CAFIN's 2019 Annual Newsletter

February 25, 2019

By Nirvikar Singh, Director of CAFIN and Distinguished Professor of Economics 


Note from the Director

CAFIN continues to grow as an institution, and last Fall began the process of building an External Advisory Board. The Board is headed by UCSC alumnus Stephen Bruce, who has been one of our earliest and strongest supporters. The other initial Board members are Sameet Mehta of Granite Hill Capital Partners, and Tiffine Wang of Singtel Innov8 (see photo). This newsletter describes our forthcoming and past activities, including conferences, regular CAFIN lectures, support forcafin-brochure-cover.jpg initiatives in financial education, and research projects. We are continuing to collaborateon conferences with the Global Research Unit of the City University of Hong Kong, with UCSC’s Science and Justice Research Center, and on building new partnerships. The cover of our striking brochure, designed by UCSC alumnus Larry Rowen and his team, is once again featured with this note (click on the picture to link to the brochure).

Finally, this issue of the CAFIN newsletter is dedicated to UCSC alumnus James Hutchinson, who passed away in 2018. Mr.Hutchinson exemplified the ideals of UCSC, and supported CAFIN intellectually as well as financially. His broad engagement with us was joyful and encouraging, and he will be greatly missed.

Forthcoming Conferences and Workshops

Workshop: New Research on Corporate Policies and Firm Risk

cafin-workshop.pngThis workshop will be held at UCSC on April 19th. It is organized by CAFIN Steering Committee member Prof. Natalia Lazzati, CAFIN Research Affiliate Prof. Amilcar Menichini, and Prof. Yuri Tserlukevich of Arizona State University. The keynote lecture at the workshop, on optimalleland.jpeg  debt maturity, will be delivered by Hayne Leland, of UC Berkeley.

Professor Leland has made seminal contributions to theoretical and applied finance. His theoretical work has found direct applications in asset management and corporate financial structure, including portfolio insurance, options pricing with transactions costs, and valuation of risky corporate debt. The other presentations will be:

  • “A Unified Model of Distress Risk Puzzles”, Zhiyao (Nicholas) Chen (Chinese University of Hong Kong)
  • “Supply Chain Bargaining and Asset Prices”, Maria Bustamante (University of Maryland)
  • “Competition, No-Arbitrage, and Systematic Risk”, Yuri Tserlukevich (Arizona State University)
  • “Short-Term Debt and Incentives for Risk-Taking”, Francesca Zucchi (Federal Reserve Board of Governors)
  • “The Maturity Premium”, Patrick Weiss (Vienna Graduate School of Finance)
  • “Optimal Short-Termism”, Alejandro Rivera (University of Texas at Dallas)

Conference: Exchange Rates and Macroeconomic Policies–Recent Developments


On December 2-3, 2019, the Global Research Unit, Department of Economics & Finance, City University of Hong Kong (CUHK), CAFIN, and the Institute of Empirical Economic Research, Osnabrück University, Germany, are coorganizing a conference to address multiple issues that have become more salient with continued globalization and ongoing threats to financial stability. The conference will be held at CUHK. CAFIN Steering Committee member Prof. Michael Hutchison joins host (and CAFIN Research Affiliate) Prof. Yin-Wong Cheung and Prof. Frank Westermann of Osnabrück University, Germany on the conference committee. Full details and submission instructions can be found here.

New CAFIN Projects

Investor Attention Dynamics and Asset Pricing

graceweishigu.jpgCAFIN Research Affiliate Prof. Grace Weishi Gu is leading this research project, which documents the dynamics of investor attention to stocks and corporate bonds, and analyzes their impact on the pricing of those financial assets. As investors’ stakes in stocks and corporate bonds are fundamentally 3 different, one would expect that attention rises for both good and bad news about a stock, while investors only pay attention to a bond when the underlying company does not perform well. Whether such different attention reactions exist and, if so, how they affect asset pricing is at the heart of the empirical, as well as theoretical, parts of this project.

NASDAQ Data Project

eric-aldrichj.jpgUCSC has access to data from the Nasdaq equities market for noncommercial use: very few academic institutions and researchers have similar access. The data is packaged in binary daily files, which is not a userfriendly format. CAFIN Associate Director Eric Aldrich is leading a project to parse and database the data to make it more broadly accessible to the UCSC community, so that it can be readily used for academic research. The scale of such research projects will greatly exceed those currently accomplished in academic work, as the data has not, up to now, been made available through a professional-grade databasing system.

