Faculty & Research

Tarek Alexander Hassan

Associate Professor of Finance and Economics

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5807 South Woodlawn Avenue
Chicago, IL 60637

Tarek Hassan joined Chicago Booth as an Assistant Professor of Finance after earning his PhD from Harvard University in 2009. Building on his research at Harvard, Hassan studies international finance, economic history, and macroeconomics. His most recent work in international finance is titled “Country Size, Currency Unions, and International Asset Returns.” This paper earned him the honor of Winner of the Austrian Central Bank's 2009 Klaus Liebscher Award and the 2013 Leo Melamed Prize for Outstanding Research in Finance. The Kiel Institute’s 2013 Excellence Award in Global Economic affairs, an NSF research grant, and a scholarship from the German National Academic Foundation are amongst Hassan’s other varied honors, scholarships, and fellowships. Professor Hassan's work has appeared in the Quarterly Journal of Economics, the American Economic Review, and the Journal of Finance.

With research experience at Harvard University, UC Berkeley, and the University of Mannheim, the breadth of Hassan’s experience also includes visiting positions at Stanford University, the London School of Economics, and London Business School. Furthermore, he has teaching experience as a fellow in areas including Trade Policy, International Finance, and Macroeconomics amongst others.

Hassan is also a research fellow of the National Bureau of Economic Research and the Center for Economic Policy Research.

Outside of academia, Hassan is interested in German politics. This is an area which he became actively involved in during his high school and college studies.


2016 - 2017 Course Schedule

Number Name Quarter
35000 Investments 2017 (Spring)
35915 International Macroeconomics and Finance 2017 (Spring)

With Thomas Mertens, "The Social Cost of Near-Rational Investment," American Economic Review, forthcoming.

With Nicola Fuchs-Schündeln, "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, forthcoming.

With Thomas Mertens and Tony Zhang, "Not so Disconnected: Exchange Rates and the Capital Stock," Journal of International Economics, (2016) 99, pp. S43-S57.

With Thomas Mertens, "Information Aggregation in a DSGE Model," NBER Macroeconomics Annual 2014, Volume 29, 159-207 (2015).

“Country Size, Currency Unions, and International Asset Returns,” The Journal of Finance 68(6), 2269-2308 (2013).

With Konrad B. Burchardi, “The Economic Impact of Social Ties: Evidence from German Reunification,” The Quarterly Journal of Economics 128(3), 1219-1271 (2013).
With Daron Acemoglu and James A. Robinson, "Social Structure and Development: A Legacy of the Holocaust in Russia," The Quarterly Journal of Economics 126(2), 895-946 (2011).

With Thomas Mertens, "Market Sentiment: A Tragedy of the Commons," American Economic Review, Papers and Proceedings 101(2), 402-405 (2011).

REVISION: Migrants, Ancestors, and Foreign Investments
Date Posted: May  06, 2017
We use 130 years of data on historical migrations to the United States to show a causal effect of the ancestry composition of US counties on foreign direct investment (FDI) sent and received by local firms. To isolate the causal effect of ancestry on FDI, we build a simple reduced-form model of migrations: Migrations from a foreign country to a US county at a given time depend on (i) a push factor, causing emigration from that foreign country to the entire United States, and (ii) a pull factor, causing immigration from all origins into that US county. The interaction between time-series variation in origin-specific push factors and destination-specific pull factors generates quasi-random variation in the allocation of migrants across US counties. We find that a doubling of the number of residents with ancestry from a given foreign country relative to the mean increases by 4 percentage points the probability that at least one local firm engages in FDI with that country. We present ...

REVISION: Not So Disconnected: Exchange Rates and the Capital Stock
Date Posted: Feb  08, 2017
We investigate the link between stochastic properties of exchange rates and differences in capital-output ratios across industrialized countries. To this end, we endogenize capital accumulation within a standard model of exchange rate determination with nontraded goods. The model predicts that currencies of countries that are more systemic for the world economy (countries that face particularly volatile shocks or account for a large share of world GDP) appreciate when the price of traded goods in word markets is high. These currencies are better hedges against consumption risk faced by international investors because they appreciate in "bad' states of the world. As a consequence, more systemic countries face a lower cost of capital and accumulate more capital per worker. We estimate our model using data from seven industrialized countries with freely floating exchange rate regimes between 1984-2010 and show that cross-country variation in the stochastic properties of exchange rates ...

REVISION: Forward and Spot Exchange Rates in a Multi-Currency World
Date Posted: Feb  03, 2017
Separate literatures study violations of uncovered interest parity using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate regression-based and portfolio-based anomalies, to test whether they are empirically distinct, and to estimate the joint restrictions they place on models of currency returns. We find that the forward premium puzzle (FPP) and the "dollar trade" anomaly are intimately linked. Both anomalies are almost exclusively driven by the cross-time component. By contrast, the "carry trade" anomaly is driven largely by the cross-currency component. The simplest model that the data do not reject features a highly persistent asymmetry that makes some currencies pay higher expected returns than others, and a more elastic expected return on the US dollar than on other currencies. In addition, we never reject the ...

