Boris Vallee - Faculty & Research - Harvard Business School
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Boris Vallee

Assistant Professor of Business Administration


Boris Vallée is an assistant professor in the Finance Unit. He teaches the Finance II course in the MBA required curriculum. 

Professor’s 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. His work has been cited by Forbes and The Wall Street Journal.

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.


Journal Articles
  1. The Political Economy of Financial Innovation: Evidence from Local Governments

    Christophe Pérignon and Boris Vallée

    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.

    Keywords: financial innovation; Political Elections; Financing and Loans; Innovation and Invention;

    Citation:

    Pérignon, Christophe, and Boris Vallée. "The Political Economy of Financial Innovation: Evidence from Local Governments." Review of Financial Studies 30, no. 6 (June 2017): 1903–1934.  View Details
  2. Catering to Investors Through Security Design: Headline Rate and Complexity

    Claire Célérier and Boris Vallée

    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.

    Keywords: financial complexity; catering; shrouding; Reaching for yield; Investment;

    Citation:

    Célérier, Claire, and Boris Vallée. "Catering to Investors Through Security Design: Headline Rate and Complexity." Quarterly Journal of Economics 132, no. 3 (August 2017): 1469–1508.  View Details
Working Papers
  1. Marketplace Lending: A New Banking Paradigm?

    Boris Vallee and Yao Zeng

    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.

    Keywords: marketplace lending; Screening; sophisticated investors; Adverse selection; Financing and Loans;

    Citation:

    Vallee, Boris, and Yao Zeng. "Marketplace Lending: A New Banking Paradigm?" Harvard Business School Working Paper, No. 18-067, January 2018. (In-Principle Acceptance to the Review of Financial Studies, FinTech Special Edition.)  View Details
  2. Can Financial Innovation Solve Household Reluctance to Take Risk?

    Laurent Calvet, Claire Celerier, Paolo Sodini and Boris Vallée

    Using a large administrative panel of Swedish households, we document the fast and broad adoption of retail structured products, an innovative class of contracts offering non-linear exposures to equity markets. Households investing in structured products differ from traditional stock market participants on key characteristics and significantly increase their equity exposures over the sample period. The introduction of retail structured products thereby raises both the likelihood and the extent of stock market participation, especially for households with lower wealth and IQ and of older age. The design of purchased products varies strongly with household characteristics, suggesting the importance of heterogeneity in preferences and financial circumstances. A simple portfolio choice model shows that household loss aversion best explains the demand for structured products and the empirical facts we observe. Our results illustrate how financial innovation can mitigate investor behavioral biases.

    Keywords: financial innovation; household finance; structured products; stock market participation; Finance; Innovation and Invention; Household; Behavior; Market Participation;

    Citation:

    Calvet, Laurent, Claire Celerier, Paolo Sodini, and Boris Vallée. "Can Financial Innovation Solve Household Reluctance to Take Risk?" Harvard Business School Working Paper, No. 18-066, January 2018.  View Details
  3. Returns to Talent and the Finance Wage Premium

    Boris Vallee and Claire Celerier

    We study the role of talent in the distribution of pay in the finance industry since the 1980s. We exploit a special feature of the French educational system to build a precise measure of talent that we match with compensation data on graduates of elite French institutions. Using this measure, we show that wage returns to talent are three times higher in the finance industry than in the rest of the economy. This greater sensitivity to talent almost fully absorbs the level of the finance wage premium, as well as its increase since the 1980s. Finally, returns to talent correlate with the share of variable compensation.

    Keywords: finance; compensation; Wages; Finance; Compensation and Benefits; Banking Industry;

    Citation:

    Vallee, Boris, and Claire Celerier. "Returns to Talent and the Finance Wage Premium." Working Paper. (Revise and Resubmit to the Review of Financial Studies.)  View Details
  4. Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

    Boris Vallee

    This paper investigates the so called liability management exercises by European banks, which bear comparable effects to triggering contingent capital. I first explore the determinants of these exercises. I then study market reactions to these operations, and banks' economic performance following them. Debtors positively receive these exercises, while stockholders discriminate according to the terms of the operation. Moreover, banks implementing liability management exercises exhibit higher economic performance than the ones that do not. These findings point towards contingent capital offering an effective solution to the dilemma of bank capital regulation.

