professor of finance at the São Paulo School of Economics
curriculum vitae: english, portuguese (lattes)
email: fernando.chague | at | fgv.br
research interests: short-selling, day-trading, behavioral biases, household finance, emerging markets, empirical finance
"Attention and Biases: Evidence from Tax-inattentive Investors" with Justin Birru, Rodrigo De-Losso and Bruno Giovannetti.
Are some investors prone to behavioral biases? We find that retail investors who forget to take advantage of a simple tax break opportunity in Brazil also display more biases. Our results support theories that relate investor's inattention to behavioral biases.
R&R at Management Science
best paper award, Brazilian Econometric Society Meeting, 2018
presented at: 2020 WFA Meeting, SFS Cavalcade North America 2020, Lubrafin 2020
"Information Leakage from Short Sellers" with Bernard Herskovic and Bruno Giovannetti.
Broker's equity lending desks have a privileged position: they talk every day to short-sellers in the over-the-counter lending market. Consistent with prior evidence showing information leakage by financial intermediaries, we find that clients from brokers that are connected to informed short-sellers trade in the same direction and benefit from short-seller's superior information.
presented at: Lubrafin 2023*, ITAM-Finance 2023
"Out of sight, out of mind: Local stores and retail day-trading" with Bruno Giovannetti and Guilherme Paiva.
How can one show that "the salience of a firm by itself induces retail investors" to buy the stock? The problem with traditional proxies for salience (abnormal volume, news, internet search, social media interest) is that they can correlate with firm's fundamentals. We show that the simple presence of a store in a small town from a brick-and-mortar firm makes the stock of that firm three times more likely to be day-traded by the local retail investors. The effects are stronger for the firms that have the same storefront name than their listing name in the Brazilian Stock Exchange. Since there is no information to be gathered at local stocks for day-trading, we argue our results are consistent with (visual) salience inducing retail trading.
presented at: Lubrafin 2022, FMA 2022, EBFIN 2022, EBE 2022
"The overpricing of popular high-risk stocks" with Bruno Giovannetti and Bernardo Guimarães.
There is solid evidence showing that retail investors end up holding stocks with falling prices. This is the result of a combination of several behaviors: contrarian investing, preference for distressed stocks, preference for lottery like-stocks and the disposition effect. In this paper, we use detailed data to discipline (i) a reduced-form contrarian retail demand and (ii) an equation that limits arbitrageurs. Then, we show that (i) and (ii) can produce severe overpricing of popular high-risk stocks.
best paper award, Brazilian Econometric Society Meeting 2021
presented at: EBE 2022, Lubrafin 2020
"Day trading for a Living?" with Rodrigo De-Losso and Bruno Giovannetti
Can one make a living day trading stocks? In this short note, we hope to inform retail investors who are thinking about leaving their jobs and become day traders. We base our evidence using high-quality data from the entire universe of Brazilian retail investors who decided to do just that.
media coverage: Bloomberg, CNN Brasil, Financial Times, Forbes, Business Insider, Burton Malkiel blog, Valor, Exame, Fantástico
some follow-up studies by popular request: "Day-trading stocks for a living? and Experienced day-traders.
"US Risk Premia under Emerging Markets Constraints" with Elias Cavalcante, Rodrigo De-Losso, Bruno Giovannetti. Journal of Empirical Finance. Volume 67, June, 2022. Pages 217-230.
Some claim that there is no equity risk premium in Brazil; they arrive at such conclusion after looking at stock returns and risk-free rates from the mid 1990's until now. We argue that if we imposed the same data limitation to the US, we could arrive at the same puzzling result. Conclusion: if you want to use realized returns to infer the size of the Brazilian equity risk premium, you better wait a couple more years...
"Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark" with Fábio Cereda, Rodrigo De-Losso, Alan Genaro, Bruno Giovannetti. Journal of Financial Economics. Volume 143, January, 2022. Pages 569-592.
Short-sellers are informed investors who make prices more efficient. However, they are restricted by the frictions in the equity lending market; the equity lending market is an over-the-counter markets with opaque prices (i.e. loan fees). We explore a transparency shock that took place in the Brazilian equity lending market in March, 2011, to show that a less opaque equity lending market results in more trading volume, lower loan fees, and improved stock price efficiency. We conclude by suggesting regulators to adopt "loan-fee benchmarks" as an effective way of improving transparency in equity lending markets worldwide.
"The short-selling skill of institutions and individuals" with Rodrigo De-Losso and Bruno Giovannetti. Journal of Banking & Finance. Volume 101, April, 2019. Pages 77–91. (internet appendix).
