Faculty & Research

Stavros Panageas

Associate Professor of Finance

Phone :
773 834-4711
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Stavros Panageas studies asset pricing and macroeconomics. Previously he has taught at the Wharton School of the University of Pennsylvania. He is a Faculty Research Fellow of the National Bureau of Economic Research and he has been a visiting scholar at the Federal Reserve Bank of Minneapolis and the London School of Economics.

He has worked as a fixed income quantitative analyst for Fidelity Investments and was a co-founder and board member of AIAS NET, one of the first Greek Internet service providers. Panageas's published works include "Saving and Investing for Early Retirement: A Theoretical Analysis" with E. Farhi in Journal of Financial Economics, “High water marks, high risk appetites? Convex compensation, long horizons, and portfolio choice” with M. Westerfield in Journal of Finance, and "Optimal Inattention to the Stock Market" with A. B. Abel and J. C. Eberly in American Economic Review. He has made presentations at Harvard, MIT, Princeton, Stanford, Yale, Columbia, NYU, Kellogg, Berkeley, UCLA, and several other universities in the United States and abroad. He also has presented his scholarly work at academic conferences, including the American Economic Association Meetings, the National Bureau of Economic Research Summer Institute, the Western Finance Association, the Society for Economic Dynamics and the Utah Winter Finance Conference.

He is the recipient of a Rodney White Research Grant, two Geewax, Terker Prizes in Investment Research from the Rodney L. White Center for Financial Research, and a Paul Alther Prize for the best undergraduate thesis at the University of St. Gallen. Panageas is a referee for several journals, including American Economic Review, Econometrica, the Journal of Finance, the Journal of Political Economy, the Review of Economic Studies, and the Review of Financial Studies.

Panageas earned a Lizentiat in economics from the University of St. Gallen in 1997 and a PhD in economics from the Massachusetts Institute of Technology in 2005. He joined the Chicago Booth faculty in 2008.

In his free time, Panageas enjoys skiing and swimming.

 

2013 - 2014 Course Schedule

Number Name Quarter
35000 Investments 2014 (Winter)
35600 Seminar: Finance 2014 (Spring)
35907 Topics in Asset Pricing 2014 (Winter)

Other Interests

Skiing, swimming, travel.

 

Research Activities

Technological innovations, the macroeconomy and asset prices; overlapping generations and asset pricing; retirement system design; portfolio choice by individual investors and professional managers; investment theory in speculative markets; bailouts; hedging of macroeconomic risks.

With E. Farhi, "Saving and Investing for Early Retirement: A Theoretical Analysis," Journal of Financial Economics (2007).

With A.B. Abel and J. C. Eberly, "Optimal Inattention to the Stock Market," American Economic Review P&P (2007).

With M. Westerfield, "High-Water marks, High Risk Appetites? Convex Compensation, Long Horizons, and Portfolio choice," Journal of Finance (2009).

“Bailouts, the incentive to manage risk, and financial crises” Journal of Financial Economics (2010).

“Optimal Taxation in the presence of Bailouts” Journal of Monetary Economics (2010).

For a listing of research publications please visit ’s university library listing page.

New: Financial Entanglement: A Theory of Incomplete Integration, Leverage, Crashes, and Contagion
Date Posted: Aug  20, 2013
We propose a unified model of limited market integration, asset-price determination, leveraging, and contagion. Investors and firms are located on a circle, and access to markets involves participation costs that increase with distance. Despite the ex-ante symmetry of investors, their strategies may (endogenously) exhibit diversity, with some investors in each location following high-leverage, high-participation, and high-cost strategies and some unleveraged, low-participation, and low-cost stra

REVISION: Technological Growth and Asset Pricing
Date Posted: May  17, 2012
In this paper we study the implications of general-purpose technological growth for asset prices. The model features two types of shocks: "small", frequent, and disembodied shocks to productivity and "large" technological innovations, which are embodied into new vintages of the capital stock. While the former affect the economy on impact, the latter affect the economy with lags, since firms need to first adopt the new technologies through investment. The process of adoption leads to cycles in as

New: Displacement Risk and Asset Returns
Date Posted: Jul  30, 2011
We study asset-pricing implications of innovation in a general-equilibrium overlapping- generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement risk.” This risk helps explain several empirical patterns, including the existence of the growth-value

