Boris Vallée's Academic Page
Torstein Hagen Associate Professor of Finance
Harvard Business School
Tel: (617) 496-4604
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. 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 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 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.
( 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
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
Revise and Resubmit at the Journal of Finance
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 a non-linear payoff design can foster household risk-taking. We demonstrate this effect empirically by exploiting the introduction of capital guarantee products in Sweden from 2002 to 2007. The fast and broad adoption of these products is associated with an increase in expected financial portfolio returns, which is especially strong for households with a low risk appetite ex ante. We explore possible economic explanations by developing a life-cycle model of consumption-portfolio decisions. The capital guarantee substantially increases risk-taking by households with pessimistic beliefs or preferences combining loss aversion and narrow framing. The welfare gains from financial innovation are stronger for households that are less willing to take risk ex ante. Our results illustrate how security design can mitigate behavioral biases and enhance economic well-being.
( 7 )
with Victoria Ivashina, NBER Working Paper Series, No. 27316
Revise and Resubmit at the Journal of Financial Economics
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 weaken them are as frequent. We propose simple measures of contractual weakness, which 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 a larger non-bank funding of a loan is conducive to weaker contractual terms. Weak covenants translate to modestly higher issuance spreads. Overall, our findings are consistent with sophisticated borrowers catering to a reaching-for-yield phenomenon by exploiting contractual complexity.
( 8 )
with Jean-Noel Barrot, Thorsten Martin and Julien Sauvagnat
Selected for the 2019 NBER Corporate Finance, the 2021 WFA, the 2021 EFA, and the 2021 North America Cavalcade meetings
We document the impact on worker employment trajectories of a countercyclical loan guarantee program aiming at mitigating financing frictions for SMEs. Our identification strategy exploits plausibly exogenous heterogeneity in policy generosity between French regions, interacted with a geographical regression discontinuity design. We show that the guarantees result in a significantly higher likelihood of being employed over the seven years following the intervention, which translates into significantly higher cumulated earnings. The program benefits disproportionately high wage, male and younger workers, due to both differences in retention decision by the initial employer and differences in labor market frictions for these populations. We estimate the gross cost to preserve a job(-year) to be around 3,200 Euros, and a negative net cost when we include the savings on unemployment benefits.
( 9 )
with Pulak Ghosh and Yao Zeng
This study provides a new perspective to understand the rise and future potential of FinTech lending by linking it to the informational role of cashless payments. We uncover both theoretically and empirically a synergy between FinTech lending and cashless payments. FinTech lenders screen borrowers more efficiently when borrowers use more cashless payments that produce transferrable and verifiable information. Because borrowers expect lenders to rely on such payment information to screen them, a strategic consideration for a borrower to stand out of other borrowers then pushes more borrowers to adopt cashless payments. Using novel loan-level data from a large Indian FinTech lender who focuses on small-business lending, we find that a larger use of verifiable cashless payments (relative to cash) predicts a higher chance of loan approval, a lower interest rate, and lower default conditional on the interest rate obtained. These relationships are more pronounced for higher-quality firms. The uncovered synergy provides a plausible explanation for the joint rise of FinTech lending and cashless payments, and suggests an alternative banking model without a balance sheet or traditional banking relationships. Our findings also provide new policy implications on data sharing and open banking.
( 10 )
Selected for the 2022 AFA, 2021 EFA, and the 2021 CICF
with Julien Sauvagnat
Work in Progress
Security Design, Behavioral Biases and Portfolio Choice: Experimental Evidence, with Claire Celerier (U of Toronto - Rotman) and Yueran Ma (U of Chicago - Booth)
The Finance Wage Premium in Academia, with Claire Celerier (U of Toronto - Rotman) and Alexey Vasilenko (U of Toronto - Rotman)
Security Design and Price Distortions, with Claire Celerier (U of Toronto - Rotman) and Gordon Liao (Federal Reserve Board)
The effects of student loan refinancing, with Marco di Maggio (HBS), and Vincent Yao (Georgia Tech)
The Political Color of Capital, with Emil Siriwardane (HBS) and Johnny Tang (HBS)
Impact Investing in Private Equity: An Empirical Investigation, with Shawn Cole (HBS) and Rob Zochowski (HBS)
FinTech and Labor Markets, with Jose Murillo (Harvard) and Dolly Yu (HBS)
We examine the response from both local governments and their voters to a sudden increase in public debt burden. We exploit plausibly exogenous variation in the ex post cost of toxic loans, a notorious financial innovation adopted by a large number of local governments. A large increase in the debt burden of a local government results in a significant reduction in its investments, but leaves expenses and taxes mostly unchanged. This effect is dampened for local governments that are more politically contested. An increase in public debt reduces the likelihood of re-election for incumbent mayor and its political party. Overall, these findings support the existence of a public debt overhang effect, which binds differently depending on the political context as contested mayors strive to maintain investments.
HBS Case Studies
1. "Case in Point: Home Equity Investment", with Dan Green, Sid Beaumaster and Dolly Yu, Harvard Business School Case, October 2020.
2. "Seso Global: Building a Blockchain-enabled Property Marketplace in Nigeria." with Dolly Yu, Harvard Business School Case 220-055, February 2020.
3. "OpenInvest: Socio-responsible Robo-advisor", with Shawn Cole and Nicole Tempest Keller. Harvard Business School Case 218-064, February 2018. (Revised August 2018.)
4. "Deutsche Bank: Structured Retail Products." with Jerome Lenhardt, Harvard Business School Case 217-037, November 2016. (Revised March 2018.)
5. "Exotic Interest Rate Swaps: Snowballs in Portugal.", with Patrick Augustin and Philippe Rich, Harvard Business School Case 217-050, January 2017.
6. "Tableau." Harvard Business School Case 216-045, March 2016. (Revised March 2018.)
Real Property - MBA Elective Curriculum: 2018-YTD (Latest teaching evaluations: 6.5/7.0)
Finance II - MBA Required Curriculum: 2014-2017 (Latest teaching evaluations: 7.0/7.0 and 6.9/7.0)
Executive Education: Real Estate Management, Family Office Program, Custom Program - Ongoing
Summer Venture in Management Program (residential educational program for rising college seniors from minority backgrounds) - Ongoing
Awards & Honors
Rising Scholar Award (Winner), Review of Corporate Finance Studies, SFS, 2020
Arthur Warga Award for Best Paper in Fixed Income (Winner), SFS Cavalcade Conference, 2015
Ieke van den Burg Prize} for Research on Systemic Risk (Winner), ESRB, joint with C. Celerier, 2015
AQR Top Finance Graduate Award 2014 (Winner), Copenhagen Business School, 2014
Best PhD Thesis in Economics (Winner) - French Economic Association (AFSE), 2015
Best PhD Thesis in Finance (Winner) - French Finance Association (AFFI-Eurofidai), 2015
Best PhD Thesis (Winner) - HEC Foundation, 2015
Benjamin Delessert Award on Household Savings (Special Award) - BPCE, 2015
Best PhD Paper in Honor of Professor Stuart I. Greenbaum 2013 (Finalist), WUSL, 2013