Assitant Professor of Finance

Paula

Cocoma


Overview

I'm a Assistant Professor of Finance at the Frankfurt School of Finance and Management. My research is in theoretical asset pricing where I focus on the decision to learn information and the consequences for financial markets. The tools I use to approach problems span: General Equilibrium, Continuous Time, Information Economics and Optimal Stopping Problems

Contact

EMAIL: p.cocoma at fs.de

Phone: +44 771 8883406

Address: Adickesalle 32-34

60322 Frankfurt am Main, DE

Research

“Explaining the Realized pre-Announcement Drift”

- Job Market Paper -


I propose a theoretical explanation for the puzzling positive pre-announcement drift that has been empirically documented to occur before scheduled announcements, using as main example the drift before the Federal Open Market Committee (FOMC) meetings. I construct a general equilibrium model of disagreement (difference-of-opinion) where two groups of investors react differently to the information released at the announcement and also to signals regarding this information available between two announcement dates. The model matches consistently key empirical facts such as (1) the upward drift in prices just before the announcement, (2) lower price volatility, before the announcement, followed by higher volatility after the announcement, and (3) low (high) trading volume before (after) the announcement.
Keywords: FOMC Announcements, Difference-of-Opinion, Scheduled Announcements, Sentiment Risk, Optimal Stopping Time.

“Active vs. Passive: Information Acquisition in the Presence of Corporate Governance” with Jinyuan Zhang


We provide a theoretical framework to understand the implications of corporate governance for the composition of the asset management industry. We allow investors to implement corporate governance in an otherwise standard information model. Our model generates new strategic complementarities in investors' decisions to acquire information due to a conflict of interest when implementing corporate governance. Such strategic complementarities contrast the traditional strategic substitution in information acquisition and increase the equilibrium proportion of passive investors. Our results are robust to the various corporate governance approaches that passive investors take, and we provide a policy discussion on such approaches. Moreover, in our model, a rise in passive investment can increase both payoff volatility and price informativeness in equilibrium. We conclude with two relevant extensions to critical passive funds' corporate governance issues: ESG policies and product market competition...Keywords: Mutual Funds, Passive Investment, Corporate Governance, Information Acquisition, Strategic Complementarities, Conflict of Interests

“A Theory of Momentum Crashes”


We offer an economic mechanism that rationalizes crashes in the momentum strategy. We propose a general equilibrium model of disagreement (difference-of-opinion) where two groups of investors, Speculators and Fundamentalists, trade in the financial market. Disagreement arises because speculators use a spurious signal to learn about fundamentals, whereas Fundamentalists regard it as pure noise. Furthermore, all investors can engage in costly, though infrequent, research to learn about the true fundamental of a firm. The different interpretation of information creates sentiment risk that drives return persistence, which resembles momentum at short-horizons and mean-reversion at long-horizons. Nevertheless, build-ups in disagreement and uncertainty make the fundamentalist investor willing to pay a cost to research a firm and take a glimpse of its true fundamental. The outcome of research on a firm is revealed in the market, generating sharp market-wide rebounds that cause momentum crashes. The model predictions match complementary empirical evidence on momentum crashes.
Keywords: Difference-of-Opinion, Momentum, Crashes, Behavioral Finance, Optimal Stopping Time

Language Skills

Software Usage

Location Experience

Education

INSEAD

PhD in Finance - Expected graduation 2020

MIT Sloan School of Management

Master in Finance - Class 2014

Universidad de los Andes

BSc Industrial Engineering, cum laude - Class 2013

Universität Karlsruhe (TH)

Exchange student, Wirtschaftsingenieurwesen

Awards

INSEAD PhD scholarship 2015 – Present American Finance Association travel grant 2019 Outstanding tutor award for MBA tutorials 2018 Student travel grant, 10th Macro Finance Society 2017 Master of Finance Achievement Award 2014 Dean's Master of Finance Fellowship 2013 DAAD (German Academic Exchange) scholarship 2011

Teaching Experience

Financial Markets and Valuation

Tutor for MBA core Finance - INSEAD

Math Tutorial

Co-instructor PhD course - INSEAD

Management Control Systems

Undergraduate tutor - Universidad de los Andes

Thank you!