Essays in Macro Finance

I study the link between capital markets and sources of macroeconomic risk. In chapter 1 I show that expected inflation risk is priced in the cross section of stock returns even after controlling for cash flow growth and volatility risks. Motivated by this evidence I study a long run risk model with a built-in inflation non-neutrality channel that allows me to decompose the real stochastic discount factor into news about current and expected cash flow growth, news about expected inflation and news about volatility. The model can successfully price a broad menu of assets and provides a setting for analyzing cross sectional variation in expected inflation risk premium. For industries like retail and durable goods inflation risk can account for nearly a third of the overall risk premium while the energy industry and a broad commodity index act like inflation hedges. Nominal bonds are exposed to expected inflation risk and have inflation premiums that increase with bond maturity. The price of expected inflation risk was very high during the 70's and 80's, but has come down a lot since being very close to zero over the past decade. On average, the expected inflation price of risk is negative, consistent with the view that periods of high inflation represent a "bad" state of the world and are associated with low economic growth and poor stock market performance. In chapter 2 I look at the way capital markets react to predetermined macroeconomic announcements. I document significantly higher excess returns on the US stock market on macro release dates as compared to days when no macroeconomic news hit the market. Almost the entire equity premium since 1997 is being realized on days when macroeconomic news are released. At high frequency, there is a pattern of returns increasing in the hours prior to the pre-determined announcement time, peaking around the time of the announcement and dropping thereafter.

Fluid flow control with transformation media.

We introduce a new concept for the manipulation of fluid flow around three-dimensional bodies. Inspired by transformation optics, the concept is based on a mathematical idea of coordinate transformations and physically implemented with anisotropic porous media permeable to the flow of fluids. In two situations-for an impermeable object placed either in a free-flowing fluid or in a fluid-filled porous medium-we show that the object can be coated with an inhomogeneous, anisotropic permeable medium, such as to preserve the flow that would have existed in the absence of the object. The proposed fluid flow cloak eliminates downstream wake and compensates viscous drag, hinting at the possibility of novel propulsion techniques.

Steady flow dynamics during granular impact.

We study experimentally and computationally the dynamics of granular flow during impacts where intruders strike a collection of disks from above. In the regime where granular force dynamics are much more rapid than the intruder motion, we find that the particle flow near the intruder is proportional to the instantaneous intruder speed; it is essentially constant when normalized by that speed. The granular flow is nearly divergence free and remains in balance with the intruder, despite the latter's rapid deceleration. Simulations indicate that this observation is insensitive to grain properties, which can be explained by the separation of time scales between intergrain force dynamics and intruder dynamics. Assuming there is a comparable separation of time scales, we expect that our results are applicable to a broad class of dynamic or transient granular flows. Our results suggest that descriptions of static-in-time granular flows might be extended or modified to describe these dynamic flows. Additionally, we find that accurate grain-grain interactions are not necessary to correctly capture the granular flow in this regime.

Scaffold-free, Human Mesenchymal Stem Cell-Based Tissue Engineered Blood Vessels.

Tissue-engineered blood vessels (TEBV) can serve as vascular grafts and may also play an important role in the development of organs-on-a-chip. Most TEBV construction involves scaffolding with biomaterials such as collagen gel or electrospun fibrous mesh. Hypothesizing that a scaffold-free TEBV may be advantageous, we constructed a tubular structure (1 mm i.d.) from aligned human mesenchymal cell sheets (hMSC) as the wall and human endothelial progenitor cell (hEPC) coating as the lumen. The burst pressure of the scaffold-free TEBV was above 200 mmHg after three weeks of sequential culture in a rotating wall bioreactor and perfusion at 6.8 dynes/cm(2). The interwoven organization of the cell layers and extensive extracellular matrix (ECM) formation of the hMSC-based TEBV resembled that of native blood vessels. The TEBV exhibited flow-mediated vasodilation, vasoconstriction after exposure to 1 μM phenylephrine and released nitric oxide in a manner similar to that of porcine femoral vein. HL-60 cells attached to the TEBV lumen after TNF-α activation to suggest a functional endothelium. This study demonstrates the potential of a hEPC endothelialized hMSC-based TEBV for drug screening.

High-speed label-free functional photoacoustic microscopy of mouse brain in action.

We present fast functional photoacoustic microscopy (PAM) for three-dimensional high-resolution, high-speed imaging of the mouse brain, complementary to other imaging modalities. We implemented a single-wavelength pulse-width-based method with a one-dimensional imaging rate of 100 kHz to image blood oxygenation with capillary-level resolution. We applied PAM to image the vascular morphology, blood oxygenation, blood flow and oxygen metabolism in both resting and stimulated states in the mouse brain.

A New Method for Modeling Free Surface Flows and Fluid-structure Interaction with Ocean Applications

The computational modeling of ocean waves and ocean-faring devices poses numerous challenges. Among these are the need to stably and accurately represent both the fluid-fluid interface between water and air as well as the fluid-structure interfaces arising between solid devices and one or more fluids. As techniques are developed to stably and accurately balance the interactions between fluid and structural solvers at these boundaries, a similarly pressing challenge is the development of algorithms that are massively scalable and capable of performing large-scale three-dimensional simulations on reasonable time scales. This dissertation introduces two separate methods for approaching this problem, with the first focusing on the development of sophisticated fluid-fluid interface representations and the second focusing primarily on scalability and extensibility to higher-order methods.

We begin by introducing the narrow-band gradient-augmented level set method (GALSM) for incompressible multiphase Navier-Stokes flow. This is the first use of the high-order GALSM for a fluid flow application, and its reliability and accuracy in modeling ocean environments is tested extensively. The method demonstrates numerous advantages over the traditional level set method, among these a heightened conservation of fluid volume and the representation of subgrid structures.

Next, we present a finite-volume algorithm for solving the incompressible Euler equations in two and three dimensions in the presence of a flow-driven free surface and a dynamic rigid body. In this development, the chief concerns are efficiency, scalability, and extensibility (to higher-order and truly conservative methods). These priorities informed a number of important choices: The air phase is substituted by a pressure boundary condition in order to greatly reduce the size of the computational domain, a cut-cell finite-volume approach is chosen in order to minimize fluid volume loss and open the door to higher-order methods, and adaptive mesh refinement (AMR) is employed to focus computational effort and make large-scale 3D simulations possible. This algorithm is shown to produce robust and accurate results that are well-suited for the study of ocean waves and the development of wave energy conversion (WEC) devices.