Working Papers

 

  • “Data Abundance and Asset Price Informativeness”,  with Jérôme Dugast, March 2017. Presented at American Finance Association Meetings, 2017).

    • Predicts that a decrease in the cost of access to information (“data abundance”) can reduce asset price informativeness.
    • Latest draft available (SSRN)
    • Slides
    • On-line appendix
    • Abstract: Information processing filters out the noise in data but it takes time. Hence, low precision signals are available before high precision signals. To capture this feature, we develop a model of securities trading in which investors can acquire signals (about future cash flows) of increasing precision over time. As the cost of producing low precision signals declines, prices are more likely to reflect these signals before more precise signals become available. This effect increases price informativeness in the short run but not necessarily in the long run, because it reduces the profit from trading on more precise signals. We make additional predictions for trade and price patterns.
  • Ripple Effects of Noise on Corporate Investment” with Olivier Dessaint, Laurent Frésard, and Adrien Matray. December 2015. To be presented at American Finance Association Meetings, 2017

    • Shows that non fundamental shocks to firms’ stock prices affects the real invstment of their product-market peers
    • Latest draft available (SSRN).
    • Abstract: Firms reduce investment in response to non-fundamental drops in the stock price of their product-market peers, as predicted by a model in which managers learn from stock prices but cannot perfectly filter out noise in prices. The model also implies the response of investment to noise in peers’ stock prices should be stronger when these prices are more informative, and weaker when managers are better informed. We find support for these predictions. Overall, our results highlight a new channel through which non-fundamental shocks to stock prices of influence real decisions.
  • “Corporate Strategy, conformism, and the stock market” with Laurent Frésard. Revised: January 2016. To be presented at WFA2016.

    • Predicts and find evidence that firms are more likely to imitate their peers when they rely on stock prices as a source of information.
    • Latest draft available (SSRN).
    • Slides
    • On-line appendix
    • Vox article on our paper
    • Abstract: We show that managers can raise firm value by imitating other public firms’ strategies because imitation enhances their ability to obtain information from their own stock price or their peers’ stock prices, which improves the efficiency of their investment decisions. This conformity effect is stronger for private firms’ managers because they can learn information from stock prices only if they imitate public firms’ strategies. In line with this prediction, we observe empirically that firms differentiate more after going public and that this pattern is stronger for firms with better informed managers or whose peers have less informative stock prices.

      “Toxic Arbitrage”, with Roman Kozhan and Wing Wah Tham. Fothcoming in Review of Financial Studies. Latest draft: September 2016.

      • Evidence that high speed arbitrage can raise illiquidity by exposing liquidity suppliers to the risk of trading at stale quotes .
      • Latest draft available (SSRN)
      • Internet Appendix
      • An executive summary of our paper published in the Center for the Study of Financial Regulation
      • Slides
      • Abstract: Short lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities and a faster arbitrageurs’ response to these should impair liquidity. We provide supporting evidence using data on triangular arbitrage. As predicted, illiquidity is higher on days when the fraction of toxic arbitrage opportunities and arbitrageurs’ relative speed are higher. Overall, our findings suggest that the price efficiency gain of high frequency arbitrage comes at the cost of increased adverse selection risk.

Old working papers

  • “Linkage Principle, Multidimensional Signals and Blind Auctions”,  with Stefano Lovo, 2004 (draft on SSRN)
  • “Price formation and order placement strategies in a dynamic order driven markets”, 1995 (draft)