Specialization and Strategic Expansion: Evidence from Asset-Based Credit Markets
with Jose Liberti and Andrew Sutherland
Uncovering Collateral Constraints
with Jose Liberti
- Presented at the 2015 American Finance Association Annual Meetings
- Presented at the 2014 Financial Management Association Meeting
- Presented at the 2014 UBC Winter Finance Conference
- Presented at the 2013 Society for Financial Studies Cavalcade
Summary: Collateral plays two roles: it incentivizes borrowers to repay, and it insures lenders against the possibility of default. If the former effect is strong enough, then borrowers will always choose to repay as long as they can afford to do so. In that case, the realized default rate should be independent of the degree of agency risk. We show that this is indeed the case, implying that the commitment role of collateral is the most important.
Product Complexity, Investor Experience, and Returns
with Alan Genaro, Jose M Liberti, and Pedro A. C. Saffi
Summary: Using the universe of Brazil’s retail structured products, we demonstrate that prior trading experience determines who profits in complex markets. Complex products underperform simple ones by 2.6 percentage points annually. However, experienced investors systematically select superior complex notes, outperforming inexperienced investors by six percentage points, controlling for asset type. Controlling for observable issuer, product, and timing characteristics reduces this premium to around one to two percentage points. By tracking individuals as they gain experience, we confirm a robust within-investor causal premium of 0.7 to 0.9 percentage points. Ultimately, demonstrated trading experience predicts returns far better than the wealth thresholds underlying global accredited-investor frameworks.
Securities Lending and Information Acquisition
with Stefan Greppmair, Stephan Jank, and Pedro A. C. Saffi
Summary: We use unique micro data on German mutual fund long and lending positions to provide evidence that securities lending is a mechanism for information acquisition and a channel through which informed investors convey their information to uninformed investors. The results suggest that short-sellers and active lenders have complementary roles in information acquisition and trading in a manner that improves price informativeness.
Shareholder-Creditor Conflicts and Limits to Arbitrage: Evidence From the Equity Lending Market
with Yongqiang Chu, Luca X. Lin, and Pedro A. C. Saffi
Summary: Conflicts of interest between shareholders and creditors affect prices in financial markets through restricting supply in the equity lending market and creating short selling constraints.
Cyber Risk, Strategic Disclosure, and Asset Prices
with Hao Ma and Tri Minh Phan