Hi, I am Theofanis Papamichalis.

I'm currently an Assistant Teaching Professor at the Faculty of Economics, University of Cambridge and the Greta Burkill Fellow in Economics at Murray Edwards College,  Cambridge.

My research interests center around macro-finance, general equilibrium and theoretical and empirical asset pricing, with current work focusing on topics such as the connection between the time series and the cross-section of stock market returns, the impact of optimism and default on the macroeconomy and the implications of market structure on the stock market.

My recent paper, “On the Time Variation of Aggregate Stock Returns and Cross-Sectional Anomalies" shows, both theoretically and empirically, an overall negative contemporaneous relationship between aggregate stock market returns and cross-sectional anomalies. 

I hold degrees from MIT (Masters in Finance), Cambridge (Masters of Advanced Study in Mathematics) and Imperial (Masters of Engineering).

Contact Information

email: tp323@cam.ac.uk

address: King's College, Cambridge, CB2 1ST, United Kingdom.

For more detail, click here: [CV] 

New: “On the Time Variation of Aggregate Stock Returns and Cross-Sectional Anomalies", with Dean Ryu

Abstract: We develop a sentiment-based framework that explains an overall negative contemporaneous relationship between aggregate stock market returns and cross-sectional signals. We extend De Long, Shleifer, Summers, and Waldmann (JPE 1990) to demonstrate that when sentiment is low, the reluctant demand side (both long and shortlegs) commands higher returns to hold risky assets, giving rise to high aggregate returns. When market sentiment is high, however, the fall in aggregate returns is mainly driven by plummeting high sentiment elasticity stocks (the short-legs), generating most anomalies. Results from vast stock market signals in the U.S. market support our model prediction. In addition, the sentiment framework proposes a reformulation of the current approach to forming risk factors, as it suggests that firms’ characteristics which are deemed safer (riskier) should form the long-legs (short-legs) of market anomalies. Overall, our findings point to the direction that market sentiment is crucial for understanding the link between the cross-section and the time-series of stock market returns.

New: “Optimism, Net Worth Trap, and Asset Returns", with  Goutham Gopalakrishna and Seung Joo Lee

Abstract: We study the role of optimism in explaining joint macroeconomic and asset return dynamics by building a tractable model that embeds beliefs about the economy’s long-run growth and the amplification of boom-bust cycles. Expectation errors stemming from dogmatic optimistic beliefs generate a net worth trap, where optimists’ net worth is inefficiently trapped at low levels indefinitely. A procyclical swing in beliefs eliminates the trap, indicating that the type of beliefs has important consequences on financial stability. Empirically, our model explains the conditional excess momentum in asset returns and significantly raises the pricing power in cross-section.