Harshini Shanker

PhD Candidate in Finance, London Business School
Job market candidate, 2025–26
Email: [email protected]


Research Interests

Photo of Harshini Shanker

Across projects, I study how ethical preferences, ideological alignment, and institutional instability shape capital allocation and asset pricing.

My theoretical work develops equilibrium solution concepts for strategic environments where investors reason normatively rather than instrumentally. My empirical work tests how belief heterogeneity and political frictions distort participation, pricing, and long-run wealth.

My research speaks to the economics of regime legitimacy, ethical finance, and investor influence in shaping the social contract. I am supervised by Anna Pavlova, Professor of Finance at London Business School.



Working Papers

Ethical Commitments in Coordination Games: Strategic Reasoning Beyond Nash

Abstract: Ethical investing often violates the rationality assumptions underpinning Nash equilibrium: agents act on universalizable principles that cannot be rationalized by beliefs or optimization. This paper introduces Kantian equilibrium—a new solution concept modeling agents whose reasoning is grounded in the logic of universalization. In a portfolio-choice model with negative externalities, investors differ in both values (utilitarian vs deontological) and reasoning types (Nash vs Kantian), yielding a two-dimensional typology. The model endogenizes prices, emissions, and activism, and shows that even a minority of Kantian agents can select unique equilibria. Evolutionary and comparative statics characterize when principled commitment transforms market outcomes. The model yields testable predictions about participation thresholds, coordination failures, and ethical capital's aggregate effects.


Do Investors Overvalue Startups? Evidence from the Junior Stakes of Mutual Funds
with Vikas Agarwal, Brad Barber, Si Cheng, Allaudeen Hameed, and Ayako Yasuda

Abstract: Mutual funds overvalue their junior stakes in startups by 53% compared to fair value models accounting for multi-tier capital structures. Junior securities are marked close to senior securities, despite the latter being worth 58% more. Funds overpay in secondaries, and valuations are not justified by exit outcomes. Overvaluation persists over time and across VC cycles, but declines after down rounds. The findings suggest underestimation of downside risk and overweighting of IPO scenarios.


Non-Economic Preferences and Financial Market Equilibrium

Abstract: This paper models how non-economic investment characteristics are priced in equilibrium. Households have preferences over both economic and non-economic characteristics; funds compete for capital and charge fees; the economy supplies assets, some with the desired non-economic attribute. Key predictions: fees decrease with asset alignment, and increase with investor demand for the attribute. Structural estimates quantify ESG preferences in US and European markets.


Capital under Dissonance: Ideology, Instability, and Asset Prices [Working Title]

Abstract: This paper investigates how regime uncertainty, ideological shifts, and belief-driven expectations affect investment behavior and asset prices. Transitions between political regimes distort market signals and alter risk premia. The model endogenizes asset returns, participation, and long-run wealth accumulation under dynamic regime-switching beliefs. [Work in progress]



Conferences



Elsewhere...

Outside economics, I write about London theatre at TheatreBee, tutor students in the sciences, economics and mathematics, and delight in curious datasets—see Data is Plural.



Last updated: July 2025