Marco Di Maggio - Faculty & Research - Harvard Business School
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Marco Di Maggio

Assistant Professor of Business Administration


Marco Di Maggio is an assistant professor of business administration in the Finance Unit and a faculty research fellow at the National Bureau of Economic Research. Before joining HBS, he was an assistant professor of finance and economics at Columbia Business School.
Professor Di Maggio’s current research focuses on financial intermediation, including studies at the intersection of macroeconomics and finance. His work has been published in the American Economic ReviewJournal of Financial Economics, The Review of Financial Studies, Management Science and cited by Wall Street Journal, The EconomistBloomberg, Institutional Investor, and Forbes.
Professor Di Maggio received his PhD in economics from MIT. His undergraduate degree in economics is from the University of Naples Federico II.
In 2016, Poets and Quants named him to its list of the Best 40 Under 40 Business School Professors

Journal Articles
  1. Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

    Marco Di Maggio, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru and Vincent Yao

    Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50%) induces a significant increase in car purchases (up to 35%). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through.

    Keywords: monetary policy; household finance; refinancing; contract rigidities; debt rigidity; MPC; deleveraging; Personal Finance; Household; Policy; Borrowing and Debt; Macroeconomics;

    Citation:

    Di Maggio, Marco, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru, and Vincent Yao. "Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging." American Economic Review 107, no. 11 (November 2017): 3550–3588. (Note: this is a combined version of working papers Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging by M. Di Maggio, A. Kermani and R. Ramcharan previously Revise & Resubmit at American Economic Review and Mortgage Rates, Household Balance Sheets, and the Real Economy by B. Keys, T. Piskorski, A. Seru, and V. Yao previously Revise and Resubmit at Journal of Political Economy.)  View Details
  2. Credit-Induced Boom and Bust

    Marco Di Maggio and Amir Kermani

    Can a credit expansion induce a boom and bust in house prices and real economic activity? This paper exploits the federal preemption of national banks in 2004 from local laws against predatory lending to gauge the effect of the supply of credit on the real economy. Specifically, we exploit the heterogeneity in the market share of national banks across counties and in state anti-predatory laws to instrument for an outward shift in the supply of credit. First, a comparison between counties in the top and bottom deciles of presence of national banks in states with anti-predatory laws suggests that the preemption regulation resulted in an 11% increase in annual lending in the 2004–2006 period. Our estimates show that this lending increase is associated with a 3.3% rise in annual house price growth rate and a 2.2% expansion of employment in the non-tradable sectors. These effects are followed by a decline in loan origination, house prices, and employment of similar magnitude in subsequent years. Furthermore, we show that the increase in the supply of credit reduced mortgage delinquency rates during the boom years but increased them in bust years. Finally, these effects are stronger for subprime and inelastic regions.

    Keywords: Great Recession; subprime; credit supply; credit expansion; household leverage; household debt; preemption rule; Mortgages; Laws and Statutes; Credit; Borrowing and Debt; Economic Slowdown and Stagnation;

    Citation:

    Di Maggio, Marco, and Amir Kermani. "Credit-Induced Boom and Bust." Review of Financial Studies 30, no. 11 (November 2017): 3711–3758. (Lead article and Editor's choice.)  View Details
  3. The Unintended Consequences of the Zero Lower Bound Policy

    Marco Di Maggio and Marcin Kacperczyk

    We study the impact of the zero lower bound interest rate policy on the industrial organization of the U.S. money fund industry. We find that in response to policies that maintain low interest rates, money funds change their product offerings by investing in riskier asset classes, are more likely to exit the market, and reduce the fees they charge their investors. The consequence of fund closures resulting from interest rate policy is the relocation of resources in affected fund families and in the asset management industry in general, as well as decline in capital of issuers borrowing from money funds.

    Keywords: quantitative easing; money market funds; Reaching for yield; risk taking; fund exit; unconventional monetary policy; Investment Funds; Interest Rates;

    Citation:

    Di Maggio, Marco, and Marcin Kacperczyk. "The Unintended Consequences of the Zero Lower Bound Policy." Journal of Financial Economics 123, no. 1 (January 2017): 59–80.  View Details
  4. The Value of Trading Relations in Turbulent Times

    Marco Di Maggio, Amir Kermani and Zhaogang Song

    This paper investigates how dealers’ trading relations shape their trading behavior in the corporate bond market. Dealers charge lower spreads to dealers with whom they have the strongest ties and more so during periods of market turmoil. Systemically important dealers exploit their connections at the expense of peripheral dealers as well as clients, charging higher markups than to other core dealers. Also, intermediation chains lengthened by 20% following the collapse of a flagship dealer in 2008 and even more for institutions strongly connected to this dealer. Finally, dealers drastically reduced their inventory during the crisis.

