Research
WORKING PAPERS
“The Term Structure of Interest Rates in an Equilibrium Economy with Short Term and Long Term Investments”.
U.C. Berkeley Working Paper, 2007. Job market paper.
This paper develops an equilibrium model in which agents’ heterogeneous investment horizons determine the
dynamics of the term structure of interest rates. The model endogenizes agents’ decisions on consumption and
investment with short and long term horizons. There are two production technologies that generate a time-varying
market price of risk, one that is short term and fully reversible and one that is a long term time-to-build technology.
The model is calibrated with U.S. data from 1970 to 2006 using Simulated Method of Moments. The calibration captures
the failure of the expectations hypothesis and the stylized fact that the term structure is upward sloping on
average. The estimated levels of excess returns on short and long term investment are comparable to historical excess
returns using a reasonably low risk aversion parameter. Download
“Why Should I Sell a Fraction of my House? The Welfare Benefits of Equity Sharing Programs” with Sebastien
Betermier. U.C. Berkeley Working Paper, 2007.
In this paper we study whether equity sharing programs, such as shared equity mortgages, can increase social welfare.First, we examine the consumption and portfolio decisions of a household who can be a partial owner of a house via
an equity sharing program. We consider two types of households: (i) a household who always maintains his house
properly, and a household who fails to maintain the house if he only owns a small fraction of it. Then, we derive the
conditions under which a risk-neutral investor would be willing to enter the equity sharing program depending on the
type of household. So far, our model shows that when there are no transaction costs and the household always
maintains the house properly, renters and homeowners are 2% to 6% worse off than partial owners. Partial ownership
is preferred to renting, because households have access to an extra investment asset, the house, which allows them to
hedge against rent risk. Owning is also suboptimal, because it obliges the household to consume too much of the nonhousing
good relative to the housing good, not save enough, and hold a portfolio that is undiversified and overexposed
to market risk. Download abstract
“Asset Pricing in Equilibrium Economies with Illiquidity and Investment Constraints”. U.C. Berkeley Working Paper, 2007.
This paper argues that the degree of illiquidity and the constraints in investments (e.g.
irreversibility and capacity) play an important role in determining the dynamics of consumption,
investment and asset returns. We develop a general equilibrium model where economic agents
choose their holdings of liquid and illiquid assets and their consumption under specific investment
constraints. We show that the level and variation in consumption, risk premia of investments and
prices strongly depend on the ratio of cumulative liquid capital versus illiquid capital invested,
the degree of illiquidity and the existence of constraints in the invesments. The model provides
a compelling framework for explaining empirical facts in the asset pricing literature and, in
particular, in the housing and labor markets.
OTHER WORKING PAPERS AND CONFERENCE PAPERS
“Depreciation and the Pricing of Durable Goods”. U.C. Berkeley Working Paper, 2007.
“A Real Option Model for Optimal Investments on Transportation”. Presented at the 2007 Transportation
Research Board 86th Annual Meeting. Washington DC, January 21-27, 2007. Download
“Traffic-Backed Securities: A New Approach to Project Finance”. Presented at the 11th World Conference
on Transport Research (WCTR). Session E4-1, Financial Instruments. Berkeley, CA, June 24-28, 2007. Download
“Optimal investment in local networks of airports”. Presented at the 11th World Conference on Transport Research (WCTR). Session E6-3, Development. Berkeley, CA, June 24-28, 2007. Download
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