In its Junior program (Jeunes Chercheurs - Jeunes Chercheuses), the French National Research Agency (ANR, Agence Nationale de la Recherche) is providing financial support to the project entitled "PIMS" (Price formation In financial MarketS) on which I am working with different teams of co-authors. The official name of the project is: ANR-16-CE26-0008-01.
The purpose of this project is to further our understanding of the extent to which gains from trade can be reaped in financial markets. Designing the organization of financial markets implies defining the microstructure of the market, i.e., the trading and aggregation rules. Rules are often imperfect and give rise to various frictions, which might interplay with the beliefs, the strategic interactions, or the cognitive biases of market participants (e.g., investors, managers, or financial intermediaries). The objective of this research is to analyze the potential impact of these frictions on the prices, and thus on market quality and welfare, possibly to highlight original policy implications. The questions I will address belong to broad issues related to the influence of the trading rules on the price formation, market liquidity and stability, or to whether risks are efficiently shared and assets are correctly priced. My project is at the crossing of fields, namely, market microstructure, asset pricing, behavioural finance, and corporate finance. To achieve these objectives, my scientific approach is firmly grounded on theoretical, experimental, and empirical bases.
The project is funded for a period of four years, and started on October 1st, 2016. The list of the majors themes and initial projects included in the initial proposal is as follows:
i. Market liquidity and financial intermediation
The role of pre-opening mechanisms in fragmented markets (with Selma Boussetta, University of Bordeaux (GRETHA), and Laurence Daures Lescourret, ESSEC Business School)
Funding constraints and market liquidity in the European Treasury Bond Markets (with Minh Nguyen, Newcastle University, and Giorgio Valente, Hong Kong Institute for Monetary Research, Hong Kong Monetary Authority)
ii. At the frontier of market microstructure
Share repurchase (by Alexander Guembel, Toulouse School of Economics and Silvia Rossetto , Toulouse School of Economics)
The long term impact of passive investment (with Milo Bianchi, Toulouse School of Economics, and Yifeng Guo, PhD student, Colombia Business School)
iii. Asset pricing and behavioural finance
Asset pricing and risk--sharing in a complete market: An experimental investigation (with Bruno Biais, HEC Paris, and Thomas Mariotti and Sébastien Pouget, Toulouse School of Economics)
Learning to speculate (with Jieying Hong, ESSEC Business School, and Sébastien Pouget, Toulouse School of Economics)
Four of these projects have reached a "working paper" stage, and have already been presented to workshop or conferences.