Boris Vallée's Academic Page
Torstein Hagen Associate Professor of Finance
Harvard Business School
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Tel: (617) 496-4604
Email: bvallee@hbs.edu
Boris Vallée is the Torstein Hagen Associate Professor in the Finance Unit of Harvard Business School.
Professor Vallée’s research traces the motives behind and the effects of financial innovation in recent decades, focusing on innovative products, processes, and objectives. He pursues this line of inquiry through empirical studies of corporate finance, household finance, public finance, and financial institutions, developing novel data sets and measures. He is also actively contributing to the Labor and Finance literature. His work has been cited by The Economist, the Financial Times, Forbes, The Wall Street Journal and the Boston Globe. He teaches Real Property in the MBA elective curriculum, and previously taught the Finance II (Corporate Finance) course in the MBA required curriculum. He is an Associate Editor at the Journal of Corporate Finance, a member of the scientific comittee of the Autorites des Marches Financiers (AMF), and a fellow of the Luohan Academy.
He holds a Ph.D. in finance and a M.Sc. in management, both from HEC Paris, and is a CFA Charterholder. Before beginning his doctoral studies, Professor Vallée was an investment banker at Deutsche Bank in London.
Publications
( 1 )
with Claire Célérier, Quarterly Journal of Economics 132, no. 3 (August 2017): 1469–1508
Winner of 2014 AQR Top Finance Graduate Award
Winner of the Ieke van den Burg Prize for Research on Systemic Risk (ESRB)
Selected for the 2014 WFA Annual Meetings, and the 2014 EFA Annual Meetings
This paper investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclusively at households: retail-structured products in Europe. We hypothesize that banks strategically use product complexity to cater to yield-seeking households by making product returns more salient and shrouding risk. We find four empirical results consistent with this view. First, we show that structured products with complex payoff formulas offer higher headline rates, and that they more frequently expose investors to a complete loss of their investment. We then document that banks are more inclined to issue high-headline-rate and more complex products in low-rate environments. Finally, we find that high-headline-rate and more complex products are more profitable for banks, and that their ex post performance is lower.
( 2 )
with Christophe Pérignon, Review of Financial Studies 30, no. 6 (June 2017): 1903–1934
Selected for the 2015 NBER Corporate Finance, the 2012 WFA Annual Meetings, the 2017 AFA Annual Meetings, and the 2013 EFA Annual Meeting
We examine the toxic loans sold by investment banks to local governments. Using proprietary data, we show that politicians strategically use these products to increase chances of being re-elected. Consistent with greater incentives to hide the cost of debt, toxic loans are utilized significantly more frequently within highly indebted local governments. Incumbent politicians from politically contested areas are also more likely to turn to toxic loans. Using a difference-in-differences methodology, we show that politicians time the election cycle by implementing more transactions immediately before an election rather than after. Politicians also exhibit herding behavior. Our findings demonstrate how financial innovation can foster strategic behaviors.
( 3 )
with Claire Célérier, Review of Financial Studies 32, no. 10 (October 2019): 4005–4040
Selected for the 2015 NBER Corporate Finance Meeting, the 2015 FRA Conference, the 2016 Texas Finance Festival, the 2015 AEA and the 2014 EFA Annual Meetings
To study the role of talent in finance workers' pay, we exploit a special feature of the French higher education system. Wage returns to talent have been significantly higher and have risen faster in finance since the 1980s than in other sectors. Both wage returns to project size and the elasticity of project size to talent are also higher in this industry. Last, the share of performance pay varies more for talent in finance. These findings are supportive of finance wages reflecting the competitive assignment of talent in an industry that exhibits a high complementarity between talent and scale.
( 4 )
with Yao Zeng, Review of Financial Studies 32, FinTech Special Edition, no. 5 (May 2019): 1939–1982
Selected to the 2018 Texas Finance Festival
Marketplace lending relies on large-scale loan screening by investors, a major deviation from the traditional banking paradigm. Theoretically, participation of sophisticated investors in marketplace lending improves screening outcomes but also creates adverse selection. In maximizing loan volume, the platform trades of these two forces by choosing intermediate levels of platform pre-screening and information provision to investors. We use novel investor-level data to test these predictions. We empirically show that more sophisticated investors screen loans differently and systematically outperform less sophisticated investors. However, the outperformance shrinks when the platform reduces information provision to investors, consistent with platforms managing adverse selection.