Workshop on Decentralized Exchanges

Cryptocurrencies and blockchain technology have been a major disruptive financial technology in recent years. Despite their core philosophy of trustless transactions, the majority of cryptocurrency trading is accomplished on centralized, private exchanges. Such centralized systems represent points of failure in an emerging ecosystem. In response, decentralized exchanges are being developed, in which order placement activity and transactions are themselves encoded in Etherium contracts, which are written to a distributed ledger. These systems are important innovations in the realm of decentralized ledgers and are relevant to each of CAFIN’s core themes: (1) market design, (2) financial access, and (3) systemic risk. CAFIN Associate Director Eric Aldrich will be the lead organizer for a workshop on this issue, to be held in the next academic year.

Financial Education

Bloomberg Terminal

bloomberg-terminal.pngUCSC students and faculty continue to benefit from the free availability of a Bloomberg terminal, made possible by the generosity of Cabezon Investment Group. Michael Cagney, Chief Investment Officer of Cabezon and a UCSC alum, has been instrumental in facilitating this support for our students. This year, Evan Smith, a graduate of UCSC’s doctoral program in Economics and 4 Director of Research at Cabezon, is exploring projects with UCSC students that will give them insight into using financial data through Bloomberg for applied research projects. Currently, doctoral student Fernando Chertman and master’s student Omar Higazy are engaging in pilot projects with Dr. Smith.

Personal Finance Course

Patricia Kelly, a UCSC alum and Harvard MBA has developed a very successful course in personal finance, taught through patricia-kelly.jpgCowell College at UCSC. Much of Ms. Kelly's career has been spent in the financial industry, beginning as an investment banking analyst on Wall Street in the 1980's, to a partnership at a Palo Alto based investment management firm, where she was responsible for managing $2.5 billion for institutional clients. She currently has a seed grant to develop an online version of this course, and CAFIN is planning to partner in this effort. Stephen Bruce, the head of CAFIN’s External Advisory Board, has pledged his support, in the form of a matching donation, and CAFIN is actively seeking matches for his pledge. Our goal is to create an in-depth course, with interactive learning tools for students, to equip them for a world in which financial complexity has skyrocketed. Graduates need to understand loan terms, retirement saving options, and tax policies, among other aspects of personal finances. As an increasing number of UCSC students are the first in their families to go to college, having the tools that a personal finance course can provide will be of high value. An online version will increase access greatly, making it available throughout the entire University of California system.

Chartered Financial Analyst Seminar

kai-pommerenke.jpgCAFIN continues to support a seminar for Economics students interested in careers in finance, and in becoming Chartered Financial Analyst (CFA) charterholders. The seminar is conducted by Kai Pommerenke, a graduate of UCSC’s doctoral program in Economics, CAFIN Research Affiliate, and CFA charterholder. According to Dr. Pommerenke, “The course has two objectives: giving students insights into the CFA program and helping them get a perspective on a career in finance. A range of amazing guest speakers shared their experience with the students and gave them great advice about finding a job in finance and working successfully in a finance position, whether corporate finance or asset management.” Student comments bear out the success of the seminar:

  • Speakers were inspiring…
  • An eye-opening experience about the world of finance…
  • An amazing resource for prospective finance professionals…
  • [T]he perfect course to take to complement my other finance courses…The speakers gave really useful academic and professional advice. 
  • [P]rovided me with some of the most relevant life information from a number of professionals…
  • Tons of opportunities to connect and learn about potential jobs and careers. An absolute great way to end my last quarter at UCSC.

Recent CAFIN Events

CAFIN Lecture

Albert "Pete" Kyle: Toward a Fully Continuous Exchange (March 2018)


A pioneer in modeling price formation and information aggregation in financial markets, Professor Kyle served on the faculty at Princeton, UC Berkeley and Duke University before accepting his current position as Charles E. Smith Chair Professor of Finance at the University of Maryland. He is a Fellow of the American Finance Association and a Fellow of the Econometric Society. In modern financial markets, some of the main problems associated with high-frequency trading and dark pools arise because transactions occur in continuous time but in discrete quantities and at discrete prices. In this lecture, Professor Kyle proposed a radically new design for financial exchanges that overcome such problems by allowing continuous prices and quantities. 

