Matthew D. Baron

Ph.D. Candidate in Economics


Bendheim Center for Finance

Princeton University

26 Prospect Ave

Princeton, NJ 08540





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Working Papers

Risk and Return in High Frequency Trading (with Jonathan Brogaard and Andrei Kirilenko)  [SSRN]

Abstract: This paper studies high frequency trading (HFT) in the E-mini S&P 500 futures contract over a two-year period and finds that revenue is concentrated among a small number of HFT firms who achieve greater investment performance through liquidity-taking activity and higher speed. While the median HFT firm realizes an annualized Sharpe ratio of 4.3 and a four-factor annualized alpha of 22.02%, revenues persistently and disproportionally accumulate to top performing HFTs, consistent with winner-takes-all industry structure. New entrants are less profitable and more likely to exit. Our results imply that HFT firms have strong incentives to take liquidity and compete over small increases in speed.

Presentations: NBER Market Microstructure (2012), WFA (2013)
Press Coverage:
New York Times, Wall Street Journal, Bloomberg, US News & World Report



Credit Expansion and Neglected Crash RIsk (with Wei Xiong)  [Online Appendix]

Abstract: This paper analyzes the causes and consequences of credit expansions through the lens of equity prices. In a set of 20 developed countries over the years 1920-2012, bank credit expansion predicts increased crash risk in the bank equity index and equity market index. However, despite the elevated crash risk, bank credit expansion predicts lower rather than higher mean returns of these indices in the subsequent one to eight quarters. In fact, conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in the subsequent eight quarters is -23.0%. This joint presence of increased crash risk and negative mean returns presents a challenge to the views that credit expansions are simply caused by either banks acting against the will of shareholders or by elevated risk appetite of shareholders, and instead suggests a need to account for the role of over-optimism or neglect of crash risk by bankers and shareholders.

Presentations: NBER Asset Pricing (2014), NBER Summer Institute (2014)