Ted Shieh - Finance
I develop an option-based valuation model for ABX.HE, a subprime mortgage ABS index. I calibrate the model using information available in January 2006. I find that the January 2006 to November 2008 sample period can be divided into two valuation regimes. From January 2006 to June 2007, all five indices of the 2006-1 series were overvalued, with most of the overvaluation occurring in the junior tranches. After June 2007, in no month were all five indices overvalued, though the senior tranches were dramatically overvalued in the later months. To validate the model, I examine the performance of both valuation and correlation trading strategies. Overvaluation of subprime mortgage ABS lasting through June 2007 may help to explain why subprime lenders continued to originate mortgages even after housing prices started to decline in 2006.
Mitsuru Igami - Global Economics and Management
Job Market Paper: "Estimating the Innovator's Dilemma: Technology Adoption and Industry Evolution in the Global HDD Market"
This paper studies the effects of incumbency on the timing of technology adoption and their implications for the evolution of an industry. I develop and estimate a dynamic oligopoly model of entry, exit, and technology adoption, using a panel data set of the world's hard disk drive (HDD) manufacturers between 1976 and 1998, which I construct from the annual publications of industry reports. To separately identify the sources of observed delay in incumbents' adoption, I estimate (1) the degree of substitution between old and new products, (2) marginal costs of production, and (3) the sunk costs of adoption for incumbents and entrants. I use the estimates to run computational experiments with (1) R&D subsidy to incumbents, (2) a broad-based patent policy, and (3) a ban on non-compete clause.
Publication: "Does Big Drive Out Small? - Entry, Exit, and Differentiation in the Supermarket Industry" (January 2011, Review of Industrial Organization, 38:1, 1-21).
This paper measures the impact of the entry of large supermarkets on incumbents of various sizes. Contrary to the conventional notion that big stores drive small rivals out of the market, data from Tokyo in the 1990s show that large supermarkets' entry induces the exit of existing large and medium-size competitors, but improves the survival rate of small supermarkets. These findings highlight the role of store size as an important dimension of product differentiation. Size-based entry regulations would appear to protect big incumbents, at the expense of small incumbents and potential entrants.
Working Papers: "Oligopoly's Unintended Consequences: Trade, Aid, and Geopolitics in the International Coffee Market"
This paper studies the impact of international market structure on commodity prices. I use a standard oligopoly model and exploit historical variations in the structure of the international coffee bean market to separately identify the effects of a cartel treaty and a fringe competitor (Vietnam) on market power and the price of coffee. The results suggest that the benefits of foreign aid to Vietnam are offset by the surplus lost by the other 54 exporters. My findings illustrate the importance of considering global market structure when designing trade and aid policies.
"Hightech-Flyers: Contractual Type, Organizational Form, and the Timing to Offshore in the Global HDD Industry"
This paper studies firms' decision to start offshore production. I construct a comprehensive panel dataset of 178 firms producing hard disk drives (HDDs) in the world between 1976 and 1998, which records contractual types ("make" or "buy"), destination countries, and the timing of offshoring as well as firms' organizational forms. I find that (1) offshorers, particularly earlier ones, survive better in the long run, (2) firms tend to "make" in the "South" whereas contract manufacturing occurs in the "North," and (3) specialized startups are more inclined to offshore than conglomerates or vertically integrated firms. These heterogeneities are previously unnoticed but likely to shape the course of industry evolution in a broader set of manufacturing sectors.