CAFIN Lecture

Bill Maurer: Beyond the Cryptocurrency Bubble – Accounting for Blockchain in the Post-Crisis Global Economy (May 2018)

bill-maurer.jpgBill Maurer is dean of the School of Social Sciences and professor of anthropology; criminology, law and society; and law at the University of California, Irvine. An anthropologist, he is one of the world’s leading experts on money’s artifacts and technological systems, from cowrie shells to credit cards. The lecture first chronicled the cryptocurrency phenomenon, from Bitcoin to the development of blockchain applications in fields as diverse as facilities maintenance and finance, including the recent run up of the price of cryptocurrencies. It considered developments in blockchain technology that might really be game changers, such as the new role of initial currency offerings (ICOs) in raising capital. The second part of the lecture asked, how can we situate blockchain in light of the history of accounting technologies? An analogy was made with double-entry bookkeeping facilitating the rise of capitalism.


Lessons from the Financial Crisis (October 2018)lessons-from-the-financial-crisis.png

CAFIN organized and hosted a panel at the UC Santa Cruz Silicon Valley Campus to mark and draw lessons from the financial crisis of a decade ago. Titled “10 Years after Lehman's bankruptcy: Where are we now and what lies ahead?,” the moderated panel featured four distinguished financial experts. Almost exactly a decade earlier, on September 15, 2008, financial services giant Lehman Brothers filed for bankruptcy. Stock markets began collapsing around the world, and the global economy entered its worst crisis since the Great Depression. Panelists Prof. Darrell Duffie (Stanford), Prof. Barry Eichengreen (UC Berkeley) and Dr. Mark Levonian (Promontory Financial Group) made informative presentations, and answered questions from the moderator, Prof. Michael Hutchison (UC Santa Cruz and CAFIN), and from the audience. The panelists each reviewed the current situation of the financial sector and the global economy. They noted the substantial progress made with post-crisis regulations that have addressed many of the sources of risk that contributed to the crisis, and also areas where regulations might have gone too far or not far enough. Each panelist also highlighted possible future risks, including new sources of risk. Prof. Eichengreen noted three areas of major riskslessons-from-the-financial-crisis-2.jpg to global financial stability ten years after Lehman: backsliding risk, shadow banking risk, and emerging market risk. Prof. Duffie emphasized cyber risk, the fragility of China's shadow banking market, and Italian sovereign and bank debt as major potential problem areas going forward. Dr. Levonian touched on regulatory and institutional issues such as the impact of central clearing for derivatives, capital standards for systemically important banks, policy coordination during the crisis and how it has changed since, and initiatives to enhance the quality and availability of data on positions and risks.

Chancellor George Blumenthal and Social Sciences Dean Katharyne Mitchell both made introductory remarks, and UCSC Provost and Executive Vice Chancellor Marlene Tromp also attended. UCSC alum Stephen Bruce announced the formation of the CAFIN advisory board and introduced the new board members (see Director’s note).

Science & Justice Research Center and CAFIN Panel

Finance Moves West (January 2019)

This event was CAFIN’s second opportunity to collaborate with the SJRC, headed by UCSC Professor of Sociology Jenny Reardon, in hosting Wall Street financial advisor and UCSC alum Sherry Paul. UCSC Professor of Sociology Chris Benner was a fellow panelist with Ms. Paul, and CAFIN Director Nirvikar Singh spoke as a respondent to the two panelists. Prof. Reardon framed the panel by asking if the influence of Silicon Valley on finance is more benign than the “wolves of Wallfinance-moves-west.png Street.” Ms. Paul made the case that the use of technology and the influence of Silicon Valley had not disrupted Wall Street, merely shifted certain aggregations of wealth. She noted gender disparities in access to finance and among finance professionals, and the inferiority of algorithms and artificial intelligence tools to skilled human financial advisors, who can customize guidance based on deeper knowledge of individual characteristics and needs. Prof. Benner noted the global concentration of financial centers and of wealth, the impacts of winner-take-all market structures, and the overuse of softwarefinance-moves-west-2.png patents as examples of glaring inequalities in finance and more broadly in the economic system. Prof. Singh supported the panelists’ observations, and noted that more equal access to education and the accumulation of human capital is crucial for allowing individuals to take advantage of technological advances in the financial sector. Individuals have to be able to generate surplus income and wealth in order to save and invest productively.