    Keywords: financial distress; Financial Instruments; Financial Crisis; Banks and Banking; Banking Industry; Europe;

  5. Weak Credit Covenants

    Victoria Ivashina and Boris Vallee

    Using novel data on 1,240 credit agreements for large corporate loans, we show that while inclusion of negative covenants that restrict new debt issuance, payments, asset sales, affiliate transactions and investments is widespread, clauses that weaken these restrictions are almost as common. We measure the deductions for the core covenants in terms of their potential impact on overall leverage and show that they are large, and concentrated in already highly levered transactions. We analyze the cross-sectional variation in contractual weaknesses introduced through deductions and exclusions to negative covenants and show that such contractual provisions are characteristic of leveraged buyouts.

    Keywords: Credit; Agreements and Arrangements;

    Citation:

    Ivashina, Victoria, and Boris Vallee. "Weak Credit Covenants." Working Paper, June 2017.  View Details
Cases and Teaching Materials
  1. OpenInvest

    Shawn Cole, Boris Vallée and Nicole Tempest Keller

    Founded by a team of hedge fund and NGO alumni, OpenInvest launched its platform in 2015 to enable retail investors to tailor their portfolios to their personal values in an automated way, for instance by screening out weapons manufacturers stocks or overweighting LGBTQ friendly companies, while still closely tracking the overall stock market performance. In 2017, bolstered by $3.25 million in seed funding from Andreessen Horowitz, OpenInvest was preparing to launch an app targeted at millennial customers that would include a novel proxy voting feature that allowed clients to vote on shareholder resolutions with a simple swipe. With this technological addition, OpenInvest was well on its way towards realizing its mission of democratizing socially responsible investing, bringing transparency to the financial services market, and enabling retail investors to invest their capital in a way that aligned with their values. However, getting to scale and profitability in the crowded robo-advisors space was a critical challenge. The case closes with the founders contemplating expanding or migrating their model from B2C to B2B in order to achieve scale and profitability faster. The case is an opportunity to discuss the theoretical underpinning of creating impact in public markets, to explore how portfolio performance might be affected by Socially Responsible Investment (SRI) screens, and to understand drivers of demand for impacting investing more broadly. The case also explores the challenges the founders face when aiming to design a new product to meet an emerging need and which distribution channel to choose for doing so.

    Keywords: fintech; impact investing; Investment Portfolio; Customization and Personalization; Technological Innovation; Social Issues; Growth and Development Strategy; Business Model; Financial Services Industry;

    Citation:

    Cole, Shawn, Boris Vallée, and Nicole Tempest Keller. "OpenInvest." Harvard Business School Case 218-064, February 2018.  View Details
  2. OpenInvest

    Boris Vallee and Caitlin Reimers Brumme

    Founded by a team of hedge fund and NGO alumni, OpenInvest launched its platform in 2015 to enable retail investors to tailor their portfolio to their personal values in an automated way, for instance by screening out weapon manufacturers stocks or overweighting LGBTQ friendly companies, while still closely tracking the overall stock market performance. Bolstered by $3.25M in seed funding from Andreessen Horowitz, in 2017 OpenInvest was also preparing to launch an app targeted at millennial customers that would include a novel proxy voting feature that allowed clients to vote on shareholder resolutions with a simple swipe. With this technological addition OpenInvest was well on its way towards realizing its mission of democratizing SRI investing, bringing transparency to the financial services market, and enabling retail investors to invest their capital in a way that aligned with their values. However, getting to scale and profitability in the crowded robo-advisors space was a critical challenge. The case closes with the founders contemplating expanding or migrating their model from B2C to B2B in order to achieve scale and profitability faster.
    The case is an opportunity to discuss the theoretical underpinning of creating impact in public markets, to explore how portfolio performance may be affected by Socially Responsible Investment (SRI) screens; and to understand drivers of demand for impacting investing more broadly. The case also explores the challenges the founders face when aiming to design a new product to meet an emerging need, and which distribution channel to choose for doing so. Teaching Note for HBS No. 218-064.