REVISION: The Demographics of Innovation and Asset Returns
Date Posted: Mar  29, 2011
We study asset-pricing implications of innovation in a general-equilibrium overlapping-generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call "displacement risk.' This risk helps explain several empirical patterns, including the existence of the growth-value

REVISION: The Demographics of Innovation and Asset Returns
Date Posted: Mar  29, 2011
We study asset-pricing implications of innovation in a general-equilibrium overlapping generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement risk.” This risk helps explain several empirical patterns, including the existence of the growth-value

REVISION: Pension Design in the Presence of Systemic Risk
Date Posted: Dec  30, 2010
I consider the possibility that individual agents’ savings and portfolio choices can have negative externalities on public finances, whenever retirement consumption drops below a minimum level. Within this framework, I discuss optimal pension design. I show the optimality of two policies. The first policy mandates that agents use part of their accumulated assets to purchase a claim providing a fixed income stream for the duration of their life. The second policy mandates the purchase of an appro

New: Technological Growth and Asset Pricing
Date Posted: Sep  15, 2009
In this paper we study the implications of general-purpose technological growth for asset prices. The model features two types of shocks: "small", frequent, and disembodied shocks to productivity and "large" technological innovations, which are embodied into new vintages of the capital stock. While the former affect the economy on impact, the latter affect the economy with lags, since firms need to first adopt the new technologies through investment. The process of adoption leads to cycles in as

New: Bailouts, the Incentive to Manage Risk, and Financial Crises
Date Posted: Jul  01, 2009
A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the implicit protection. However, if they increase volatility too much they may induce the guarantee-extending parties to walk away. I derive the optimal risk management rule in such a framework and show that it all

New: Optimal Inattention to the Stock Market with Information Costs and Transactions Costs
Date Posted: Jun  15, 2009
Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an investment portfolio of equity and riskless bonds. Transfers of funds are subject to a transactions cost that reduces wealth and consists of two components: one is proportional to the amount of assets transfe

New: High-Water Marks: High Risk Appetites? Convex Compensation, Long Horizons, and Portfolio Choice
Date Posted: Dec  18, 2008
We study the optimal portfolio choice of hedge fund managers who are compensated by high-water mark contracts. Surprisingly, we find that even risk-neutral managers will not place unboundedly large weights on the risky assets, despite the option-type features of the contract. Instead they will place a constant fraction of assets in a mean-variance efficient portfolio and the rest in the riskless asset, similar to investors with constant relative risk aversion. This result is a direct consequence

REVISION: Bailouts, the Incentive to Manage Risk, and Financial Crises
Date Posted: Oct  02, 2008
A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the implicit protection. However, if they increase volatility too much they may induce the guarantee-extending parties to "walk away". I derive the optimal risk management rule in such a framework and show that it a

New: A Global Equilibrium Model of Sudden Stops and External Liquidity Management
Date Posted: Mar  20, 2008
Emerging market economies, which have much of their growth ahead of them, either run or should run persistent current account deficits in order to smooth consumption intertemporally. The counterpart of these deficits is their dependence on capital inflows, which can suddenly stop. We make two contributions in this paper: First, we develop a quantitative global-equilibrium model of sudden stops. Second, we use this structure to discuss practical mechanisms to insure emerging markets against sudde

High-Water Marks: High Risk Appetites? Convex Compensation, Long Horizons, and Portfolio Choice
Date Posted: Sep  04, 2007
We study the optimal portfolio choice of hedge fund managers who are compensated by high-water mark contracts. Surprisingly, we find that even risk-neutral managers will not place unboundedly large weights on the risky assets, despite the option-type features of the contract. Instead they will place a constant fraction of assets in a mean-variance efficient portfolio and the rest in the riskless asset, similar to investors with constant relative risk aversion. This result is a direct consequence

Hedging Sudden Stops and Precautionary Contractions
Date Posted: Jan  15, 2007
Even well managed emerging market economies are exposed to significant external risk, the bulk of which is financial. At a moment's notice, these economies may be required to reverse the capital inflows that have supported the preceding boom. While capital flows crises are sudden nonlinear events (sudden stops), their likelihood fluctuates over time. The question we address in the paper is how should a country react to these fluctuations. Depending on the hedging possibilities the country faces,

