Ye Li, 2012-17 Columbia PhD, joined OSU in 2017

with Patrick Bolton, Neng Wang, and Jinqiang Yang, June 2020

Abstract: Deposits are inside money issued by banks, serving as means of payment for the rest of the economy. Depositors value the payment function and assign a money premium to deposits, which reduces banks' cost of financing. Therefore, deposits create value for banks. However, driven by payment flows, deposits are essentially debts with random maturities that cannot be fully controlled. Banks adjust deposit flows by changing the deposit rate, but given depositors' right to withdraw, banks cannot set too negative a rate. Once the rate hits this lower bound, banks lose control of leverage. Under equity issuance costs, deposits destroy value for banks that are significantly undercapitalized and eager to deleverage. Outside money issued by the government can liberate undercapitalized banks by absorbing the money demand.

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R&R at the American Economic Review

Abstract: Intangible capital creates endogenous financial risk by inducing self-perpetuating savings gluts. Firms save for investments in intangibles that are unpledgeable but essential for the creation of new assets. Intermediaries profit from channeling firms’ savings into asset price bubbles. The bubbly value in turn stimulates firms’ asset creation and savings for intangibles. Fragility builds up as banks’ debt accumulates and funding cost declines. The model offers a coherent account of intangible investment, corporate savings, intermediary leverage, interest rate, and collateral asset price in the decades leading up to the Great Recession. It generates booms with rising downside risks and stagnant recessions.

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Selected presentations: CEPR ESSFM Gerzensee, Cornell Johnson, CUHK,European Finance Association (EFA), European Winter Finance Summit (Best Paper Award), HKUST Annual Macro Workshop, SUFE, Temple Fox, U Calgary (Haskayne), Western Finance Association (WFA)

R&R at the Journal of Finance, under revision, new draft coming soon
Selected presentations of earlier version: Becker Friedman Institute (U Chicago), CEPR Credit Cycle, Chicago Booth, Finance Theory Group, ECB, Georgetown McDonough, Imperial College, Johns Hopkins Carey, LSE, Northwestern Kellogg, NY Fed, OSU Fisher, Oxford Financial Intermediation Theory, USC Marshall, Wharton; award: Macro Financial Modeling Group Dissertation Fellowship, Columbia Business School job market candidate award

with Lin Will Cong, Neng Wang, Accepted at the Review of Financial Studies

Abstract: We develop a dynamic asset-pricing model of cryptocurrencies/tokens that facilitate peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by users' transactional demand rather than cashflows as in standard valuation models. Endogenous platform adoption exhibits an S-curve -- it starts slow, becomes volatile, and eventually tapers off. Users' adoption generates positive network externality, which leads to endogenous token-price risk and boom-bust price dynamics. Tokens allow users to capitalize on platform growth, inducing an intertemporal feedback between user adoption and token price that accelerates platform adoption, reduces user-base volatility, and improves welfare.

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Selected presentations: CKGSB, RCFS/RAPS Conference at Baha Mar, Stanford SITE, UT Dallas Fall Finance Conference, U Zurich/ETH;  by coauthors:  Ant Financial (Alibaba Group), ASSA/AFE 2019, Atlanta Fed, CEPR ESSFM Gerzensee, Chicago Booth, Finance UC Chile, Georgetown McDonough, Finance Theory Group, SEC, Tsinghua, U Washington Foster; awards: AAM-CAMRI-CFA Institute Prize in Asset Management, CME Best Paper Award (Emerging Trends in Entrepreneurial Finance)

 with Edward Denbee, Christian Julliard, Kathy Yuan, R&R at the Journal of Financial Economics
Abstract:   We estimate the liquidity multiplier and individual banks’ contribution to systemic risk in an interbank network using a structural model. Banks borrow liquidity from neighbors and update their valuation based on neighbors' actions. When the former (latter) motive dominates, the equilibrium exhibits strategic substitution (complementarity) of liquidity holdings, and a reduced (increased) liquidity multiplier dampening (amplifying) shocks. Empirically, we find substantial and procyclical network-generated risks driven mostly by changes of equilibrium type rather than network topology. We identify the banks that generate most systemic risk and solve the planner's problem, providing guidance to macro-prudential policies.