    Keywords: socially responsible investing; investing for impact; robo-advisors; Investment; Values and Beliefs; Customization and Personalization; Technology; Financial Services Industry;

    Citation:

    Vallee, Boris, and Caitlin Reimers Brumme. "OpenInvest." Harvard Business School Teaching Note 218-089, March 2018. (Revised March 2018.)  View Details
  3. Exotic Interest Rate Swaps: Snowballs in Portugal

    Boris Vallee, Patrick Augustin and Philippe Rich

    This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of using innovative financial instruments. The public sector setting allows discussion of the political economy implications of such transactions. Teaching Note for HBS No. 217-050.

    Keywords: swaps; public finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal;

    Citation:

    Vallee, Boris, Patrick Augustin, and Philippe Rich. "Exotic Interest Rate Swaps: Snowballs in Portugal." Harvard Business School Teaching Note 218-018, August 2017.  View Details
  4. Exotic Interest Rate Swaps: Snowballs in Portugal

    Boris Vallee, Patrick Augustin and Philippe Rich

    This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of using innovative financial instruments. The public sector setting allows discussion of the political economy implications of such transactions.

    Keywords: swaps; public finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal;

    Citation:

    Vallee, Boris, Patrick Augustin, and Philippe Rich. "Exotic Interest Rate Swaps: Snowballs in Portugal." Harvard Business School Case 217-050, January 2017.  View Details
  5. Deutsche Bank: Structured Retail Products

    Boris Vallée and Jérôme Lenhardt

    Describes how Deutsche Bank, a leading European bank, is deciding whether or not to launch a new structured retail product in Germany: an autocallable note. Will this product find a market and how does it fit into the bank’s product portfolio? The case investigates how Deutsche Bank manufactures and distributes its structured retail products and more broadly explores the opportunities and challenges of offering financial products to households. The case also dwells on the scale and scope of the business of retail banking in an increasingly regulated environment.

    Keywords: structured products; structured retail products; Germany; commercial banking; Financial Markets; asset management; asset pricing; auto callable note; financial product; financial product development; financial product marketing; financial product launch; financial product positioning; Finance; Assets; Asset Pricing; Asset Management; Capital Markets; Financial Institutions; Banks and Banking; Commercial Banking; Financial Instruments; Annuities; Bonds; Stocks; Financial Management; Financial Markets; Financial Strategy; Interest Rates; Investment;

    Citation:

    Vallée, Boris, and Jérôme Lenhardt. "Deutsche Bank: Structured Retail Products." Harvard Business School Case 217-037, November 2016. (Revised March 2018.)  View Details
  6. Tableau

    Boris Vallee

    Matrix Capital Management, a long-short equity hedge fund based in Waltham, Massachusetts, is assessing its investment in Tableau, a data visualization company. Tableau, which conducted an IPO a few years ago, has been experiencing substantial growth as it aims at disrupting the business intelligence software market. Matrix's investment management team is attracted by two key features of the tech company: the large addressable market and the potential to emerge as a leader in this market. However, after hitting an all-time high in the first quarter of 2015, Tableau's share price began trading down, and by September of that year the stock was trading down year-to-date. Matrix's management team wonders whether the recent market volatility presents an opportunity to add to their existing long position. This case highlights a variety of methodologies to valuate a high-growth company in the tech sector and illustrates the challenge of living up to high market expectations.

    Keywords: technology; hedge fund; long-short equity; growth investing; valuation; Growth and Development Strategy; Valuation; Technology Industry; Waltham;

    Citation:

    Vallee, Boris. "Tableau." Harvard Business School Case 216-045, March 2016. (Revised March 2018.)  View Details