion to be updated).

Abstract: Abstract: We characterize optimal contract design in settings where the principal observes informative signals about the agent's initial action over time. Under bilateral risk-neutrality and limited liability of the agent, all relevant features of a signal process can be encoded in a single "informativeness" function. This function is increasing in time and fully captures the notion of "only time will tell." We then show how the principal uses the timing dimension of the compensation contract to extract rents from the agent via the use of more informative signals. Optimal contracts trade off the rent-extraction benefit of deferral with the associated costs resulting from the agent's relative impatience. Our framework lends itself to evaluate the effects of recent regulatory proposals in the financial sector mandating the deferral of bonus payments and the use of claw-back clauses.

 

(9) “Paper on bank capital regulation, risk-taking, and borrower heterogeneity (Title TBD),” September 2015, joint with Milton Harris and Christian Opp, Presentation Slides.

See Video for intuition of graphical illustration of main results.

 

Abstract: Our paper argues that recognizing firm heterogeneity is key to understanding the system-wide implications of bank capital requirements on credit supply and bank risk-taking. We propose a framework that can flexibly account for a cross-section of borrowers that differ along investment opportunities, regulatory risk signals, and their dependence on bank finance. Banks can serve a socially beneficial role by financing borrowers that are credit rationed by public capital markets, but their access to public guarantees creates socially undesirable risk-shifting incentives. In line with recent empirical evidence from Europe, our model predicts that banks endogenously specialize in financing different segments of the borrower distribution to optimally exploit such guarantees. Increases in system-wide capital requirements may lower banks' incentives to engage in excessive risk taking but may also reduce credit extended to bank-dependent firms that are relatively safe. The associated net effects on financial stability and allocative efficiency depend on the cross-sectional distribution of firms, in particular, firms' ability to access public markets and regulators' ability to discern bank dependence.

 

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

Andrei Shleifer

 

+1 (773) 702-7283

+1 (510) 642 3421

+1 (773) 702-2549

+91 (22) 2266 0868

+1 (617) 495 5046

Douglas.Diamond@ChicagoBooth.edu

Garleanu@Haas.Berkeley.edu

Milton.Harris@ChicagoBooth.edu

Raghuram.Rajan@ChicagoBooth.edu

AShleifer@Harvard.edu

 

 

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