FERNANDO M. DUARTE
duarte@mit.edu
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
OFFICE CONTACT INFORMATION
MIT Department of Economics
50 Memorial Drive, E52-391
Cambridge, MA 02142-1347
857-928-7344
duarte@mit.edu
http://econ-www.mit.edu/grad/duarte
HOME CONTACT INFORMATION
55 Sacramento St.
Apt. 4
Cambridge, MA 02138
Mobile: 857-928-7344
MIT PLACEMENT OFFICER
Professor Nancy L. Rose
nrose@mit.edu
617-253-8956
MIT PLACEMENT ADMINISTRATOR
Mr. Peter Hoagland
pvhoag@mit.edu
617-253-8787
DOCTORAL
STUDIES
Massachusetts Institute of Technology (MIT)
PhD, Economics, Expected completion June 2011
DISSERTATION: “Essays on Macroeconomic Risks and the Stock Market”
DISSERTATION COMMITTEE AND REFERENCES
Professor Ricardo Caballero
MIT Department of Economics
50 Memorial Drive, E52-373A
Cambridge, MA 02142-1347
617-253-8887
caball@mit.edu
Professor Leonid Kogan
MIT Sloan School of Management
100 Main Street, E62-636
Cambridge, MA 02142-1347
617-253-2289
lkogan@mit.edu
Professor Adrien Verdelhan
MIT Sloan School of Management
50 Memorial Drive, E62-621
Cambridge, MA 02142-1347
617-253-5123
adrienv@mit.edu
PRIOR
EDUCATION
Massachusetts Institute of Technology (MIT)
B.S. in Mathematics, Minor in Economics
CITIZENSHIP
Argentina
LANGUAGES
English, Spanish
RESEARCH &
TEACHING
FIELDS
Primary Fields: Finance, Macroeconomics
Secondary Fields: International Finance
GENDER
Male
2005
YEAR OF BIRTH
1981
FERNANDO M. DUARTE
OCTOBER 2010 -- PAGE 2
TEACHING
EXPERIENCE
International Economics (undergraduate, MIT course 14.54)
Lecturer, Spring 2008.
Advanced Financial Economics (graduate, MIT course 15.440J)
Teaching assistant to Prof. Leonid Kogan, Spring 2009 & 2010, Fall 2010.
Financial Management (MBA, MIT course 15.414)
Teaching assistant to Prof. Hamid Mehran, Summer 2006.
Principles of Macroeconomics (undergraduate, MIT course 14.02)
Head teaching assistant to Prof. Paul Willen in Fall 2008, to Prof. Francesco
Giavazzi in Spring 2009, to Prof. Veronica Guerrieri in Fall 2009.
Principles of Macroeconomics (undergraduate, MIT course 14.02)
Teaching assistant to Prof. Francesco Giavazzi, Spring 2008.
Differential Equations with Theory (undergraduate, MIT course 18.034)
Teaching assistant to Prof. Mihalis Dafermos, Spring 2003.
RELEVANT
POSITIONS
Research assistant to Prof. Ricardo Caballero
Research assistant to Prof. Xavier Gabaix
Intern, Ministry of Economics, Mendoza, Argentina
2004-2010
2003-2004, 2009
2002
FELLOWSHIPS,
HONORS, AND
AWARDS
MIT Hennessy Scholar
MIT Graduate Fellowship
Second Prize, MIT Undergraduate Journal of Economics
3rd place, MERCOSUR Mathematical Olympiad
Top 1% in Argentinean Mathematical Olympiad
RESEARCH
PAPERS
“Inflation Risk and the Cross-Section of Stock Returns” (Job Market
Paper)
2004-2007
2006-2007
2005
1998
1995,1997
I establish that inflation risk is priced in the cross-section of stock returns:
stocks that have low returns during inflationary times command a risk
premium. I estimate a market price of inflation risk that is comparable in
magnitude to the price of risk for the aggregate market. Inflation is therefore a
key determinant of risk in the cross-section of stocks. The inflation premium
cannot be explained either by the Fama-French factors or by industry effects.
