Marcus M. Opp, Ph.D.

Assistant Professor

Finance Group
UC Berkeley
Haas School of Business

mopp(št)haas.berkeley.edu

Home   |   Curriculum Vitae   |   Research   |   Teaching   |   Finance Theory Group

 


Executive summary

I have been an assistant professor at the University of California, Berkeley since graduation from the Finance Ph.D. program at the University of Chicago in 2008. 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 achieved Haas teaching excellence (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 and Teaching statement

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

2) Contract and relationship dynamics: (3), (5), (6), (10).

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.

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) “Deferred compensation and risk-taking,” February 2016, joint with Florian Hoffmann and Roman Inderst.

Abstract: Our paper develops a simple principal-agent framework to analyze the equilibrium relationship between risk-taking and the timing of pay. In our setup, the agent's one-time action has persistent effects through affecting the arrival time distribution of a disaster event. While the principal receives informative signals about the agent action over time, it is costly to rely on this information for incentive pay since the agent is relatively impatient. We derive sufficient conditions for the validity of the first-order approach and show that optimal compensation contracts resolve the tension between impatience and information with at most two payout dates.
Interestingly, in equilibrium short-term payouts may be consistent with low risk-taking. Our framework lends itself to analyze recent regulatory interventions mandating minimum deferral requirements and clawbacks in the financial sector. It shows how regulatory interference in the timing dimension causes the principal (bank) to adjust other dimensions of the compensation contract, which may then lead to higher risk-taking. Mandatory deferral requirements are more likely to be effective in reducing risk-taking and improving welfare when the agent's outside option is high.

 

(9) “The aggregate impact of bank capital regulation: Does firm heterogeneity matter?,” September 2015, joint with Milton Harris and Christian Opp, Presentation Slides. (major update soon)

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

 

 

WEB DESIGN by Natalia Kovrijnykh: Last modified February 5, 2016