Pricing and signaling with frictions

Are Global Labor Markets Truly “Flat”? Global Frictions, Labor Arbitrage, and Reputation Signals in Online Markets

Visionaries conjecture that the world is becoming a level (“flat”) playing field due to the Internet that connects professional workers with employers anywhere around the world. To examine this “flat world” conjecture for global online labor markets for software development services, we analytically model and empirically examine the key factors that affect the dual aspects pricing of profession...

Asset Pricing Frictions in Fragmented Markets

Do Investment Banks' Relationships with Investors Impact Pricing? The Case of Convertible Bond Issues

This paper examines the role of repeat interactions between placement agents (investment banks) and investors in the initial pricing of convertible bonds. Under the assumption that attracting repeat investors can reduce search frictions in primary issue markets, we test the hypothesis that banks’ relationships with investors actually allow more favorable pricing for issuing firms (in contrast t...

A Robust Approach to Hedging and Pricing in Imperfect Markets

This paper proposes a model-free approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging strategies with a wide family of risk measures and pricing rules, and study the conditions under which the hedging problem admits a solution and pric...

The CDS Bond Basis Spread in Emerging Markets: Liquidity and Counterparty Risk E¤ects (Draft)

This paper explores the parity between CDS premiums and bond spreads for emerging market sovereign entities. Previous studies found that this parity holds between bonds and CDSs for US corporate debt. We …nd that this parity does not hold for Emerging Markets sovereign debt. In order to explain the pricing deviations we focus on two frictions, liquidity and counterparty risk. First, we present ...

A Labor Capital Asset Pricing Model

We show that labor search frictions are an important determinant of the cross-section of equity returns. In the data, sorting firms by loadings on labor market tightness, the key statistic of search models, generates a spread in future returns of 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make optimal employment decisions under labor search fri...