Ricardo De la O
Job Market Candidate

Stanford University
Department of Economics
579 Jane Stanford Way
Stanford, CA 94305

Curriculum Vitae

Macroeconomics, Finance

Expected Graduation Date:
June, 2020

Dissertation Committee:

Monika Piazzesi (Co-primary):

Martin Schneider (Co-primary):

Hanno Lustig:


The Effect of Buybacks on Capital Allocation Job Market Paper

This paper studies how share buybacks affect the capital allocation of individual firms, aggregate investment, and welfare. A key feature of buybacks is that they represent a more flexible form of payout to shareholders than dividends. I incorporate this flexibility into a quantitative general equilibrium model of heterogeneous firms with agency frictions. In the model, managers have distorted incentives because they make investment decisions with an empire-building motive. In this environment, share buybacks allow shareholders to control the available funds to managers. Moreover, buybacks make the stock price of the firm more sensitive to its profits, which improves managers' incentives through stock-based compensation. When the model is matched to micro data on public firms, it helps explain several observed corporate trends since the deregulation of buybacks in 1982: the decline in investment rates, the increase in corporate financial assets and the increase in capital profitability.

Subjective Cash Flow and Discount Rate Expectations[2nd round R&R at Journal of Finance] (with Sean Myers)

Why do stock prices vary? Using survey forecasts, we find that cash flow growth expectations explain most movements in the S&P 500 price-dividend and price-earnings ratios, accounting for at least 93% and 63% of their variation. These expectations comove strongly with price ratios, even when price ratios do not predict future cash flow growth. In comparison, return expectations have low volatility and small comovement with price ratios. Short-term, rather than long-term, expectations account for most price ratio variation. We propose an asset pricing model with beliefs about earnings growth reversal that accurately replicates these cash flow growth expectations and dynamics.

Employment Dynamics and Monetary Policy for Emerging Economies under Informality (with Stephen McKnight)

This paper investigates the role of labor informality in the propagation of transitory shocks and its implications for interest rate policy in preventing self-fulfilling inflation expectations. We develop a dynamic New Keynesian model where the size of the informal sector reacts to search and matching frictions in the formal sector, which can account for the observed behavior of formal and informal employment in Mexico. We show that informality reduces the volatility of aggregate consumption and employment, but investment volatility increases. While informality amplifies the propagation of demand shocks on inflation, it dampens the response of output, weakening the transmission mechanism of monetary policy to output. For interest-rate feedback rules that react to formal measures of inflation, we find that informality significantly restricts the ability of the Taylor principle to ensure determinacy. However, we show that determinacy can be restored when policy also responds to formal output.