    Keywords: OTC markets; network; corporate bonds; crisis; intermediation chains; leaning against the wind; Networks; Bonds; Behavior; Financial Crisis;

    Citation:

    Di Maggio, Marco, Amir Kermani, and Zhaogang Song. "The Value of Trading Relations in Turbulent Times." Journal of Financial Economics 124, no. 2 (May 2017): 266–284.  View Details
  5. Financial Disclosure and Market Transparency with Costly Information Processing

    Marco Di Maggio and Marco Pagano

    We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators’ trades more visible to hedgers. As a consequence, asset sellers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators, and hedgers have low processing costs. But in these circumstances, forbidding hedgers’ access to the market may dominate mandatory disclosure.

    Keywords: financial disclosure; Information Processing; liquidity; market transparency; rational inattention; Information; Financial Liquidity; Knowledge Use and Leverage; Corporate Disclosure; Financial Markets; Investment;

    Citation:

    Di Maggio, Marco, and Marco Pagano. "Financial Disclosure and Market Transparency with Costly Information Processing." Review of Finance 22, no. 1 (February 2018): 117–153.  View Details
  6. Partial Deregulation and Competition: Effects on Risky Mortgage Origination

    Marco Di Maggio, Amir Kermani and Sanket Korgaonkar

    We exploit the OCC's preemption of national banks from state laws against predatory lending as a quasi-experiment to study the effect of deregulation and its interaction with competition on the supply of complex mortgages. Following the preemption ruling, national banks significantly increased their origination of loans with prepayment penalties by comparison with national banks in states without predatory-lending laws. We highlight a competition channel: in counties where OCC-regulated lenders had larger market shares, non-OCC lenders responded by increasing their use of riskier contract features, such as deferred amortization, adjustable rates and interest-only payments, which were not restricted by the state predatory-lending laws.

    Keywords: Great Recession; subprime; complex mortgages; credit supply; competition; household debt; preemption rule; Competition; Government Legislation; Credit; Financial Crisis;

    Citation:

    Di Maggio, Marco, Amir Kermani, and Sanket Korgaonkar. "Partial Deregulation and Competition: Effects on Risky Mortgage Origination." Harvard Business School Working Paper, No. 17-008, July 2016. (Forthcoming Management Science.)  View Details
Working Papers
  1. Stock Market Returns and Consumption

    Marco Di Maggio, Amir Kermani and Kaveh Majlesi

    This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households’ portfolio weights in previous years as an instrument for actual capital gains and dividends payments. We find that unrealized capital gains lead to a marginal propensity to consume (MPC) of 13% for the bottom 50% of the wealth distribution but a flat 5% for the rest of the distribution. We also find that households’ consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are broadly consistent with near-rational behavior in which households optimize their consumption with respect to capital gains and dividends income as if they were separate sources of income.

    Keywords: Investment Return; Household; Spending;

    Citation:

    Di Maggio, Marco, Amir Kermani, and Kaveh Majlesi. "Stock Market Returns and Consumption." NBER Working Paper Series, No. 24262, January 2018.  View Details
  2. Brokers and Order Flow Leakage: Evidence from Fire Sales

    Andrea Barbon, Marco Di Maggio, Francesco Franzoni and Augustin Landier

    Using trade-level data, we study whether brokers play a role in spreading order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.

    Keywords: predatory trading; back running; fire sales; Brokers; Stocks; Price; Information; Knowledge Dissemination; Ethics;

    Citation:

    Barbon, Andrea, Marco Di Maggio, Francesco Franzoni, and Augustin Landier. "Brokers and Order Flow Leakage: Evidence from Fire Sales." Harvard Business School Working Paper, No. 18-046, November 2017. (Revise and Resubmit to the Journal of Finance.)  View Details
  3. The Relevance of Broker Networks for Information Diffusion in the Stock Market

    Marco Di Maggio, Francesco Franzoni, Amir Kermani and Carlo Sommavilla

    This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just before the filing of the 13D. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.

