CAFIN Steering Committee member Brenda Samaniego de la Parra is participating in a seminar organized by Innovations for Poverty Action (IPA) and hosted by Instituto Tecnológico Autónomo de México (ITAM) on April 18th and 19th, 2024 in Mexico City. Researchers are presenting their recent work in areas such as Environment and Climate Change, Finance and Entrepreneurship, and Educationand Child Development. Prof. Samaniego de la Parra is a member of the Finance and Entrepreneurship panel, along with Paul Gertler (Berkeley Haas) and David McKenzie (DIME World Bank).
CAFIN Research Affiliate Chenyue Hu published “What explains equity home bias? Theory and evidence
at the sector level,” in the European Economic Review, Article 104585. This research examines the classic
home bias puzzle in international finance – the phenomenon in which investors skew their decisions
toward their home jurisdictions. Using unique financial datasets, Prof. Hu calculated a sectoral home
bias index for 27 industries in 43 countries, and empirically documents that sectoral home bias is
stronger for non-tradable sectors and in countries with a higher degree of capital restrictions. Moreover,
investors tilt portfolios more towards domestic assets for the sectors in which their countries reveal a
comparative advantage. This framework sheds new light on the patterns and determinants of
international financial investment.
CAFIN Research Affiliates Eric Aldrich and Daniel Friedman published “Order Protection through Delayed
Messaging,” in Management Science, 69:2, pp. 774-790 (2023). Several financial exchanges (e.g., IEX and
NYSE American) recently introduced messaging delays to protect ordinary investors from high-frequency
traders who exploit stale orders. To capture the impact of such delays, the authors develop a parametric
model of the continuous double auction market format. The model examines the dynamics of midpoint
pegged order queues and finds their steady states. It shows how messaging delays can protect pegged
orders and improve investor welfare, but typically increase queuing costs. Recently available field data
show that the empirical distribution of queued pegged orders resembles the distribution predicted by
the model.
CAFIN Research Affiliates Daniel Friedman and Jean Paul Rabanal, together with John Duffy and Olga A.
Rud, have a forthcoming article in Management Science, “The Impact of ETF Index Inclusion on Stock
Prices.” They report on a laboratory experiment examining how demand for ETF index products affects
the prices and trading volume of assets. They find that (i) subjects place significant value on the ETF
index asset beyond the value of its constituent assets; (ii) there is a substantial index premium for
included assets; and (iii) the index premium persists even when short-selling is permitted. The price
increases of the constituent assets and of the ETF itself suggest that ETF products can distort markets to
some degree.