Robert J. Richmond


I am an Assistant Professor of Finance at NYU Stern.

My research interests are in international finance, asset pricing, and macroeconomics.

More information is available in my CV.

NYU Stern School of Business
44 West Fourth Street, 9-81
New York, NY 10012
E-mail: rrichmon@stern.nyu.edu

Working Papers

A Portfolio Approach to Global Imbalances

Revise and Resubmit
Coauthors: Zhengyang Jiang and Tony Zhang

  • Western Finance Association NASDAQ Award for Best Paper in Asset Pricing (2022).
  • Vienna Symposium on Foreign Exchange Markets best paper award (2020).

We use a portfolio-based framework to understand what drives the decline of the U.S. net foreign asset (NFA) position and the reversal in returns earned on the US NFA (exorbitant privilege). We show that global savings gluts and monetary policies widened the U.S. NFA position, while investor demand shifts partially offset this widening. Moreover, U.S. privilege declined after 2010, in accordance with increasing foreign demand for U.S. equity. We also highlight a quantity dimension of the U.S. privilege: the U.S. can issue substantially more debt than other countries for a given yield increase.
Which Investors Matter for Equity Valuations and Expected Returns?

Revise and Resubmit
Coauthors: Ralph Koijen and Motohiro Yogo

We develop and estimate a characteristics-based demand system for financial assets to quantify the impact of changes in demand of various investors on asset prices and investors’ wealth. We apply the model to understand the impact of the market trend from active to passive investing on asset prices and price informativeness. We find that there is a nontrivial impact on valuations, yet a small impact on price informa- tiveness. To understand the mechanism, we develop a new investor-level measure of price informativeness and show that there is no systematic relation between changes in institutional flows from active to passive managers and and how informed investors are about future fundamentals. We also explore the impact of a shift in demand for green firms, either for a subset of investors as a result of climate-related regulations or for a broad group of institutional investors due to overall increased awareness. This shift in demand benefits long-term investors such as pension funds and insurance companies, banks, and passive investment advisors at the expense of hedge funds and small-active investment advisors.
Understanding the Strength of the Dollar

Coauthors: Zhengyang Jiang and Tony Zhang

We link the sustained appreciation of the U.S. dollar from 2011 to 2019 to international capital flows driven by primitive economic factors. We show that increases in foreign investors’ net savings, increases in U.S. monetary policy rates relative to the rest of the world, and shifts in investor demand for U.S. financial assets contributed approximately equally to the dollar’s appreciation. We then quantify the impact of potential future large-scale U.S. asset sales by investors in various regions on the value of the U.S. dollar.
Divided We Fall: International Health and Trade Coordination During a Pandemic

Coauthors: Viral Acharya, Zhengyang Jiang, and Ernst-Ludwig von Thadden

We analyze the role of international trade and health coordination during a pandemic by developing a two-economy, two-good trade model integrated into a micro-founded SIR model of infection dynamics. Governments can adopt containment policies to suppress infection spread domestically, and levy import tariffs to prevent infection coming from abroad. The efficient, i.e., coordinated, risk-sharing arrangement dynamically adjusts both policy instruments to share infection and economic risks internationally. However, in the Nash equilibrium of uncoordinated governments with national mandates, trade policies robustly feature inefficiently high tariffs that peak with the pandemic in the foreign economy. This distorts terms-of-trade dynamics and magnifies the welfare costs during a pandemic, featuring lower levels of consumption and production, as well as smaller gains via diversification of infection curves across economies.
Hansen-Jagannathan Bounds with Convenience Yields

Coauthors: Zhengyang Jiang

Short-term Treasury debt has high Sharpe ratios which, according to the Hansen-Jagannathan bound, implies a very volatile bond market SDF. In this paper, we show that a small convenience yield on the risk-free asset can rationalize this pattern without requiring a volatile SDF. We then show how the Hansen-Jagannathan bound needs to be generalized as a two-dimensional trade-off between SDF volatility and the convenience yield. We quantify this trade-off in the Treasury market, and show the introduction of convenience yields greatly improves the fit of affine term structure models.

Publications

Trade Network Centrality and Currency Risk Premia

The Journal of Finance, 74(3), 2019.

  • Outstanding PhD Paper Award in Honor of Stuart I. Greenbaum, Olin Business School at Washington University St. Louis (2015).
  • Annual Conference on International Finance Best Paper Award (2016).
  • Cubist Systematic Strategies Award (2016).
  • Data is available here.

I uncover an economic source of exposure to global risk that drives international asset prices. Countries which are more central in the global trade network have lower interest rates and currency risk premia. As a result, an investment strategy that is long in currencies of peripheral countries and short in currencies of central countries explains unconditional carry trade returns. To explain these findings, I present a general equilibrium model where central countries’ consumption growth is more exposed to global consumption growth shocks. This causes the currencies of central countries to appreciate in bad times, resulting in lower interest rates and currency risk premia. In the data, central countries’ consumption growth is more correlated with world consumption growth than peripheral countries’, further validating the proposed mechanism.
Gravity in the Exchange Rate Factor Structure

The Review of Financial Studies, 33(8), 2020.
Coauthors: Hanno Lustig

We relate the risk characteristics of currencies to measures of physical, cultural, and institutional distance. The currencies of countries which are more distant from other countries are more exposed to systematic currency risk. This is due to a gravity effect in the factor structure of bilateral exchange rates: When a currency appreciates against a basket of all other currencies, its bilateral exchange rate appreciates more against the currencies of distant countries. As a result, currencies of peripheral countries are more exposed to the systematic variation than currencies of central countries. Trade network centrality is the best predictor of a currency's average exposure to systematic risk.
International Trade and Social Connectedness

Journal of International Economics, 129(103418), March 2021.
Coauthors: Michael Bailey, Abhinav Gupta, Sebastian Hillenbrand, Theresa Kuchler, and Johannes Stroebel

  • Replication Package is available here.
  • SCI Data is available here.

We use de-identified data from Facebook to construct a new and publicly available measure of the pairwise social connectedness between 170 countries and 332 European regions. We find that two countries trade more when they are more socially connected, especially for goods where information frictions may be large. The social connections that predict trade in specific products are those between the regions where the product is produced in the exporting country and the regions where it is used in the importing country. Once we control for social connectedness, the estimated effects of geographic distance and country borders on trade decline substantially.
Origins of International Factor Structures

Journal of Financial Economics, Accepted.
Coauthors: Zhengyang Jiang

We show that exchange rate correlations tend to be explained by the global trade network while consumption correlations tend to be explained by productivity correlations. Sharing common trade linkages with other countries increases exchange rate correlations beyond bilateral linkages. We explain these findings using a model of the global trade network with market segmentation. Interdependent global production generates international comovements, while market segmentation disconnects the drivers of exchange rate correlations from the drivers of consumption correlations. Moreover, we show that the trade network generates common factors found in exchange rates. Our findings offer a trade-based account of the origins of international comovements and shed light on important frictions in international markets.