    Keywords: Business and Shareholder Relations; Information; Knowledge Dissemination; Financial Markets;

    Citation:

    Di Maggio, Marco, Francesco Franzoni, Amir Kermani, and Carlo Sommavilla. "The Relevance of Broker Networks for Information Diffusion in the Stock Market." Harvard Business School Working Paper, No. 18-001, July 2017. (NBER Working Paper Series, No. 23522, June 2017.)  View Details
  4. How Quantitative Easing Works: Evidence on the Refinancing Channel

    Marco Di Maggio, Amir Kermani and Christopher Palmer

    Despite massive large-scale asset purchases (LSAPs) by central banks around the world since the global financial crisis, there is a lack of empirical evidence on whether and how these programs affect the real economy. Using rich borrower-linked mortgage-market data, we document that there is a “flypaper effect” of LSAPs, where the transmission of unconventional monetary policy to interest rates and (more importantly) origination volumes crucially depends on the assets purchased and the degree of segmentation in the market. For example, QE1, which involved significant purchases of GSE-guaranteed mortgages, increased GSE-eligible mortgage originations significantly more than the origination of GSE-ineligible mortgages. In contrast, QE2's focus on purchasing Treasuries did not have such differential effects. We find that the Fed's purchase of MBS (rather than exclusively Treasuries) during QE1 resulted in an additional $600 billion of refinancing, substantially reduced interest payments for refinancing households, led to a boom in equity extraction, and increased refinancing mortgagors’ consumption by an additional $76 billion. This de facto allocation of credit across mortgage market segments, combined with sharp bunching around GSE eligibility cutoffs, establishes an important complementarity between monetary policy and macroprudential housing policy. Our counterfactual simulations estimate that relaxing GSE eligibility requirements would have significantly increased refinancing activity in response to QE1, including a 20% increase in equity extraction by households. Overall, our results imply that central banks could most effectively provide unconventional monetary stimulus by supporting the origination of debt that would not be originated otherwise.

    Keywords: Central Banking; Global Range; Financing and Loans; Financial Crisis; Borrowing and Debt;

    Citation:

    Di Maggio, Marco, Amir Kermani, and Christopher Palmer. "How Quantitative Easing Works: Evidence on the Refinancing Channel." NBER Working Paper Series, No. 22638, September 2016. (Revise and Resubmit to The Review of Economic Studies.)  View Details
  5. Collateral Shortages and Intermediation Networks

    Marco Di Maggio and Alireza Tahbaz-Salehi

    This paper argues that in the presence of trading frictions and agency problems, the interbank market may be overly fragile, in the sense that small changes in the liquidity of assets used as collateral may lead to large swings in haircuts and a potential credit freeze. Our results highlight that the financial system's intermediation capacity crucially depends on the distribution of collateralizable assets among financial institutions as opposed to their aggregate amount. We also show that the interplay of agency problems and trade frictions may result in the endogenous emergence of intermediation bottlenecks that impair credit relationships. These results thus provide a novel explanation for the collapse in the secured lending market during the recent crisis.

    Keywords: financial intermediation; financial networks; secured lending; collateral; repo runs; ABCP collapse; Networks; Negotiation; Financing and Loans; Financial Crisis;

    Citation:

    Di Maggio, Marco, and Alireza Tahbaz-Salehi. "Collateral Shortages and Intermediation Networks." Working Paper, November 2015. (Revise and Resubmit to The Review of Financial Studies.)  View Details
  6. The Importance of Unemployment Insurance as an Automatic Stabilizer

    Marco Di Maggio and Amir Kermani

    We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit generosity (defined as the percentage of household income recovered by the unemployment benefit), we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with the hypothesis that this effect derives from the local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9. Overall, our results suggest that UI has a beneficial effect on the economy by decreasing its sensitivity to shocks.

    Keywords: unemployment insurance; automatic stabilizers; Bartik shocks; Volatility; aggregate demand; System Shocks; Employment; Balance and Stability; Insurance; Volatility; Insurance Industry;

    Citation:

    Di Maggio, Marco, and Amir Kermani. "The Importance of Unemployment Insurance as an Automatic Stabilizer." Harvard Business School Working Paper, No. 17-009, July 2016. (Revise and Resubmit to American Economic Journal: Macroeconomics.)  View Details
Cases and Teaching Materials
  1. Redfin

    Marco Di Maggio and Julia Kelley

    Redfin, a technology-powered residential real estate brokerage, was founded in 2002 with the intention of using technology to disrupt the real estate industry. Over the next 15 years, Redfin made several changes to its business model. Initially, the company provided less support than a traditional real estate brokerage but helped home buyers and sellers save more money. Over time, in response to customer feedback, Redfin increased the level of customer service it provided while decreasing the amount customers saved, instead relying on its unique online tools to differentiate itself from other real estate brokerages. In July 2017, Redfin went public at a $1.73 billion valuation. Now, in late 2017, CEO Glenn Kelman had to decide what Redfin’s top strategic priority should be. Redfin could try to increase its market share, which was currently less than 2% even in the company’s top markets, or it could focus on balancing costs and improving its bottom line.

    Keywords: Business Model; Strategy; Decision Making; Real Estate Industry;

    Citation:

    Di Maggio, Marco, and Julia Kelley. "Redfin." Harvard Business School Case 218-051, February 2018.  View Details