19th Meeting at Kellogg (Fall 2018)

Oct 05 - Oct 06, 2018

Northwestern University

Dear FTG Members, Senior Members and Fellows,

The 19th member meeting of the Finance Theory Group (FTG) will take place Saturday, October 6th, 2018 at the Kellogg Global Hub, and will be organized by Konstantin Milbradt (milbradt@northwestern.edu) and Mike Fishman (m-fishman@kellogg.northwestern.edu). The program will run from 9am to 4pm on Saturday.

There will be an additional voluntary workshop on Friday October 5th, 2018 that will feature 30min presentations of early-stage research ideas. We anticipate this to run from 3:30 to 6pm, followed by the traditional FTG dinners in small groups.

The submission deadline is 11:59pm Sunday August 19th, 2018.


Schedule for Friday (Early Papers)

                         Room 1                       Room 2

3:30 - 4:00          Ming Yang                   Bruce Carlin

4:00 - 4:30          Jing Zeng                    Hongda Zhong

4:30 - 5:00                                BREAK

5:00 - 5:30          Valentin Haddad         Giulio Trigilia

5:30 - 6:00          Stathi Avdis                Vladimir Vladimirov



Schedule for Saturday

8:30-9:00 Breakfast

9:00-10:00 Ben Lester "Market-making with Search and Information Frictions"

10:00-10:15 Break

10:15-11:15 Martin Sydlowski "Monitor Reputation and Transparency"

11:15-11:30 Break

11:30-12:30 Francesco Sangiorgi "Why is capital slow moving? Liquidity hysteresis and the dynamics of limited arbitrage"

12:30-2:00  Lunch & Members Meeting

2:00-3:00 Neng Wang "Rare Disasters, Financial Development, and Sovereign Debt"

3:00-3:15 Break

3:15-5:15 Will Cong "Persuasion in Relationship Finance"


  • Market-making with Search and Information Frictions : We develop a dynamic model of trading through market-makers that incorporates two canonical sources of illiquidity: trading (or search) frictions, which imply that market-makers have some amount of market power; and information frictions, which imply that market-makers face some degree of adverse selection. We use this model to study the effects of various technological innovations and regulatory initiatives that have reduced trading frictions in over-the-counter markets. Our main result is that reducing trading frictions can lead to less liquidity, as measured by bid-ask spreads. The key insight is that more frequent trading—or more competition among dealers—makes traders’ behavior less dependent on asset quality. As a result, dealers learn about asset quality more slowly and set wider bid-ask spreads to compensate for this increase in uncertainty
  • Monitor Reputation and Transparency : We study the disclosure policy of a regulator who oversees a monitor with reputation concerns. The monitor faces a strategic agent, who chooses how much to manipulate in response to the monitor’s reputation. Manipulation increases the arrival rate of a “bad news” signal, but the agent manipulates less for higher reputations. This leads to a unique “Shirk-Work-Shirk” equilibrium in which the monitor only exerts effort for intermediate reputations. Instead of providing transparency, the regulator’s disclosure keeps the monitor’s reputation intermediate. This requires releasing information which damages reputation. The regulator reveals delayed bad news for low reputations, delayed good news for intermediate reputations, but nothing for high reputations. Her policy hence becomes more lenient over time.
  • Rare Disasters, Financial Development, and Sovereign Debt : We study the implications of the interaction between rare disasters and financial development for sovereign debt markets. In our model, countries vary in their financial development, by which we mean the extent to which shocks can be hedged in inter- national capital markets. The model predicts that low levels of financial development generate key empirical features of sovereign debt in emerging economies: high credit spreads associated with lower debt-to-GDP ratios than those of developed countries.