Hui Chen

MIT Sloan School of Management
77 Massachusetts Avenue, E62-637
Cambridge, MA 02139
Tel: (617) 324 3896
Fax: (617) 258 6855


Research Interest

Asset Pricing, and its Connections with Corporate Finance; Financial Constraints; Credit Risk; Liquidity Risk; Risk Management

Working Papers

The Dark Side of Circuit Breakers, with Anton Petukov and Jiang Wang, June 2018.
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As part of overall market architecture, market-wide trading halts, also called circuit breakers, have been proposed and widely adopted as a measure to stabilize the stock market when experiencing large price movements. We develop an intertemporal equilibrium model to examine how circuit breakers impact the market when investors trade to share risk. We show that a downside circuit breaker tends to lower the stock price and increase its volatility, both conditional and realized. Due to this increase in volatility, the circuit breaker's own presence actually raises the likelihood of reaching the triggering price. In addition, the circuit breaker also increases the probability of hitting the triggering price as the stock price approaches it -- the so-called ``magnet effect.'' Surprisingly, the volatility amplification effect becomes stronger when the wealth share of the relatively pessimistic agent is small.

Measuring the "Dark Matter" in Asset Pricing Models, with Winston Dou and Leonid Kogan, updated April 2017
Full TextInternet Appendix


We propose a new quantitative measure of model fragility, based on the tendency of a model to over-fit the data in sample. Structural economic models are fragile when the cross-equation restrictions they impose on the baseline model appear excessively informative about model parameters that are otherwise difficult to estimate. Our measure is analytically tractable and helps identify main sources of model fragility. As an application, we diagnose fragility in asset pricing models with rare disasters and long-run consumption risk.

Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads, with Yu Xu and Jun Yang, updated November 2016.
Full TextInternet Appendix

Debt, Taxes, and Liquidity, with Patrick Bolton and Neng Wang, updated November 2014.
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Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty, with Michael Michaux and Nick Roussanov, updated August 2013
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Can Information Costs Explain the Equity Premium and Stock Market Participation Puzzles? November 2006.
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Demand for Crash Insurance, Intermediary Constraints, and Risk Premia in Financial Markets, with Scott Joslin and Sophie Ni
Review of Financial Studies, forthcoming.
Full TextInternet Appendix


We propose a new measure of financial intermediary constraints based on how the intermediaries manage their tail risk exposures. Using a dataset for the trading activities in the market of deep out-of-the-money S&P 500 put options, we identify periods when the variations in the net amount of trading between financial intermediaries and public investors are likely to be mainly driven by shocks to intermediary constraints. We then infer tightness of intermediary constraints from the quantities of option trading during such periods. We show that a tightening of intermediary constraint according to our measure is associated with increasing option expensiveness, higher risk premia for a wide range of financial assets, deterioration in funding liquidity, and deleveraging of broker-dealers.

Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle, with Rui Cui, Zhiguo He, and Konstantin Milbradt
Review of Financial Studies, 2018, 31(3): 852-897.
Full TextInternet Appendix

Macroeconomic Risk and Debt Overhang, with Gustavo Manso
Review of Corporate Finance Studies, 2017, 6(1): 1-38.
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Dynamic Asset Allocation with Ambiguous Return Predictability, with Nengjiu Ju and Jianjun Miao
Review of Economic Dynamics, 2014, 17(4): 799-823.
Full TextData and Code

Comment on "Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe" by Ang and Longstaff
Journal of Monetary Economics, 2013, 60(5): 511-516.
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Market Timing, Investment, and Risk Management, with Patrick Bolton and Neng Wang
Journal of Financial Economics, 2013, 109(1): 40-62.
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Rare Disasters and Risk Sharing with Heterogeneous Beliefs, with Scott Joslin and Ngoc-Khanh Tran
Review of Financial Studies, 2012, 25(7): 2189-2224.
Full TextInternet Appendix

Generalized Transform Analysis of Affine Processes and Applications in Finance, with Scott Joslin
Review of Financial Studies, 2012, 25(7): 2225-2256.
Full TextInternet Appendix

A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management, with Patrick Bolton and Neng Wang
Journal of Finance, 2011, 66(5): 1545-1578.
Full TextInternet Appendix

Entrepreneurial Finance and Nondiversifiable Risk, with Jianjun Miao and Neng Wang
Review of Financial Studies, 2010, 23(12): 4348-4388.
Full TextInternet Appendix

Affine Disagreement and Asset Pricing, with Scott Joslin and Ngoc-Khanh Tran
American Economic Review: Papers and Proceedings, 2010, 100(2): 522-26.
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Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure,
Journal of Finance, 2010, 65(6): 2171-2212.
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Internet Appendix


Spring 2017: Analytics of Finance, 15.450 (Syllabus, Website)