Instead, I argue the premium arises because high inflation lowers expectations
of future real consumption growth. To formalize and test this hypothesis, I
develop a consumption-based general equilibrium model. The model generates
a price of inflation risk consistent with my empirical estimates, while
simultaneously matching the joint dynamics of consumption and inflation, the
aggregate equity premium, and the level and slope of the yield curve. My
model suggests that the costs of inflation are significant: a representative agent
would be willing to give up 1.5% of lifetime consumption to eliminate all
inflation risk.
FERNANDO M. DUARTE
OCTOBER 2010 -- PAGE 3
“Investment and Stock Market Volatility” (with Leonid Kogan and
Dimitry Livdan)
We study the relation between returns on the aggregate stock market and
aggregate real investment. While it is well known that, controlling for
productivity, the aggregate investment rate is negatively related to subsequent
excess stock market returns, we find that it is positively related to future stock
market volatility. Thus, conditionally on past aggregate investment, the meanvariance tradeoff in aggregate stock returns is negative. We interpret this
puzzling pattern within a general equilibrium production economy. In our
model, investment is determined endogenously in response to two types of
shocks: shocks to productivity, and shocks to aggregate risk aversion that
affect the cost of capital. Investment is positively related to productivity and
negatively related to the cost of capital. Controlling for productivity, highinvestment periods tend to correspond to low cost of capital, giving rise to a
negative relation between aggregate investment and expected excess stock
market returns. When cost of capital is low, and thus close to the growth rates
of cash flows, stock prices are relatively sensitive to changes in discount rates
and stock returns become relatively volatile, giving rise to a positive relation
between investment and future stock market volatility. Consequently, our
results indicate that the time-varying price of aggregate risk is an important
determinant of aggregate investment dynamics.
RESEARCH IN
PROGRESS
“A Shifting Forward-Premium Puzzle” (with Ricardo Caballero)
One of the most stubborn findings in international finance is the so called
forward-premium puzzle: contrary to the implication of the uncovered interest
parity condition, high yielding currencies tend to appreciate rather than
depreciate. Consequently, investing in high yielding currencies while
borrowing in low yielding currencies has been a source of significant excess
returns in the past. However, it is also well known that this trading strategy has
a large exposure to tail-risk, much of which is the endogenous outcome of
speculators' coordinated unwinding of large levered carry trade positions.
Thus, the frontline has now shifted, as professional carry traders spend their
research time designing strategies that anticipate turning points. While
specifics differ, most of the strategies are indexed to VIX-like variables:
Carries are aggressive when aggregate implied volatility is low, and covered
when high, making the carry trade the ultimate risk-on risk-off strategy. In this
paper, we provide an equilibrium model to study the endogenously determined
joint dynamics of the exchange rate, the carry trade and aggregate volatility.
The exchange rate is a non-linear function of volatility, reacting violently in
the critical region where traders unwind their positions en-masse. We show
that as a result of the evolution of the carry-trade strategy, the excess return has
shifted from the naive-carry trade to a more sophisticated form involving
conditioning to volatility.
FERNANDO M. DUARTE
OCTOBER 2010 -- PAGE 4
“Investors trading horizon and the cross-section of expected stock
returns” (with Sahar Parsa)
Using monthly frequency data, we study the impact of institutional investors’
intrinsic trading horizon –a commonly used proxy for the investors’ shorttermism– on the cross-section of stock returns. Our results show that stocks
held by investors with a lower trading frequency (long-term securities) earn a
return of 3% per year over stocks held by investors with a higher intrinsic
trading frequency (short-term securities). We document that the short-term
securities exhibit significant momentum in returns. The momentum factor of
Jegadeesh and Titman (1996) combined with the three Fama-French factors
fail to explain the observed spread.