Financial Market Design

Our most ambitious research projectdaniel-friedman.jpg continues to be the international collaboration on financial market design, tackling problems highlighted in Michael Lewis’ bestselling book, Flash Boys. Professors Eric Aldrich, Daniel Friedman and Kristian López Vargas, all affiliated with CAFIN, are working with several other researchers, including CAFIN Research Affiliate Prof. Peter Cramton and Prof. Axel Ockenfels, both from the University of Cologne, to study the performance of competing market formats in the presence of high frequency trading (HFT).

Kristian López Vargas reports:

HFT arguably wastesLopez Vargas resources by demanding expensive telecommunication infrastructure that provides some traders with minuscule time advantages over others. Some researchers argue that this infrastructure enhances market liquidity and price discovery, but others say that those benefits (if they exist at all) are overshadowed by the multi-billion dollar infrastructure costs of such infrastructure. Some observers also question the fairness of HFT given the way financial markets are currently structured.

In March 2018, the research group hosted a workshop on market design and highfrequency trading (HFT), sponsored by CAFIN, as part of the larger research project. The project compares the efficiency and fairness of the current financial market structure to proposedprofessor-pete-kyle.jpgalternatives, given the presence of high-speed algorithmic trading. It focuses on market microstructure, the detailed rules for matching buy and sell orders and determining the timing and prices at which trades occur. The researchers use experimental methods to study the three leading proposals that have emerged in recent years. The first is the investors’ exchange (IEX), whose origins are thecenterpiece of Michael Lewis’ 2014 book, Flash Boys: A Revolt onpeter-cramton.jpg Wall Street. The other proposals are more radical and not yet off the ground. FBA – Frequent Batch Auction – is a proposal by Prof. Peter Cramton, along with two of his coauthors. The fully-continuous exchange (FCE) concept has been developed by Prof. Albert “Pete” Kyle. The current project to compare the current format (Continuous Double auction, CDA) to the three alternatives received seed funds from CAFIN and is now being funded by the European Research Council (ERC).

The two-day workshop brought two world class scholars, Prof. Kyle and Prof. Ockenfels to UCSC. They discussed the theoretical features of the IEX and its implementation in an experimental setting. The programmers of UCSC’s Learning and Experimental Economics Projects (LEEPS) Laboratory presented a progress report and softwaredevelopment plan that will support the next round of lab experiments and a public tournament that will test the three market redesign alternatives.

On day two, Profs. Aldrich and López Vargas presenting their recently completed research, in which they test the proposed FBA format in the lab against the existing CDA format. The lab results clearly favor the FBA in terms of efficiencyockenfels.jpg and pricestability. Prof. Ockenfels, tackling another aspect of market design in non-financial contexts, presented his work on the design of the feedback system for eBay. This research provided insights into rating systems for buyers and sellers. This work may have implications for financial contracting where the reputations of transacting parties matter.

Later, Prof. Kyle gave the Winter Quarter CAFIN lecture, described earlier in the newsletter. The workshop concluded with a wrap-up session where the CAFIN members discussed the future features of the lab experiments and the public tournament with Profs. Ockenfels and Kyle. The workshop expanded the scope of the research program to include ultimate investors’ needs to trade, and their impact on asset prices. These features will be incorporated into future test platforms for alternative financial market designs that hopefully will deliver better results to ordinary investors and to the overall economy in decades to come. Since the workshop, several research papers by the group are nearing publication, and substantial strides have been made in developing theneeded software, incorporating class projects for Computer Science students at UCSC. The research has been presented in Europe, Asia and Australia, expanding the global presence of the project, which may ultimately benefit financial marketdesign inother countries, and not just the United States.


  • With co-authors Brenda Betancourt and Naomi Boyd, CAFIN Steering Committee member Prof. Abel Rodriguez published “Investigating competition in financial markets: a sparse autologistic model for dynamic network data” in the Journal of Applied Statistics, 2018 45(7).
  • An outcome of the financial market design project, a paper by Profs. Eric Aldrich and Kristian López Vargas, "Experiments in High-Frequency Trading: Comparing Two Market Institutions," is forthcoming in the journal Experimental Economics.


kathryne-mitchell.jpgCAFIN wishes to acknowledge the generous support of Professor Katharyne Mitchell, Dean of the Division of Social Sciences at UCSC, and the assistance of her staff, including Pamela Dewey and Joni White, who manage our website and our events, respectively.

See Also