Assitant Professor of Finance
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
“Disagreement and Scheduled Announcements: Explaining the 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.
“Efficiency Loss: The Hidden Cost of Passive Investors Governance” with Jinyuan Zhang
While regulators stress the importance of passive investors' fiduciary duty in corporate governance, we argue that when passive funds fulfill their fiduciary duty to increase a firm’s value, they unintentionally create market inefficiencies. In our model, investors acquire information, optimize portfolios, and affect a firm's value through governance. In equilibrium, bad firms are left governed by passive investors, a consequence of market clearing. Therefore, when passive investors increase a firm's value, they increase it more for bad firms, reducing information sensitivity and generating market inefficiencies. We offer unique empirical predictions and explore applications on ESG policies and product market competition.
.Keywords: Mutual Funds, Passive Investment, Corporate Governance, Information Acquisition, Strategic Complementarities, Conflict of Interests
“Do Investors Learn from Prices to Form Beliefs? Evidence from the Securities Lending Market”
We propose a new test to distinguish between models of rational expectations and differences-of-opinion. Our theoretical framework nests both types of models and enables us to study how investors use prices to form beliefs. If investors have rational expectations, a more precise signal about the fundamental value of an asset leads to an increase in price informativeness, a decrease in return volatility, trading volume, and their correlation. However, if investors have differences-of-opinion, the opposite holds true. We empirically identify increases in signal precision by demand increases in the securities lending market; thereby, in contrast to the current literature, we isolate trades arising from private information. We find that, even though demand increases are informative about future expected returns, investors are overconfident and dismissive of price information, consistent with differences-of-opinion models.
Keywords: Rational expectations, differences-of-opinion, shorting demand, belief formation
“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
INSEADPhD in Finance - Expected graduation 2020
MIT Sloan School of ManagementMaster in Finance - Class 2014
Universidad de los AndesBSc Industrial Engineering, cum laude - Class 2013
Universität Karlsruhe (TH)Exchange student, Wirtschaftsingenieurwesen
Financial Markets and ValuationTutor for MBA core Finance - INSEAD
Math TutorialCo-instructor PhD course - INSEAD
Management Control SystemsUndergraduate tutor - Universidad de los Andes