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Youtube video: network evolution in our sample

Selected presentations:  Short-Term Funding Markets, Bank of Canada/Payments Canada, Macro Finance Society (Boston College), NBER Summer Institute, OSU Fisher; by coauthors: Bank of England, Fed/OFR Financial Stability Conference, LSE, SSE, WFA; grant: Foundation Banque de France Research Grant

with Lin Will Cong, Neng Wang, updated
We develop a dynamic model of platform economy where tokens derive value by facilitating transactions among users and the platform conducts optimal token-supply policy to finance investment in platform quality and to compensate platform owners. Even though token price is endogenously determined in a liquid market, the platform's financial constraint generates an endogenous token issuance cost that causes under-investment and conflicts of interest between insiders (owners) and outsiders (users). The franchise value (seigniorage) incentivizes the owners to buy back and burn tokens out of circulation, reducing token price volatility. Blockchain technology is crucial for token-based platforms because it enables platform owners to commit to predetermined rules of token supply that can significantly improve efficiency by addressing platform owners' time inconsistency and mitigating under-investment.
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Selected presentations: AFA 2020, CEPR/ABFER/CUHK Financial Economics Symposium, CEPR ESSFM Gerzensee, Cleveland Fed/OFR Conf., Erasmus Liquidity Conference, Chicago Financial Institutions Conference, Macro Finance Society (at USC), Rome Junior Finance Conference

with Chen Wang
Abstract: The ratio of long- to short-term dividend prices, "price ratio" (pr), predicts one-year stock market return with an out-of-sample R2 of 19%. It subsumes the predictive power of price-to-dividend ratio (pd). The residual from regressing pd on pr predicts one-year dividend with an out-of-sample R2 of 30%. Our results hold outside the U.S. In an exponential-affine model, we show the key to understand these findings is the (lack of) persistence of expected dividend growth. We also characterize the risk of time-varying expected return: (1) the expected return is countercyclical; (2) the response of expected return (rather than expected dividend growth) accounts for the impact of monetary policy on stock price; (3) shocks to pr are priced in the cross-section, which serves as an ICAPM test of pr as an adequate proxy for the expected return.

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Selected presentations: HKUST Finance Symposium, Paris December Meeting (Best Paper Award); by coauthors: RCFS/RAPS Conference at Baha Mar, UT Dallas Fall Finance Conference, Econometric Society (North America), Northern Finance Association (NFA), Orebro Workshop on Predicting Asset Returns

with Chen Wang
Abstract: Delegation bears an intrinsic form of uncertainty. Investors hire managers for their superior models of asset markets, but delegation outcome is uncertain precisely because managers' model is unknown to investors. We model investors' delegation decision as a trade-off between asset return uncertainty and delegation uncertainty. Our theory explains several puzzles on fund performances. It also delivers asset pricing implications supported by our empirical analysis: (1) because investors partially delegate and hedge against delegation uncertainty, CAPM alpha arises; (2) the cross-section dispersion of alpha increases in uncertainty; (3) managers bet on alpha, engaging in factor timing, but factors' alpha is immune to the rise of their arbitrage capital - when investors delegate more, delegation hedging becomes stronger. Finally, we offer a novel approach to extract model uncertainty from asset returns, delegation, and survey expectations.

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Selected presentations:  ASU Sonoran Winter Conference, CEPR ESSFM Gerzensee, CUHK, European Winter Finance Summit, INSEAD, Stanford SITE, U Zurich

with Yi Huang, Hongzhe Shan, under revision, new draft coming soon

Selected presentations: AFA 2019, Finance, Organizations, and Markets (FOM) 2018, Bank of Canada, FDIC Annual Bank Research Conference 2018, OSU Fisher; media: Dartmouth College Tuck Forum on PE & VC