Aggregate short-selling predicts future returns, but what can we say about individual short-sellers? Relying on individual trading data on both opening and closing of lending positions by all Brazilian short-sellers, we find that 30% of short-selling volume comes from investors who are able to profit consistently. The evidence of superior performance is consistent out-of-sample (both over time and across stocks), an indication of skill. Finally, we examine what the skilled short-sellers do different; among other things, they are more likely to pick already losing stocks (i.e., momentum investors) as opposed to correcting overpricings.
"Well-Connected short-sellers pay lower loan fees: a Market-wide analysis" with Rodrigo De-Losso, Alan De Genaro, and Bruno Giovannetti. Journal of Financial Economics, Volume 123, March, 2017. Pages 646–670.
Short-sellers have to borrow the stock they want to sell short in the equity lending market, an over-the-counter market. The price they will pay to borrow the stock is not clear, however. We show that those short-sellers who are well connected to brokers, who in turn are well connected to lenders, are able to pay lower loan fees. Our results are consistent with search costs being an important source of price variation in opaque markets.
Haralambos Simeonidis Award, ANPEC, 2018
"Forecasting the brazilian yield curve using forward-looking variables" with Fausto Araújo and Marcelo Fernandes. International Journal of Forecasting, Volume 33, Issue 1, 2017. Pages 121–131.
We estimate an augmented VAR model for a system that includes not only the Nelson–Siegel factors of the Brazilian yield curve, but also the principal components of a large number of macroeconomic and financial indicators. The main finding is that forward-looking variables, such as market expectations about inflation and GDP, are crucial to improve short-term forecasts of the yield curve.
"Short-sellers: informed but restricted" with Rodrigo De-Losso, Alan De Genaro, and Bruno Giovannetti. Journal of International Money and Finance, Volume 47, October 2014, Pages 56–70.
In a single regression, we test the two main hypothesis concerning short-sellers: (H1) short-sellers are informed investors and their trading activity predicts lower stock prices; (H2) when short-sellers face restrictions and there is dispersion of opinion, stocks become overpriced. We find that both are true: short-sellers are informed but at times restricted.
published papers in Brazilian journals:
"The expected returns of structured products" with Otávio Bitu, Bruno Giovannetti, Tomaz Hamdan. Brazilian Review of Finance, Vol 19(2), June 2021. Pages 1-26.
Structured products designed for Brazilian retail investors have negative expected excess returns.
media coverage: CNN Brasil, Isto É Dinheiro, Voce S/A, Valor Invest
"Day-trading stocks for a living?" with Bruno Giovannetti. Brazilian Review of Finance, Vol 18(3), 2020. Pages 1-4.
We provide an update on the odds of day trading stocks for a living using reliable data.
"Attention-grabbing stocks and the behavior of individual investors in Brazil" with Bruno Giovannetti and Anthony Silva. Brazilian Review of Finance, Vol 18(1), 2020. Pages 1-22.
We show that retail investors trade stocks that released "information-void" news.
"Variance premium and implied volatility in a low-liquidity option market" with Eduardo Astorino, Bruno Giovannetti, and Marcos Eugênio da Silva. Revista Brasileira de Economia, 71(1), 2017. Pages 3–28.
We propose a VIX measure for the Brazilian stock market. You can download the "IVOL-BR" time-series here: https://nefin.com.br/data/volatility_index.html
"Central bank communication affects the term-structure of interest rates" with Rodrigo De-Losso, Bruno Giovannetti and Paulo Manoel. Revista Brasileira de Economia, 69(2), 2015. Pages 147–162.
We implement a text-reading algorithm that reads COPOM meetings minutes and produces an "optimist factor" that predicts changes in the term structure of interest rates.
PhD, University of North Carolina at Chapel Hill, 2012
MA, São Paulo School of Economics FGV, Brazil, 2007
BA, University of São Paulo, Brazil, 2003
asset pricing (FGV, PhD program; 2014-present; syllabus, notes)
financial econometrics (FGV, master; 2017-present; syllabus)
computational methods in finance (FGV, undergraduate; 2018-present)
behavioral finance (FGV, undergraduate; 2019-2022)
introduction to finance (FGV, undergraduate; 2018-2019)
introduction to stochastic calculus (FGV, undergraduate; 2018-2020)
investments (FGV, master; 2018)
corporate finance (USP, undergraduate; 2017)
econometrics (USP, undergraduate; 2016)
macroeconomics (USP, undergraduate; 2013-2015)
Brazilian stock market risk-factors
check out the nefin webpage for data on Brazilian stock market: