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Working papers

CEO Social Status and Risk Taking (Job Market Paper)

I find that executive officers' social status concerns affect their risk taking. I use prestigious business awards assigned by editorials of major national publications (such as Business Week) to measure shocks to CEO status. My hypothesis is that awards represent a tournament-like payoff that is denominated in terms of social status. I find that firms with award-winning CEOs invest less in R&D and more in tangible assets relative to a matched sample of non-winning CEOs. In line with the theoretical predictions of a risk-taking tournament, I find that firms with winning CEOs monotonically decrease their idiosyncratic volatility ratios and their industry betas converge to 1. I interpret the results as evidence for the significance of social status concerns in managerial risk taking.

The Weekend Effect in Equity Option Returns (with Christopher Jones)

Revise-and-resubmit, Journal of Finance
We find that returns on options on individual equities display markedly lower returns over weekends (Friday close to Monday close) relative to any other day of the week. These patterns are observed both in unhedged and delta-hedged positions, indicating that the effect is not the result of a weekend effect in the underlying securities. We find even stronger weekend effects in implied volatilities, but only after an adjustment to quote implied volatilities in terms of trading days rather than calendar days. Our results hold for puts and calls over a wide range of maturities and strike prices, for both equally weighted portfolios and for portfolios weighted by the market value of open interest, and also for samples that include only the most liquid options in the market. We find no evidence of a weekly seasonal in bid-ask spreads, trading volume, or open interest that could drive the effect. We also find little evidence that weekend returns are driven by higher levels of risk over the weekend. The effect is particularly strong over expiration weekends, and it is also present to a lesser degree over mid-week holidays. Finally, the effect is stronger when the TED spread and market volatility are high, which we interpret as providing support for a limits to arbitrage explanation for the persistence of the effect.

Work in progress

Thou Shalt not Covet Thy (suburban) Neighbor's Car (with Fernando Zapatero)

This paper studies the effect of population density on the intensity of "keeping up with the Joneses" behavior. Using a unique dataset of car registrations from 2004 to 2006 in three counties of Southern California, we show that neighbor effects are stronger in areas with lower population density. The decision to buy a car is strongly influenced by previous car purchases of neighbors, and the effect is substantially stronger in areas with lower population density. Such areas represent small communities in which neighbors are likely to know each other, and can therefore manifest their income or wealth through the public display of their consumption. The evidence is consistent with two possible channels of influence: information and status concerns. We find evidence supporting both channels, as our results cannot be fully explained by information exchange, or word of mouth. We argue that the stronger effect that we find in areas with lower population density is driven by status signaling reasons.