Research awards recipients announced

January 25, 2016

CAFIN is pleased to announce its latest grants recipients. Research projects are broadly related to the center’s three main theme areas: market design, financial access and systemic risk.

Projects include:

Linh Bun
Economics PhD student
“Financial Development and Growth: A Multi-dimensional Approach”
This project will address how financial development affects economic growth. It will examine how openness to international trade and to international capital can influence the relationship. In examining financial development, the research will consider different dimensions of development, such as financial access, depth, efficiency and stability.
Faculty collaborator/adviser: Nirvikar Singh

Baizhu Chen
Economics PhD student
“Credit Insurance in the P2P Lending Market: Evidence from China”
This research project will study the effect of credit insurance in the online loan market using a unique dataset of online lending at, a top 10 Chinese P2P lending platform where loan payments are insured either (fully) by loan guarantees or (partially) by a principal protection program. It will quantify the effects of loan insurance on the probability that a loan is successfully funded and the interest rate on the loan.
Faculty collaborator/adviser: Nirvikar Singh

Georgi Dinolov
AMS PhD student
“Bayesian Stochastic Volatility Models for High-frequency Data”
Estimating asset price volatilities is a common problem in finance; for example, accurate estimates of volatility paths play a key role in both option pricing and portfolio design. Traditionally, financial models have used low-frequency returns (e.g., daily, weekly or monthly returns) to investigate price volatility. Switching to higher frequency data, closer to modern trading frequencies, can improve volatility estimates, but only if noise associated with the idiosyncrasies of trading rules and institutions is allowed for. This project will use powerful new statistical techniques to overcome this latter problem and improve the fundamentals of risk management in financial markets.
Faculty collaborator/adviser: Abel Rodriguez

Michael Hutchison
Economics faculty
“Outlook, Watch and Credit Rating Changes: How Much Market Information Do Credit Rating Agencies Provide?”
Concerns about the value and information content of credit rating, “watch”, and “outlook” announcements by credit rating agencies (CRAs), and their association with sovereign spreads and default risk, were intensified during the Global Financial Crisis on-going European Fiscal Crisis. A number of issues arise in this context, foremost among them are whether CRA announcements systemically provide markets with new information on the likelihood of sovereign default and how risk pricing responds to this information. This project will empirically evaluate how changes in credit rating announcements and economic factors have influenced Credit Default Swap (CDS) spreads before and after the GFC crisis. It involves collaborators (and UCSC alumni) at the Central Bank of Turkey and the Bank for International Settlements.

Seung Lee
Economics PhD student
“An Entropy-Based Measure of Price Discovery”
This project will examine the mechanisms that drive the co-movement of two important financial instruments: the Standard & Poor's index futures, and the SPY exchange traded fund, which is also based on the S&P 500 index, but traded differently. By using millisecond-level data, and new statistical techniques, the project will give a new understanding of how information from one market influences the behavior of the other market.
Faculty collaborator/adviser: Abel Rodriguez

“This project is important because it tries to explain a decades-old relationship: futures markets lead equities (stock) markets when news is released. The novelty is that we try to do this through a new, previously unexplored channel - the minimum price increment among equivalent assets trading in each market. Initial results already demonstrate a much more nuanced view of market relationships through this channel, and that, in fact, sometimes the relationship reverses,” says Professor Eric Aldrich.

Mingfeng Lin
CAFIN Research Affiliate
“Does diversity pay? Investor Diversity and Investment Opportunity Identification in Crowdfunding”
This project uses detailed administrative data in the context of debt crowdfunding to study the relationship between the diversity of the “crowd” that is financing a loan, and the repayment likelihood of that loan. Debt crowdfunding allows multiple individuals to pitch in various portions of funds to collectively fund a loan. The project will use data from a platform in the United Kingdom that facilitates peer-to-business (P2B) loans. The outcome will be new insights into this aspect of the “wisdom of crowds.”

Amilcar Menichini
CAFIN Research Affiliate
“Dynamic Model of Firm Valuation: A New Methodology and its Empirical Validity”
This project uses relatively new techniques of dynamic analysis of firms' investment decisions to develop and test improved models of firm valuation. Preliminary evidence suggests that these models can lead to the construction of more profitable stock portfolios than conventional models. This project will conduct further tests to establish the reliability and robustness of the results. This could lead to a fundamental improvement in the construction of stock market portfolios.
Faculty collaborator: Natalia Lazzati

Bryan Pratt
Economics PhD student
“Randomized Order Queue”
This project will develop and test a new method for matching buy and sell orders in financial markets. Using some degree of randomization in the sequence in which orders are matched, this method will reduce incentives for a high frequency trading "arms race" and be less disruptive to existing market designs than other proposals for changes in the matching and market clearing method.
Faculty collaborator/adviser: Eric Aldrich

“The question of market design is becoming a hot topic in an era when "high-frequency trading" is often viewed with skepticism. Our model explores the benefit of a new market design, based upon randomized timing, recently implemented in a major currency market. The project just received a boost, as we received word that the currency market in question, EBS, is going to share its data with us. The data is crucial for understanding the empirical impact of the design mechanism as it spans the period during which EBS implemented the new policy,” says Professor Eric Aldrich.

Justin Reitz
Economics PhD student
“Laboratory Experiments for Dual Currency Economies”
This project will use a series of laboratory experiments to simulate market economies and test under what conditions individuals choose to accept a substitute currency in place of an existing medium of exchange, a phenomena often seen during episodes of hyperinflation or currency shortages. The experiments may shed light onto what factors most affect an individual’s desire to accept a secondary currency. This topic is particularly timely given recent events in Europe regarding a “Grexit” and a Greek return to a drachma. In that context, and even during the Great Depression in the US, private secondary currencies developed to overcome liquidity shortages in crisis situations.
Faculty collaborator/adviser: Dan Friedman