Fernando Chague
associate 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
working papers:
"Distracted by Crypto" with Matheus Brito, Jefferson Colombo.
We study the response of retail equity investors, both in Brazil and the US, to attention-grabbing events in cryptocurrencies. We find that at first they were distracted by them. From 2012 to 2018, retail equity trading decreases during periods when cryptocurrencies are attention-grabbing. As cryptocurrencies become mainstream from 2019 to 2022, we observe a diminishing distraction effect, consistent with individuals perceiving them as a conventional asset.
best paper award, Brazilian Econometric Society Meeting, 2024
presented at: EBE 2024
"Counting pennies, losing pounds: biased learning about own trading ability" with Bruno Giovannetti, Bernardo Guimarães and Bernardo Maciel.
We study the behavior of retail day traders to shed light on the causes of overconfidence in financial markets. We show these individuals assess their trading skills using a simple counting heuristic: the proportion of profitable days. This yields an upward-biased performance measure, as individuals exhibit a strong disposition effect that artificially inflates the proportion of profitable days. We develop and estimate a model showing that without the disposition effect, the counterfactual proportion of profitable days would be 47%, compared to the actual 52%.
presented at: Lubrafin 2024, EBE 2023
"Information Leakage from Short Sellers" (NBER WP) with Bruno Giovannetti and Bernard Herskovic. Revise and resubmit at the Journal of Finance.
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.
best paper award, Brazilian Econometric Society Meeting, 2023
presented at: SFS Cavalcade 2024, Adam Smith Workshop Spring 2024, EBE 2023, IWiFE 2023, FMA 2023, EBFIN 2023, Lubrafin 2023, UCI Finance Conference 2023, ITAM-Finance 2023
"Familiarity Breeds Day Trade" with Bruno Giovannetti and Guilherme Paiva. Revise and resubmit at the Journal of Banking & Finance.
Individuals over-invest in familiar stocks. We document the existence of familiarity bias also in day trade, a trading activity that lasts hours at most. Living close to a brick-and-mortar firm's local store in a small city more than doubles the likelihood of an individual day-trading its stock. Information, the usual explanation for the familiarity bias, is unlikely to explain our finding: a single local store in a small city could give useful information for day-trading only in truly abnormal events.
presented at: Lubrafin 2022, FMA 2022, EBFIN 2022, EBE 2022
"The overpricing of popular high-risk stocks" with Bruno Giovannetti and Bernardo Guimarães. Revise and resubmit at the Review of Asset Pricing Studies.
There is strong 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
follow-up studies: Day-trading stocks for a living? and Experienced day-traders.
published papers:
"Attention and Biases: Evidence from Tax-inattentive Investors" with Justin Birru, Rodrigo De-Losso and Bruno Giovannetti. Management Science. Volume 70, October 2024. Pages 7101-7119.
Are some investors prone to behavioral biases? We find that retail investors who forget to take advantage of a simple and widely known tax break opportunity in Brazil are also more prone to biases. Importantly, our results hold even after controlling for a large number of investor sophistication measures such as trading longevity, professional occupation, and whether the investor has traded derivatives or sold short stocks in the past. Our results support theories that relate investor's inherent inattention to behavioral biases.
best paper award, Brazilian Econometric Society Meeting, 2018
"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, based on stock returns and risk-free rates since the mid-1990s. However, applying the same limited timeframe to the US could yield a similarly misleading result. Therefore, using realized returns to infer the Brazilian equity risk premium requires a longer observation period.
"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:
"ETFs dominados" with Leonardo Luna. Brazilian Review of Finance, Vol 22(2), June 2024. Pages 15-41.
Not all Brazilian Exchange Traded Funds are good...
Best paper award - Brazilian Review of Finance prize SBFin 2024
"O Retorno esperado dos COEs" 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.
Best paper award - Brazilian Review of Finance prize 2020
"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 the first 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.
Trader ou Investidor?
Aprenda a investir na bolsa sem cair nas armadilhas dos vieses comportamentais
media coverage: Folha de São Paulo, Valor Econômico, Jornal da Noite, Brazil Journal, FGV Podcast, VC S/A, Zero Hora, Folha de São Paulo.
Livro semifinalista Premio Jabuti, 2024.
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)