( 5 )
Review of Corporate Finance Studies 8, no. 2 (September 2019): 235–259
Editor's Choice
Winner of the 2020 RCFS Rising Scholar Award
Winner of the Arthur Warga Award for Best Paper in Fixed Income (SFS Cavalcade Conference)
Selected for the 2016 AEA annual meetings, 2016 FIRS Conference and 2015 Cavalcade Conference
This paper studies liability management exercises (LME) by banks, which have comparable regulatory capital effects than contingent capital triggers. LMEs are concentrated on low capitalization situations, both in the cross-section and in the time series and are frequently associated with equity issuances. These exercises prove effective at improving bank capitalization levels. The market reaction to LMEs is positive and mostly accrues to debt holders. These findings strengthen the case for innovative liabilities securities as a tool to improve bank resilience.
( 6 )
with Laurent Calvet, Claire Celerier and Paolo Sodini, CEPR Working Paper, No. 14955
Journal of Finance 78, Issue 4 (August 2023): 1917-1966
Selected to 2020 NBER Asset Pricing, the 2017 NBER Behavioral Finance, the 2018 NBER Household Finance, the 2018 WFA, and the 2017 EFA meetings
This paper shows that securities with non-linear payoff designs can foster household risk-taking. We demonstrate this effect by exploiting the introduction of capital guarantee products in Sweden between 2002 and 2007. Their fast and broad adoption is associated with an increase in expected financial portfolio returns. The effect is especially strong for households with low risk appetite ex ante. These empirical facts are consistent with a life-cycle model in which households have pessimistic beliefs or preferences combining loss aversion and narrow framing. Our results illustrate how security design can mitigate behavioral biases to increase mean household portfolio returns.
( 7 )
with Jean-Noel Barrot, Thorsten Martin and Julien Sauvagnat
Review of Financial Studies, forthcoming
Lead Article, Editor's choice
Selected for the 2019 NBER Corporate Finance, the 2021 WFA, the 2021 EFA, and the 2021 North America Cavalcade meetings
We investigate the labor market effects of a loan guarantee program targeting French SMEs during the financial crisis. Exploiting differences in regional treatment intensity in a border discontinuity design, we uncover a central trade-off for such interventions. While the program has a positive impact on workers' employment and earnings trajectories which translates into positive aggregate employment effects, it dampens the worker reallocation towards more productive firms that happens following recessions, and particularly so for high-skill workers. This labor allocation effect is economically significant and translates into a reduction in aggregate productivity.
( 8 )
with Pulak Ghosh and Yao Zeng
Journal of Finance, forthcoming
Selected for the 2021 NBER Asset Pricing, the 2022 AFA, the 2022 RCFS Winter Conference, the 2021 Texas Finance Festival, 2021 EFA, and the 2021 CICF
Borrower's use of cashless payments both improves their access to capital from FinTech lenders and predicts a lower probability of default. These relationships are stronger for cashless technologies providing more precise information, and for outflows. Cashless payment usage complements other signals of borrower quality. We rationalize these empirical findings with a framework where borrowers signal their lower likelihood of diverting cash flows through payment technology choice, and where screening accuracy is further strengthened by informational complementarities. The informational synergy we uncover provides a rationale for the joint rise of cashless payments and FinTech lending, as well as for open banking.
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( 9 )
with Victoria Ivashina, NBER Working Paper Series, No. 27316
Management Science, forthcoming
Selected for the 2019 WFA, the 2019 FIRS, and the 2018 EFA meetings
Using novel data on 1,240 credit agreements, we investigate sources of contractual complexity in the leveraged loan market. While negative covenants are widespread, carve-out and deductible clauses that qualify them are as frequent. We propose simple measures of contractual optionality based on the usage of such clauses. We argue that these measures capture contract weakness, as they uniquely explain the market-wide price reaction that followed the 2017 J.Crew restructuring, a high-profile use of such contractual elements. Leveraged buyouts have significantly weaker loan agreements, and more non-bank funding of a loan is conducive to weaker contractual terms. Weak covenants translate to modestly higher issuance spreads.
( 10 )
with Dan Green
Journal of Financial Economics, forthcoming
Selected for the 2023 NBER Corporate Finance SI, 2022 USC Finance, Organisation and Markets Conference, 2023 Colorado Finance Summit
We study whether exit policies by financial institutions are an effective tool to address climate change, using bank coal exit policies around the world as a laboratory. In contrast to theories assuming high capital substitutability, we find large effects of these policies. Bank exit policies negatively affect both the financing and operation of coal assets. Substitution to other sources and providers of capital appears to be limited. Coal power plants owned by firms exposed to bank exit policies are more likely to be retired, translating into lower CO2 emissions. Exit policies have reduced coal CO2e emissions by an estimated one gigaton.
Working Papers
( 11 )
with Julien Sauvagnat
We examine how political considerations shape local government responses to a substantial rise in indebtedness. We use the delayed yet sharp deterioration of “toxic” loans held by French municipalities as a quasi-natural experiment to empirically investigate such phenomenon. Politically contested mayors reduce public investment significantly more in response to an increased debt burden compared to their less politically challenged counterparts. Consequently, the net increase in public debt is considerably more attenuated in politically contested municipalities. These results are consistent with a theoretical model of public investment, where electoral competition disciplines the budgetary decisions of local politicians, underscoring the political dimension of public indebtedness.
( 12 )
with Laurent Calvet, Claire Celerier and Gordon Liao
Selected for funding by the Office of Financial Research & National Science Foundation grant
2312331 - NBER Market Frictions and Financial Risks Initiative
We examine how households dampen volatility prices through their demand for Short Put Products (SPPs) -- a globally popular structured product that offers high headline rates in exchange for selling a put option. Using a comprehensive dataset covering all index-linked SPP issuances worldwide since market inception, we empirically show that SPP issuance volumes rise when the underlying assets volatility is high, as higher volatility allows to offer higher headline rates. In turn, increased SPP issuance leads to lower prices for deeply out-of-the-money put options, suppressing the corresponding volatility risk premium. To uncover the underlying mechanism and quantify equilibrium effects of the development of these innovative products on volatility prices, we develop a structural model in which households underweight left-tail risk, driving demand for SPPs. Risk-averse financial intermediaries optimize the headline rate offered on these products while imperfectly hedging their exposure. As volatility rises, stronger demand for SPPs -- driven by higher headline rates -- exerts downward pressure on option prices, particularly at strikes below 100\%. Our findings reveal a novel channel for enhancing financial stability: household demand for innovative security designs lowers the cost of insuring against left-tail risk for other market participants.
( 13 )
with Claire Celerier and Alexey Vasilenko
Selected for the 2024 AFA Meetings, the 2022 EFA Meetings, the 2022 FSU SunTrust Beach Conference
Using data from over 115,000 university professors across public and private universities in the U.S. and Canada, we document significant and growing wage disparities among faculty. These disparities are largely driven by the cross-section of academic fields and their corresponding student future earnings. By employing a shift-share instrument based on persistent student placement patterns, we provide robust evidence of a causal relationship between student future earnings and faculty compensation, finding an elasticity of faculty compensation to student earnings after graduation in the [0.3 -- 0.4] range. The elasticity of faculty wages to student earnings varies substantially across fields, being more than three times higher in Economics and Finance than in Humanities. We interpret these empirical facts as consistent with a mechanism where tuition and donation revenues per faculty, as well as faculty bargaining power, vary significantly across fields.
