Working Papers

1. Estimating Investor Demand Elasticity with Endogenous Firm Responses

   Semifinalist for 2025 FMA Best Paper Award

   Oct 2025

   Abs SSRN PDF

   Standard estimates of investor demand elasticity are biased when firms time equity issuance in response to demand shocks, conflating demand-driven price pressure with fundamental improvements. Using mutual fund flow shocks and a dynamic structural model estimated via indirect inference, I show that approximately 29% of the initial price response reflects endogenous fundamental improvement. Correcting for this bias yields a demand elasticity of 1.7, compared to 1.2 from standard price-based IV. The correction, combined with diminishing marginal price effects from strategic firm-investor interactions, implies moderate capital misallocation: a 43% reduction in fund flow shock volatility raises aggregate TFP by only 0.02%.

2. Monetary Policy, Diagnostic Expectations and Customer Capital

   with Yuchen Chen

   Apr 2025

   Abs SSRN

   We examine how managers’ diagnostic expectations about firm profitability and customer acquisition affect the allocative efficiency of monetary policy. Empirically, overpessimistic firms with higher earnings forecast errors show greater sensitivity in intangible investment, particularly in advertising-intensive industries. We develop a heterogeneousfirm New Keynesian model where managers extrapolate idiosyncratic productivity news and balance future versus current profit in customer acquisition. The model predicts a hump-shaped aggregate productivity response as capital reallocates toward high-markup, high-productivity firms over time. Moreover, assuming rational expectations underestimates the increase in aggregate output by 33%, highlighting the role of belief-driven distortions in monetary transmission.

3. Granular Markups and Inflation Surge: The Role of Managerial Incentives

   with Yuchen Chen, Juliana Salomao, and Varun Sharma

   May 2025

   Abs SSRN

   We develop a novel methodology to estimate firm-specific markup premiums using highly granular product-level data that controls for common shocks, isolating the premium as a residual. We validate this measure by comparing it to existing accountingbased estimates and by showing that it exhibits expected correlations with firm size and market share. Unlike traditional approaches, our method can be applied to both public and private firms, enabling an analysis of how financial structure and managerial incentives influence pricing decisions. We find that financial structure matters: public firms systematically increase markups following an IPO. Moreover, during the 2021-2022 inflation surge, publicly listed firms expanded their margins by capitalizing on inflationary pressures-especially among firms with high retail ownership, large early-pandemic stock declines, and strong equity-based pay incentives.

4. The Q Theory of Local Governments

   with Erik Loualiche

   May 2025