Research Interests: financial intermediation, information economics
Links: Personal Website
Vincent Glode joined the Finance Department at the Wharton School in July 2009 after earning his PhD in finance from Carnegie Mellon University. His research is mainly theoretical and analyzes how financial intermediaries create and allocate surplus in the economy. His research has been published in leading academic journals such as the American Economic Review, the Journal of Economic Theory, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. He is an associate editor at the Journal of Finance and at Management Science, an elected board member of the Northern Finance Association and a past elected board member of the Finance Theory Group. At Wharton, Professor Glode teaches valuation courses in the undergraduate, MBA, and executive education programs and has won several teaching awards. He has served on Wharton’s Teaching Excellence Committee, the Dean’s Advisory Council, and the MBA program’s Executive Committee. He is a CFA charterholder.
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Abstract: Many financial transactions are of a fixed-sum nature, meaning that any improvement in the terms of trade for one party comes at the expense of another party. We model how the sales of trading advantages (e.g., data and collocation services) affect traders' endogenous participation in a market and vice-versa. We show how the magnitude of the externality that a trading advantage imposes on counterparties impacts financial market conditions. In equilibrium, the optimal sales of trading advantages by a monopolist (e.g., data provider or a securities exchange) may result in inefficiently low levels of market participation and trade.
Abstract: We jointly model investors' allocation of order flow among over-the-counter dealers and dealers' acquisition of expertise that increases their ability to take advantage of investors across transactions. Investors choose dealers based on their level of expertise and the liquidity they are expected to provide whereas dealers choose their level of expertise based on the number of transactions they expect to intermediate and the cost of acquiring expertise. Our model rationalizes why the most sought-after dealers often are those with the best data, technology, and skills, despite the significant adverse selection concerns triggered by their expertise.
Abstract: We model firms' allocation of resources between surplus-creating (a.k.a., productive) activities and surplus-appropriating (a.k.a., rent-seeking) activities. We show that economy- or industry-wide technological progresses, such as the recent improvements in processing big data, induce a disproportionate and socially inefficient allocation of resources towards rent seeking even if most of that technology applies to productive uses. As technology improves, firms lean more on rent seeking to obtain their profits, endogenously reducing the impact of technological progress on economic progress and inflating the price of resources that are used for rent seeking and production.
Vincent Glode and Christian Opp (Working), Private Renegotiations and Government Interventions in Debt Chains.
Abstract: We propose a model of strategic debt renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a debt chain, gives rise to externalities, as a lender's willingness to provide concessions to its privately-informed borrower depends on how the lender's own liabilities are expected to be renegotiated. Our analysis reveals how government interventions that aim to prevent default waves should account for these private renegotiation incentives and their interlinkages. Our results shed light on the effectiveness of subsidies and debt reduction programs following economic shocks such as pandemics or financial crises.
Vincent Glode, Christian Opp, Ruslan Sverchkov (2022), To Pool or Not to Pool? Security Design in OTC Markets, Journal of Financial Economics.
Abstract: We study security issuers' decisions on whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Our analysis reveals how buyers' market power may render the pooling of assets suboptimal --- both privately and socially --- in particular, when the potential gains from trade are large. Pooling assets then reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating the inefficient rationing associated with the exercise of buyers' market power. Our analysis provides insight on the determinants of asset-backed securities issuance, including regulatory reforms affecting financial institutions' liquidity.
Vincent Glode and Christian Opp (2020), Over-the-Counter vs. Limit-Order Markets: The Role of Traders’ Expertise, Review of Financial Studies.
Abstract: Over-the-counter (OTC) markets attract substantial trading volume despite exhibiting frictions absent in centralized limit-order markets. We compare the efficiency of OTC and limit-order markets when traders' expertise is endogenous. We show that asymmetric access to counterparties in OTC markets yields increased rents to expertise acquisition for a few well-connected core traders. When the existence of gains to trade is uncertain, traders' higher expertise in OTC markets can improve allocative efficiency. In contrast, when expertise primarily causes adverse selection, competitive limit-order markets tend to dominate. Our model provides guidance for policymakers and empiricists evaluating the efficiency of market structures.
Vincent Glode, Christian Opp, Xingtan Zhang (2019), On the Efficiency of Long Intermediation Chains, Journal of Financial Intermediation.
Abstract: Intermediation chains represent a common pattern of trade in over-the-counter markets. We study a classic problem impeding trade in these markets: an agent uses his market power to inefficiently screen a privately informed counterparty. We show that, generically, if efficient trade is implementable via any incentive-compatible mechanism, it is also implementable via a trading network that takes the form of a sufficiently long intermediation chain. We characterize information sets of intermediaries that ensure this striking result. Sparse trading networks featuring long intermediation chains might thus constitute an efficient market response to frictions, in which case no regulatory action is warranted.
Vincent Glode, Christian Opp, Xingtan Zhang (2018), Voluntary Disclosure in Bilateral Transactions, Journal of Economic Theory.
Abstract: We characterize optimal voluntary disclosures by a privately informed agent facing a counterparty endowed with market power in a bilateral transaction. Although disclosures reveal some of the agent's private information, they may increase his information rents by mitigating the counterparty's incentives to resort to inefficient screening. We show that when disclosures are restricted to be ex post verifiable, the informed agent optimally designs a disclosure plan that is partial and that implements socially efficient trade in equilibrium. Our results shed light on the conditions necessary for asymmetric information to impede trade and the determinants of disclosures' coarseness.
Vincent Glode and Richard Lowery (2016), Compensating Financial Experts, Journal of Finance.
Abstract: We propose a labor market model in which financial firms compete for a scarce supply of workers who can be employed as either bankers or traders. While hiring bankers helps create a surplus that can be split between a firm and its trading counterparties, hiring traders helps the firm appropriate a greater share of that surplus away from its counterparties. Firms bid defensively for workers bound to become traders, who then earn more than bankers. As counterparties employ more traders, the benefit of employing bankers decreases. The model sheds light on the historical evolution of compensation in finance.
Qi Chen, Joseph Gerakos, Vincent Glode, Daniel Taylor (2016), Thoughts on the Divide between Theoretical and Empirical Research in Accounting, Journal of Financial Reporting.
The focus of this course is on the valuation of companies. The course covers current conceptual and theoretical valuation frameworks and translates those frameworks into practical approaches for valuing companies. The relevant accounting topics and the appropriate finance theory are integrated to show how to implement the valuation frameworks discussed on a step-by-step basis. The course teaches how to develop the required information for valuing companies from financial statements and other information sources in a real-world setting. Topics covered in depth include discounted cash flow techniques and price multiples. In addition, the course covers other valuation techniques such as leveraged buyout analysis.
Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.
Many investors are scared away when more sophisticated institutional investors gain access to trading advantages such as high-speed data. Pricing those services correctly is critical to preserving liquidity, according to new Wharton research.…Read MoreKnowledge at Wharton - 11/22/2022