( 14 )
with Jose Murillo and Dolly Yu
Selected for the 2023 NBER Innovative Data in Household Finance
Using novel usage and survey data from a Mexican FinTech firm, we study the adoption by workers of earned wage access (EWA), an innovative financial service offered by firms to their employees as a benefit, and its potential effects on worker welfare. We find usage to be significant and concentrated towards the end of the pay cycle. We establish that such usage is associated with higher employee retention for low-rank workers, suggestive of improved welfare for financially constrained individuals. We consider possible underlying mechanisms for a causal effect, such as liquidity insurance, aligning the timing of income and expenditure, or catering to present bias, and find empirical evidence supportive of different mechanisms being at play for different segments of users.
( 15 )
with Emil Siriwardane and Johnny Tang
We examine how political ideology affects the selection of private equity managers by U.S. public pensions. Using the universe of U.S. federal campaign contributions, we first show that private equity managers differ widely in their political affiliations, as revealed by their employees’ donation patterns. Public pensions tend to invest in managers whose political ideologies align with those of their own members, leading to portfolios with apparent partisan tilts. The selection of managers based on shared political ideology is associated with poor future performance, implying that such choices are motivated by preference or bias rather than private information about manager skill.
Work in Progress
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Demand for Security Design: Experimental Evidence, with Claire Celerier (U of Toronto - Rotman) and Yueran Ma (U of Chicago - Booth)
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Financing Frictions and Environmental Performance in Aviation, with Catherine Casamatta (TSE) and Sophie Shive (Notre Dame)
HBS Case Studies
1. "Migrante: Using Tech to Provide Financial Inclusion to Immigrants", with Mauricio Larrain, Harvard Business School Case, July 2021
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2. "The Big Blue: Starting a Real Estate Asset Management Firm", with Nikodem Szumilo, Harvard Business School Case, March 2021
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3. "Case in Point: Home Equity Investment", with Dan Green, Sid Beaumaster and Dolly Yu, Harvard Business School Case, October 2020.
4. "Seso Global: Building a Blockchain-enabled Property Marketplace in Nigeria." with Dolly Yu, Harvard Business School Case 220-055, February 2020.
5. "OpenInvest: Socio-responsible Robo-advisor", with Shawn Cole and Nicole Tempest Keller. Harvard Business School Case 218-064, February 2018. (Revised August 2018.)
6. "Deutsche Bank: Structured Retail Products." with Jerome Lenhardt, Harvard Business School Case 217-037, November 2016. (Revised March 2018.)
7. "Exotic Interest Rate Swaps: Snowballs in Portugal.", with Patrick Augustin and Philippe Rich, Harvard Business School Case 217-050, January 2017.
8. "Tableau." Harvard Business School Case 216-045, March 2016. (Revised March 2018.)
Teaching
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Real Property - MBA Elective Curriculum: 2018-YTD (Latest teaching evaluations: 6.6/7.0 and 6.5/7.0)
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Finance II - MBA Required Curriculum: 2014-2017 (Latest teaching evaluations: 7.0/7.0 and 6.9/7.0)
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Executive Education: Real Estate Management, Family Office Program, Custom Program - Ongoing
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Summer Venture in Management Program (residential educational program for rising college seniors from minority backgrounds)
Awards & Honors
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Distinguished Referee Award, Review of Financial Studies, SFS, 2022
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Rising Scholar Award (Winner), Review of Corporate Finance Studies, SFS, 2020
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Arthur Warga Award for Best Paper in Fixed Income (Winner), SFS Cavalcade Conference, 2015
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Ieke van den Burg Prize} for Research on Systemic Risk (Winner), ESRB, joint with C. Celerier, 2015
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AQR Top Finance Graduate Award 2014 (Winner), Copenhagen Business School, 2014
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Best PhD Thesis in Economics (Winner) - French Economic Association (AFSE), 2015
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Best PhD Thesis in Finance (Winner) - French Finance Association (AFFI-Eurofidai), 2015
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Best PhD Thesis (Winner) - HEC Foundation, 2015
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Benjamin Delessert Award on Household Savings (Special Award) - BPCE, 2015
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Best PhD Paper in Honor of Professor Stuart I. Greenbaum 2013 (Finalist), WUSL, 2013