Using a model of index-linked rebalancing around reconstitution events, we show front-runners provide liquidity to index investors and benefit them. Index investors trade off execution costs against tracking-error concerns, while speculators maximize trading profit. In competitive markets, even loose index...

This paper presents a dynamic model of firm financing where firms use financial slack to reduce rent extraction by financiers with bargaining power. Financing is lumpy because it is optimal to bargain infrequently. Moreover, firms may finance ‘early’ before exhausting...

Government guarantees generate a multiplier effect: one dollar of tax-funded guarantees expands lending by more than one dollar. This multiplier is stronger under information-insensitive debt, as guarantees suppress costly private information production, relaxing borrowing constraints for all firms rather than...

Automated Market Makers (AMMs) are both liquidity sources and investment vehicles for market participants. This paper analyzes the risks and returns of liquidity provision (LP) investments in AMMs. In a continuous-time model, we show that LP returns decompose into a...

I introduce and test for preference for simplicity in choice under risk. I characterize the theory axiomatically, and derive its properties and unique predictions relative to canonical models. By designing and running theoretically-motivated experiments, I document that people value simplicity...

In a continuous-time model, a risk-neutral decision-maker chooses the volatility of a state variable and is terminated when the variable falls below a threshold. I provide economically interpretable conditions under which the decision-maker becomes risk averse endogenously and minimizes volatility...