Marcus M. Opp Ph.D.

Associate professor

Finance Group
Stockholm School of Economics

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Executive summary

My research spans dynamic contracting, financial intermediation, and international finance. My most recent work on financial intermediation analyzes the interplay between financial regulation and risk-taking incentives in the financial sector. The corresponding papers are published in top general interest journals (Econometrica) and leading field journals such as the Journal of Economic Theory, the Journal of Financial Economics and the Journal of International Economics. The paper “Target revaluation after failed takeover attempts - Cash versus stock” won the 2016 Jensen prize for the best paper published in the Journal of Financial Economics in the areas of corporate finance and organizations (first place). My favorite papers are “Impatience versus incentives,” “Only time tell: A theory of deferred compensation,” and “Rating agencies in the face of regulation.” I have been a board member of the Finance Theory Group from 2016 to 2018. I won the 2017 Poets and Quants “Top 40 under 40” award for professors of world-wide business schools, the 2018 Marianne and Marcus Wallenberg foundation grant (~USD 450k) and the 2018 Riksbankens Jubileumsfonds (~USD 250k).

Research overview:

Research statement and Google Scholar Profile

1) Financial regulation, financial intermediaries (banks, rating agencies): (4), (8), (10), (11).

2) Contract and relationship dynamics: (3), (5), (6), (9).

3) International/ macro: trade theory, DSGE models: (1), (2), (5).





(7) “Target Revaluation after Failed Takeover Attempts - Cash versus Stock,” 2016, joint with Ulrike Malmendier & Farzad Saidi, Journal of Financial Economics, 119, 92-106. Winner of 2016 Jensen Prize for the best Corporate Finance paper published in the Journal of Financial Economics. Online Appendix

Main insight: Capital markets interpret a cash offer as a economically large and positive signal about the fundamental value of target resources (in contrast to a stock offer). We expose a significant look-ahead bias affecting the previous literature on this topic.


(6) “Impatience versus incentives,” 2015, joint with John Zhu, Econometrica, 83, 1601-1617. Presentation Slides from Econometric Society Meeting, Boston 2015.

Main insight: We study the dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.


(5) “Markup cycles, dynamic misallocation, and amplification,” 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory, 154, 126-161.
Main insight: We analyze the IO implications of consumption-based asset pricing. In contrast to a risk-neutral economy, oligopolistic competition produces procyclical aggregate markups if valuations are governed by preferences with a relative risk aversion coefficient greater than 1. With heterogeneous industries, aggregate fluctuations may originate purely from myopic strategic behavior at the industry-level.


(4) “Rating agencies in the face of regulation,” 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61. Winner of the 2016 Emerald Citation Award.
Abridged version of paper for Fame magazine.
Main insight: The regulatory use of ratings feeds back into the ratings of profit-maximizing credit rating agencies. Rating inflation is expected to occur for complex securities.


(3) “Expropriation risk and technology,” 2012, Journal of Financial Economics, 103, 113-129. Winner of the 2008 John Leusner Award for the best dissertation at the University of Chicago in the field of Finance.
Main insight: Property rights (within a country) vary across industrial sectors according to their technology intensity, leading to a pecking order of expropriation. Firms can manage expropriation risk by forming conglomerates.


(2) “Tariff wars in a Ricardian model with a continuum of goods,” 2010, Journal of International Economics, 80, 212-225.
Main insight: Optimum import tariff rates in the Dornbusch-Fischer-Samuelson model of trade are increasing in both absolute advantage and comparative advantage. A sufficiently large economy prefers the Nash equilibrium of tariffs over free trade.

(1) “Rybczynski's theorem in the Heckscher-Ohlin world - anything goes,” 2009, joint with Hugo Sonnenschein & Christis Tombazos, Journal of International Economics, 79, 137-142.
Main insight: The predictions of the Rybczynski Theorem can be reversed in general equilibrium. This "reverse" outcome implies immiserizing factor growth.

Completed working papers:

(8) “The aggregate demand for bank capital,” March 2019, joint with Milton Harris and Christian Opp.

Abstract: We propose a novel conceptual approach to characterizing the credit market equilibrium in economies with multi-dimensional borrower heterogeneity. Our method is centered around a micro-founded representation of borrowers' aggregate demand correspondence for bank capital. The framework yields closed-form expressions for the composition and pricing of credit, including a sufficient statistic for the provision of bank loans. Our analysis sheds light on the roots of compositional shifts in credit toward risky borrowers prior to the most recent crises in the U.S. and Europe, as well as the macroprudential effects of bank regulations, policy interventions, and financial innovations providing alternatives to banks.

(9) “Only time will tell: a theory of deferred compensation,” February 2019, joint with Florian Hoffmann and Roman Inderst.

Abstract: This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining. We derive a rich set of testable implications for the optimal duration of (executive) compensation and the maturity structure of claims in financial contracting settings.


(10) “The Economics of Deferral and Clawback Regulation: A Pigouvian Tax Approach,” February 2019, joint with Florian Hoffmann and Roman Inderst.

Abstract: This paper analyzes the effects of mandatory deferral and clawback requirements for managerial compensation contracts in the financial sector. Moderate deferral requirements for bonus payouts induce bank shareholders to incentivize more risk management effort from the manager (and, hence, lower bank failure rates), whereas stringent deferral requirements will lead to higher risk of bank failure. Additional clawback requirements may prevent such backfiring if and only if competition for managerial talent is sufficiently high. We provide conditions for when the optimal mix of capital and compensation regulation can achieve second-best welfare. Our analysis exploits the general idea that any (regulatory) restriction on compensation design can be understood as an indirect Pigouvian tax levied on the principal for incentivizing a given action.


Work in progress:


(11) “Replacing ratings,” December 2017, joint with Bo Becker and Farzad Saidi, Presentation slides. (major update soon, new data!)

Abstract: We expose that a reform of capital regulation for insurance companies in 2009/2010 eliminated (to a first-order approximation) capital requirements for holdings of non-agency mortgage backed securities. Post reform, insurance companies allocate 54% of their purchases of new MBS issues toward non-investment grade assets (as opposed to 6% pre reform), a large increase in risk-taking.


(12) “An insurance model."


Douglas W. Diamond

Nicolae Gârleanu

Milton Harris

Raghuram G. Rajan


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