REVISION: High Water Marks: High Risk Appetites? Hedge Fund Compensation and Portfolio Choice
Date Posted: Oct  27, 2006
We study the optimal portfolio choice of hedge fund managers who are compensated by high-water mark contracts — contracts that pay only when the value of the fund exceeds its previously recorded maximum. Surprisingly, we find that even risk-neutral managers will not place unboundedly large weights on the risky assets, despite the option-type features of the contract. We show that the resulting optimal portfolio will place a constant fraction in a mean-variance efficient portfolio and the rest in

Hedging Sudden Stops & Precautionary Contractions
Date Posted: Nov  19, 2005
Even well managed emerging market economies are exposed to significant external risk, the bulk of which is financial. At a moment's notice, these economies may be required to reverse the capital inflows that have supported the preceding boom. While capital flows crises are sudden nonlinear events (sudden stops), their likelihood fluctuates over time. The question we address in the paper is: how should a country react to these fluctuations. Depending on the hedging possibilities the country face

A Quantitative Model of Sudden Stops and External Liquidity Management
Date Posted: Jun  06, 2005
Emerging market economies, which have much of their growth ahead of them, run persistent current account deficits in order to smooth consumption intertemporally. The counterpart of these deficits is their dependence on capital inflows, which can suddenly stop. In this paper we develop and estimate a quantifiable model of sudden stops and use it to study practical mechanisms to insure emerging markets against them. We first assess the standard practice of protecting the current account through th

The Neoclassical Theory of Investment in Speculative Markets
Date Posted: May  09, 2005
In this paper I investigate whether firms' physical investments should react to the speculative overpricing of their securities. I introduce investment subject to quadratic adjustment costs (along the lines of Abel and Eberly [1994]) in an infinite horizon continuous time model with short sale constraints and heterogeneous beliefs (along the lines of Scheinkman and Xiong [2003]). Under standard assumptions, I show that the neoclassical q theory of investment will continue to hold despite the pre

The Real Effects of Stock Market Mispricing at the Aggregate: Theory and Empirical Evidence
Date Posted: May  09, 2005
In this paper we investigate whether stock market overpricing leads to aggregate (real) inefficiencies. We first investigate a standard dynamic contracting model of investment subject to financing constraints. We show that stock market mispricing will have two robust effects on welfare: on the one hand it will distort investment decisions and lead to inefficiencies. On the other hand it will alleviate underinvestment problems and allow some efficient projects to be undertaken. We then turn to th

A Quantitative Model of Sudden Stops and External Liquidity Management
Date Posted: Apr  12, 2005
Emerging market economies, which have much of their growth ahead of them, run persistent current account deficits in order to smooth consumption intertemporally. The counterpart of these deficits is their dependence on capital inflows, which can suddenly stop. In this paper we develop and estimate a quantifiable model of sudden stops and use it to study practical mechanisms to insure emerging markets against them. We first assess the standard practice of protecting the current account through th

Saving and Investing for Early Retirement: A Theoretical Analysis
Date Posted: Mar  06, 2005
We study optimal consumption and portfolio choice in a framework where investors save for early retirement and assume that agents can adjust their labor supply only through an irreversible choice of their retirement time. We obtain closed form solutions and analyze the joint behavior of retirement time, portfolio choice, and consumption. Investing for early retirement tends to increase savings and stock market exposure, and reduce the marginal propensity to consume out of accumulated personal we

Contingent Reserves Management: An Applied Framework
Date Posted: Nov  07, 2004
One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden stop mechanism. We illustrate this point with a

Contingent Reserves Management: An Applied Framework
Date Posted: Oct  04, 2004
One of the most serious problems that a central bank in an emerging market economy can face, is the sudden reversal of capital inflows. Hoarding international reserves can be used to smooth the impact of such reversals, but these reserves are seldom sufficient and always expensive to hold. In this paper we argue that adding richer hedging instruments to the portfolios held by central banks can significantly improve the efficiency of the anti-sudden stop mechanism. We illustrate this point with