Steven Malliaris's webpage

Contact Information

Assistant Professor of Finance
Loyola University Chicago, Quinlan School of Business

Email

Contact via gmail, steve.malliaris

Mail

Loyola University Chicago
Schreiber Center, Room 528
16 E Pearson St
Chicago, IL 60611

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Research

My work primarily belongs to the literatures on bounded rationality and financial frictions. A recent vita is available here.

Working papers

Lu, Zhongjin, and Steven Malliaris. Charitable capital allocation: Evidence from private foundations.

We examine the efficiency of private foundations' charitable capital allocation. Using financial shocks to peer foundations as sources of exogenous variation in the marginal value of donations, we find that cross-sectional grant allocations respond positively to changes in need. Responsiveness is greater for scientifically-oriented causes, longer donor-recipient relationships, and foundations under founder control. However, foundations do not adjust overall spending levels intertemporally to maximize impact, instead prioritizing capital preservation. Our results suggest that, lacking market discipline, effective capital allocation by private foundations relies more on mission-driven discretion than internal governance, though unconstrained discretion can lead to inefficient intertemporal allocation.

Malliaris, Steven. Systematic career concerns.

In a model where investors face uncertainty about the prevalence of skill among money managers, managers' collective performance carries information about the quality of the managerial pool. When peers perform well, investors correctly infer that even moderately-performing managers are more likely to be good, so those managers may receive net inflows despite their poorer relative performance. As investors become more optimistic about aggregate managerial ability, an average manager's willingness to hold assets that expose her to career risk increases, causing a corresponding price impact. Price impacts are largest for moderately risky assets because, unlike the safest or riskiest assets, they expose managers to state-dependent career risk. 

Publications

Lu, Zhongjin, Steven Malliaris, and Zhongling Qin (2023). Heterogeneous liquidity providers and night-minus-day return predictability. Journal of Financial Economics 148(3), 175-200.

We present and test a model to understand the puzzling fact that characteristics-sorted stock portfolios tend to earn opposite-signed overnight and intraday expected returns. Heterogeneous arbitrageurs – “fast” arbitrageurs with informational advantages and “slow” arbitrageurs with low inventory costs – compete to determine the price of liquidity. High information asymmetry around market open allows fast arbitrageurs to demand large price deviations for absorbing order imbalances, as cream-skimming risk discourages competition from slow arbitrageurs. Despite persistent order imbalances, these deviations attenuate when cream-skimming risk subsides, leading to opposite-signed overnight and intraday returns. Our model identifies novel determinants that empirically explain substantial variations in predictable overnight-minus-intraday returns.

Malliaris, Steven, Daniel Rettl, and Ruchi Singh (2022). Is competition a cure for confusion? Evidence from the residential mortgage market. Real Estate Economics 50(1), 206-246.

Using the National Survey of Mortgage Originations, we document that borrowers who are more financially sophisticated (measured by their self-reported understanding of the mortgage process) and more exposed to competition (measured by the number of lenders they considered) pay lower mortgage rate spreads. Yet competition is not a substitute for sophistication: the benefits of competition accrue to sophisticates as well as to naifs. Our results complement those from the literature detailing the limits of advice and education, and collectively they paint a pessimistic view about the prospects for simple interventions to close the mortgage rate gap between the informed and the naive.

Malliaris, Steven, and Hongjun Yan (2021). Reputation concerns and slow moving capital. Review of Asset Pricing Studies 11(3), 580-609. 

We analyze fund managers' reputation concerns in an equilibrium model, tying together a number of seemingly unrelated phenomena. The model implies that, due to reputation concerns, hedge fund managers -- especially those with average reputation levels -- prefer strategies with negatively skewed return distributions. One subtle consequence of this preference is that capital sometimes appears slow moving, leaving profitable investment opportunities unexploited, yet other times appears fast moving, causing large capital relocation and price fluctuations in the absence of fundamental news. More broadly, the analysis demonstrates a limitation of market discipline: fund managers may distort their investments precisely because of market discipline. 

Malliaris, Steven, and A.G. Malliaris (2021). Delegated asset management and performance when some investors are unsophisticated. Journal of Banking and Finance 133, article #106289. 

Households with limited financial expertise sometimes attempt to avoid investment mistakes by delegating the management of their investments to experts. But the literature documenting failures of delegation is long. Why is the acquired expertise of asset managers a limited substitute for investors' lack of expertise? We consider an economy with investors (who vary in sophistication) and managers (who vary in skill). Unsophisticated investors' lack of expertise makes it hard for them to distinguish skilled managers from unskilled ones. In the equilibrium that follows, investors exert little effort when searching for managers, leading to a suboptimal composition of managerial types entering the market. When unsophisticated investors are endowed with weak signals, they attempt to time their entry and exit from the market for managers, but their actions are predictable, so performance continues to suffer. 

Frederick, Shane, Amanda Levis, Steven Malliaris, and Andrew Meyer (2018). Valuing bets and hedges: Implications for the construct of risk preference. Judgment and Decision Making 13(6), 501-508. Lead article. Our data are available here.

Risk attitudes implied by valuations of risk-increasing assets depart markedly from those implied by valuations of risk-reducing assets. For instance, many are unwilling to pay the expected value for a risky asset or for its perfect hedge. Although nearly every theory of risk preference (and logic) demands a negative correlation between valuations of bets and hedges, we observe positive correlations. This inconsistency is difficult to expunge.

Malliaris, Mary, and Steven Malliaris (2008). Forecasting inter-related energy product prices. European Journal of Finance 14(6), 453-468.

Five inter-related energy products are forecasted one month into the future using both linear and nonlinear techniques. Both spot prices and data derived from those prices are used as input data in the models. The models are tested by running data from the following year through them. Results show that, even though all products are highly correlated, the prediction results are asymmetric. In forecasts for crude oil, heating oil, gasoline and natural gas, the nonlinear forecasts were best, while for propane, the linear model gave the lowest error. 

Recent Teaching

Applied Corporate Finance (undergraduate). Spring 2018/19/20/21/22/23/24/25.
Behavioral Finance (undergraduate). Spring 2022.
Corporate Finance Theory (PhD). Spring 2020/21/23/25.