John C.F. Kuong 鄺梓楓
Assistant Professor of Finance, INSEAD
Finance Theory Group
Research Interests
Financial Intermediation and Banking
Corporate Finance
Information Economics
Working Papers

(New!) Funding constraints and Informational Efficiency (with Sergei Glebkin and Naveen Gondhi)
We develop a tractable rational expectations model that allow for general portfolio constraints. We apply our methodology to study a model where constraints arise due to endogenous margin requirements. We argue that margin requirements affect and are affected by informational efficiency, leading to a novel amplification mechanism. A drop in investors' wealth tightens constraints and reduces their incentive to acquire information, which lowers price informativeness. Moreover, financiers who use information in prices to assess the risk of financing a trade face more uncertainty and set tighter margins, which further tightens constraints. This information spiral implies that risk premium, conditional volatility and Sharpe ratios rise disproportionately as investors' wealth drops. Our model uncovers a new, information-based rationale why the wealth of investors is important.

Self-fulfilling Fire Sales: Fragility of Collateralised Short-term Debt Markets
Revise and resubmit , Review of Financial Studies
Winner of Deutsche Bank Prize in Financial Risk Management and Regulation 2014
Winner of Best Paper Awards in CSEF 2nd conference on "Bank Performance, Financial Stability and the Real Economy" at Capri, 2015

This paper shows that collateralised short-term debt, although privately optimal for reducing borrowers' moral hazard, can cause fragility (multiple equilibria) when the collateral market is illiquid. A new form of coordination failure between borrowers' ex ante margin and risk-taking decisions engenders a systemic run in the collateralised debt market: large changes in credit rationing, margins, repo spreads, etc. The model also captures the large (small) cross-sectional differences between safe and risky collateral in bad (good) times. Finally, I show that asset price guarantees could improve welfare and promote stability but repealing repo contracts' ``automatic stay'' exemption might do the opposite.

Securitisation and Optimal Foreclosure (with Jing Zeng)
Does securitisation distort the foreclosure decision of non-performing mortgages? In a model in which an informed securitiser jointly designs the mortgage-backed security and the foreclosure policy, we find that the securitiser with high-quality pool optimally adopts an excessive foreclosure policy and sells a risky debt (the senior tranche) to uninformed investors. Foreclosure effectively mitigates the adverse selection friction in securitisation by making the risky debt less information sensitive. Our model predicts that foreclosure likelihood, loan loss, mortgage servicers' capacity and incentive to modify delinquent loans endogenously vary with the quality of the underlying mortgage pool. Policies that aim to restore ex post efficient foreclosures may inadvertently reduce mortgage originators' screening effort.

Work in Progress
Dealers' leverage and asset liquidity (with Max Bruche )