Imperial College London

Adelina Barbalau

Business School

Visiting Researcher



a.barbalau CV




Business School BuildingSouth Kensington Campus




Research Papers

“Information Choice, Shock Transmission and Contagion” (Job Market Paper)
During the 2007-2008 financial crisis, countries that were relatively more exposed to the crisis epicentre, the United States, were among the least affected. This counters the intuition that the impact of a shock increases with exposure to it, and raises the question of the mechanism through which the impact of shocks can decrease with exposure. I propose a model in which decision-makers learn about the risk factors they are exposed to, but have limited capacity to process information. I find that decision-makers optimally choose to learn more about the risk factors they are more exposed to, and this informational advantage mitigates the negative consequences of shocks by enabling them to take better investment decisions. Relative to an exogenous information benchmark, the endogenous information model I propose predicts that shocks to risk factors that decision-makers are relatively less exposed to are amplified. By the same token, shocks to risk factors that decision-makers are relatively more exposed to are attenuated.

"Ambiguous Information and Cautious Behaviour"
Information is important in shaping economic outcomes but carries a substantial risk of being misinterpreted. I propose a model in which costly information acquisition leads to endogenous variation in information ambiguity and cautious behaviour. Uncertainty regarding the interpretation of information increases endogenously in the aftermath of highly unanticipated events. This causes ambiguity-averse agents to behave cautiously by reacting more strongly to bad news than to good news. However, in highly anticipated states of the world there is no uncertainty regarding the interpretation of signals. Agents’ behaviour no longer exhibits ambiguity-aversion, and good and bad news affect conditional actions in a symmetric fashion. The model explains why and how the behaviour of economic agents changes during crises, and delivers predictions that are in line with observed market outcomes.

"Testing Inequality Restrictions in Multifactor Asset-Pricing Models" with Cesare Robotti and Jay Shanken
We develop an inequality constraints testing framework to assess the consistency of several multifactor models with the time-series and cross-sectional restrictions imposed by the intertemporal CAPM (ICAPM). Our tests of joint sign restrictions take into account the estimation error in the model parameters as well as the uncertainty arising from potential model misspecification. With a few exceptions, we cannot reject the null of consistency of the considered models with the ICAPM restrictions when using size and book-to-market, and size and momentum sorted portfolios as test assets. As argued by Fama (1991), the ICAPM may be a “fishing license" after all.