Research

publications

Bank Secrecy in Offshore Centers and Capital Flows: Does Blacklisting Matter? with Andrea D’Angelo and Donato Masciandaro (2017) Review of Financial Economics, 32: 30-57 (paper)

Banking Secrecy and Global Finance: Economic and Political Issues with Donato Masciandaro (2015) Palgrave Macmillan (publisher website)

Working Papers 

Peer Effect in Stock Trading: the Effect of Co-workers, Family, and Neighbors (Job Market Paper, SSRN)

This paper studies the effect of different social networks on stock trading, and investigates how similarity and learning drive the peer effects. Using unique data on co-workers, family, neighbors, and stock trading, I find that neighbors are the most influential peers, followed by co-workers, and family. Examining mechanisms, I find that both similarity and learning impact the peer effects. Overall, I provide new insights into heterogeneous peer effects across social networks, key for understanding how the rapid increase in social investment tools will impact financial markets.

Personal Recommendations and Portfolio Quality with Claes Bäckman, Andreas Hackethal, Tobin Hanspal, and Dominique M. Lammer (SSRN)

Social interactions in finance can lead to better financial outcomes or help propagate financial mistakes. We develop a framework that incorporates two views of social interaction and provides empirical evidence of their relevance in a setting where individuals are personally connected with stronger ties than in an online community. Providing and accepting advice is positively related to portfolio quality but is not driven by high returns. Funds are more likely to be recommended than lottery or attention stocks, leading to increases in portfolio quality. Our evidence suggests that social networks can provide good advice in settings where individuals are personally connected.

Redefining Successful Financial Education with Vimal Balasubramaniam, Aditi Dimri, and Renuka Sane (SSRN, under review)

Financial education interventions are considered successful when they help households make better financial decisions. However, this fails to account for the general equilibrium consequences of such an intervention. We redefine successful financial education as one where such interventions result in large enough effect sizes to move the market to an equilibrium where firms find it in their interest to unshroud product features to all consumers. We then assess a new product-specific rules of thumb-driven consumer financial education program. Our intervention improves knowledge and outcomes for newly-educated consumers. It is, however, a Pareto-improvement only under a narrow set of conditions. Positive treatment effects for a small fraction of retail consumers may come at the cost of other uninformed consumers. They are not enough to move the market to an unshrouded equilibrium, questioning the effectiveness of such an intervention.  

Beyond Connectivity: Stock Market Participation in a Network with Claes Bäckman and Anastasiia Parakhoniak (SSRN)

The past twenty years have seen an explosion in our ability to share financial information on social networks, yet stock market participation has barely changed. We introduce an equilibrium model of stock market participation with a social network to show that the effect of connectivity on stock market participation depends on how efficient information spreads, which is linked to how agents are connected, homophily, and inequality. High-income agents benefit more from connectivity, leading to increased inequality. We discuss the implications for access to financial information, wealth inequality, and stock market participation.

Work in progress

How Fat are the Fingers? Investor Mistakes and Market Efficiency  with Claes Bäckman, Arze Karam, and Anastasiia Parakhoniak

In this project, we investigate the effect of investor inattention on the efficiency of the stock market. Irrational inattention manifests itself in investors confusing stock with similar tickers or names. We estimate the abnormal returns of stocks at the time of the IPO of the company with a similar ticker or similar company name to quantify the effect of inattention on stock prices.  Significant abnormal returns show that investors’ inattention to ticker names has an impact on stock market prices. In the second step, we use this non-fundamental shock to stock prices to investigate how market efficiency has improved with the introduction of algorithmic trading. The efficient market hypothesis does not preclude mistakes from impacting stock prices but suggests that such mistakes should only have a short-term impact. If algorithmic trading has improved market efficiency then mistakes should have a shorter impact on prices. Alternatively, momentum strategies by trading algorithms can prolong the impact of mistakes.  

Demand and supply-side effect of information disclosure: evidence from closet index funds with Vimal Balasubramaniam, Claes Bäckman, and Ondrej Honzik

A growing literature (e.g., Campbell, 2016) makes a strong case for active regulatory intervention in consumer financial markets to counter costly and widespread household financial mistakes and predatory behavior by firms. Such interventions are likely to become even more critical going forward as consumers face an increasingly complex product environment to make financial choices. As suboptimal consumer choice in financial markets plays a role in generating wealth inequality (Lusardi, Michaud, and Mitchell, 2017) and distorts financial markets (DellaVigna and Malmendier, 2004), a better understanding of how to design regulatory interventions effectively is a priority for researchers. In this proposal, we present an empirical strategy to assess whether regulatory interventions work, investigate what drives the effects, and embed our results in a stylized model to assess welfare outcomes of the regulation.

Our setting is the perceived problem of closet indexing by mutual funds across European countries – the EEA and the United Kingdom – and the heterogeneous regulatory responses. Closet indexing relates to funds that market themselves as actively managed but pursue an investment strategy that instead mimics an index fund. Because of the substantial differences in fees between passive and actively managed mutual funds, investing in a closet index mutual fund instead of an index can have important implications for investors' wealth accumulation. It may expose investors to different risk-return profiles than stated on the fund prospectus.

Social Dimensions of ESG Investment with Charlotte Christiansen and Malene Kallestrub-Lamb

Politics or Profits: Stock Choices of US Politicians