This entry pertains to the Five-Star Conference held November 21, 2025. I discussed the paper “Asset Embeddings,” which can be found here.
This is a conference with a long history, starting in 2001. It brings together finance faculty from Columbia, NYU, Princeton, Wharton, and Yale. The idea is that a faculty from each of the program participant schools present one of the papers on the program, discussed by also a faculty from each of the schools.
Yiming Ma (Columbia) presented “The dynamics of deposit flightiness and its impact on financial stability”. The paper shows that depositors’ rate-sensitivity (flightiness) varies dramatically over time and becomes highest precisely when QE expands reserves and pulls low-convenience, yield-sensitive investors into banks.
These marginal depositors make the aggregate deposit base fragile, so that later policy rate hikes produce larger outflows and higher run risk, creating a tight and previously under-appreciated linkage between unconventional monetary policy (QE-driven reserve expansions) and the stability consequences of conventional monetary tightening.
Theis Jensen (Yale) presented “Machine learning and the implementable efficient frontier.” The paper argues that most ML-based return forecasts look impressive in gross terms but collapse once realistic trading costs are applied, because the algorithms latch onto short-lived signals in small, illiquid stocks. Jensen and coauthors build a framework that forces the ML model to learn only implementable predictability by embedding transaction costs directly into the objective.
The result is a dynamic, trading-cost-aware portfolio rule that learns directly about optimal weights rather than expected returns.
Aleksei Oskolkov (Princeton) presented “Heterogeneous impact of the global financial cycle.” Alex and I were classmates at University of Chicago, and I saw the evolution of his job market paper over the many years, so it was really nice to see it again.
The paper develops a dynamic, heterogeneous-country model where a global intermediary with limited risk-taking capacity intermediates portfolios across a continuum of countries. When the intermediary’s risk-bearing capacity tightens, it generates a global “capital flight” shock. The key result is sharply asymmetric adjustment: rich countries retrench, using their large external asset positions to absorb foreign sales with little movement in expected returns; poor countries cannot, so prices rather than quantities adjust, leading to large spikes in local risk premia and deeper asset-price declines.
Sylvain Catherine (Wharton) presented “Interest-rate risk and household portfolios.” When rates fall, long-duration assets generate large capital gains, but future expected returns deteriorate. Catherine and coauthors show that households’ net exposure to this tradeoff varies systematically—and in a way that is strikingly consistent with optimal life-cycle hedging.
The discussant Alan Moreira (Stern) spent quite some time discussing the paper’s relevant to an earlier paper titled “Financial and Total Wealth Inequality with Declining Interest Rates” which was the first to point out the tight link between interest rates and wealth inequality.