UCLA

In the first chapter of this dissertation, I study the asset pricing implications of heterogeneity in the financial intermediary sector. To examine the impact of massive balance sheet adjustments within the intermediary sector during the Great Recession, I propose a dynamic model with heterogeneous intermediaries and financial frictions. The model implies that a significant fraction of risk premia variation can be attributed to the composition of the intermediary sector. Asset reallocations, comparable in magnitude to the one observed during the recent financial crisis, lead to a substantial increase in the risk premia and volatility. An empirical measure of the composition of the financial sector strongly forecasts future excess returns with significant additional predictive power beyond many established forecasting variables in the literature. Moreover, shocks to wealth distribution among intermediaries have strong explanatory power for the cross-section of assets and are priced with a positive price of risk.

In the second chapter of this dissertation (with William Mann), we estimate small marginal costs and large markups at private colleges in the United States. For identification, we exploit a tightening of credit standards in the PLUS loan program, which decreased enrollment, revenues, and expenditures at private colleges with low-income students. We estimate that markups represented more than half of charges for students disqualified by the change.

Markups were higher at for-profit schools, and in states with fewer public schools and lower education spending. Our results contrast prior estimates of small markups in higher education. We conclude that the positive relationship between federal student aid and rising tuition costs, the so-called Bennett Hypothesis, arises due to imperfect competition between colleges.