REVISION: Currency Manipulation
Date Posted: Dec  14, 2016
We propose a novel, risk-based transmission mechanism for the effects of currency manipulation: policies that systematically induce a country's currency to appreciate in bad times lower its risk premium in international markets and, as a result, lower the country's risk-free interest rate and increase domestic capital accumulation and wages. Currency manipulations by large countries also have external effects on foreign interest rates and capital accumulation. Applying this logic to policies that lower the variance of the bilateral exchange rate relative to some target country ("currency stabilization"), we find that a small economy stabilizing its exchange rate relative to a large economy increases domestic capital accumulation and wages. The size of this effect increases with the size of the target economy, offering a potential explanation why the vast majority of currency stabilizations in the data are to the U.S. dollar, the currency of the largest economy in the world. A large ...

REVISION: Aggregate and Idiosyncratic Political Risk: Measurement and Effects
Date Posted: Sep  29, 2016
We propose a new measure of political risk faced by individual US-firms based on textual analysis of earnings conference call transcripts: the share of the conversation between management and analysts that is devoted to political topics. Our measure correlates significantly with firm-level stock return volatility, even after controlling for firm and time fixed effects. We find that increases in idiosyncratic political risk are associated with decreases in investment and hiring, and that the dispersion of idiosyncratic political risk tends to increase significantly in times of high aggregate political risk. About two thirds of the variation in political risk is idiosyncratic in the sense that it is neither captured by firm or time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. Further decomposing our measure by political topic, we find that discussion of risk associated with corporate regulation and health care is associated with the ...

REVISION: The Social Cost of Near-Rational Investment
Date Posted: Jul  31, 2016
We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an increase in uncertainty and costly distortions in consumption, capital accumulation, and labor supply.

REVISION: The Power of the Street: Evidence from Egypt's Arab Spring
Date Posted: Jul  30, 2015
During Egypt's Arab Spring, unprecedented popular mobilization and protests brought down Hosni Mubarak's government and ushered in an era of competition between three groups: elites associated with Mubarak's National Democratic Party (NDP), the military, and the Islamist Muslim Brotherhood. Street protests continued to play an important role during this power struggle. We show that these protests are associated with differential stock market returns for firms connected to the three groups. Using daily variation in the number of protesters, we document that more intense protests in Tahrir Square are associated with lower stock market valuations for firms connected to the group currently in power relative to non-connected firms, but have no impact on the relative valuations of firms connected to other powerful groups. We further show that activity on social media may have played an important role in mobilizing protesters, but had no direct effect on relative valuations. According to ...

REVISION: Natural Experiments in Macroeconomics
Date Posted: May  22, 2015
A growing literature relies on natural experiments to establish causal effects in macroeconomics. In diverse applications, natural experiments have been used to verify underlying assumptions of conventional models, quantify specific model parameters, and identify mechanisms that have major effects on macroeconomic quantities but are absent from conventional models. We discuss and compare the use of natural experiments across these different applications and summarize what they have taught us about such diverse subjects as the validity of the permanent income hypothesis, the size of the fiscal multiplier, and about the effects of institutions, social structure, and culture on economic growth. We also outline challenges for future work in each of these fields, give guidance for identifying useful natural experiments, and discuss the strengths and weaknesses of the approach.

REVISION: Information Aggregation in a DSGE Model
Date Posted: May  29, 2014
We introduce the information microstructure of a canonical noisy rational expectations model (Hellwig, 1980) into the framework of a conventional real business cycle model. Each household receives a private signal about future productivity. In equilibrium, the stock price serves to aggregate and transmit this information. We find that dispersed information about future productivity affects the quantitative properties of our real business cycle model in three dimensions. First, households' ability to learn about the future affects their consumption-savings decision. The equity premium falls and the risk-free interest rate rises when the stock price perfectly reveals innovations to future productivity. Second, when noise trader demand shocks limit the stock market's capacity to aggregate information, households hold heterogeneous expectations in equilibrium. However, for a reasonable size of noise trader demand shocks the model cannot generate the kind of disagreement observed in the ...

REVISION: Country Size, Currency Unions, and International Asset Returns
Date Posted: Jan  11, 2013
Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: Bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that differences in the size of economies indeed explain a large fraction of the cross-sectional variation in currency returns. The data also support a number of additional implications of the model: The ...

REVISION: The Economic Impact of Social Ties: Evidence from German Reunification
Date Posted: Aug  18, 2012
We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns ...

New: The Economic Impact of Social Ties: Evidence from German Reunification
Date Posted: Nov  07, 2011
We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for non-economic reasons can be an important determinant of regional economic growth. We show that West German households who have social ties to East Germany in 1989 experience a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns ...

REVISION: Market Sentiment: A Tragedy of the Commons
Date Posted: Jul  28, 2011
We present a model with dispersed information in which investors decide whether or to what degree they want to allow their behavior to be influenced by "market sentiment". Investors who choose to insulate their decision from market sentiment earn higher expected returns, but incur a small mental cost. We show that if information is moderately dispersed across investors, even a very small mental cost (on the order of 0.001% of consumption) may generate a significant amount of sentiment in ...

REVISION: Social Structure and Development: A Legacy of the Holocaust in Russia
Date Posted: Jun  08, 2010
We document a statistical association between the severity of the persecution and mass murder of Jews (the Holocaust) by the Nazis during World War II and long-run economic and political outcomes within Russia. Cities that experienced the Holocaust most intensely have grown less, and both cities and administrative districts (oblasts) where the Holocaust had the largest impact have worse economic and political outcomes since the collapse of the Soviet Union. Although we cannot rule out the ...