Francesco Franzoni

Swiss Finance Institute
Via G. Buffi 13
6904, Lugano - Switzerland
Tel: +41 58 666 4117
Fax: +41 58 666 4734


NBER Working Papers and Publications

June 2017The Relevance of Broker Networks for Information Diffusion in the Stock Market
with Marco Di Maggio, Amir Kermani, Carlo Sommavilla: w23522
This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just bef...
November 2016Exchange Traded Funds (ETFs)
with Itzhak Ben-David, Rabih Moussawi: w22829
Over nearly a quarter of a century, ETFs have become one of the most popular passive investment vehicles among retail and professional investors due to their low transaction costs and high liquidity. By the end of 2016, the market share of ETFs topped over 10% of the total market capitalization traded on US exchanges, while representing more than 30% of the overall trading volume. ETFs revolutionized the asset management industry by taking market share from traditional investment vehicles such as mutual funds and index futures. Because ETFs rely on arbitrage activity to synchronize their prices with the prices of the underlying portfolio, trading activity at the ETF level translates to trading of the underlying securities. Researchers found that while ETFs enhance price discovery, they als...

Forthcoming at the Annual Review of Financial Economics, 2017, Volume 9

May 2016The Granular Nature of Large Institutional Investors
with Itzhak Ben-David, Rabih Moussawi, John Sedunov: w22247
Over the last four decades, the concentration of institutional assets in equity markets has increased dramatically. We conjecture that large institutions are granular, that is, they cannot be reduced to a collection of smaller independent entities. Hence, the paper studies whether large institutional ownership has a significant impact on asset prices. We provide evidence of a causal effect of ownership by large institutions on the volatility of their stock holdings. As a potential channel for this effect, we show that large institutions generate higher price impact than smaller institutions. Their trades are larger and concentrated on fewer stocks than those of smaller firms. Moreover, the investor flows to units within the same family are more correlated than the flows to independent enti...
April 2014Do ETFs Increase Volatility?
with Itzhak Ben-David, Rabih Moussawi: w20071
We study whether exchange traded funds (ETFs)--an asset of increasing importance--impact the volatility of their underlying stocks. Using identification strategies based on the mechanical variation in ETF ownership, we present evidence that stocks owned by ETFs exhibit significantly higher intraday and daily volatility. We estimate that an increase of one standard deviation in ETF ownership is associated with an increase of 16% in daily stock volatility. The driving channel appears to be arbitrage activity between ETFs and the underlying stocks. Consistent with this view, the effects are stronger for stocks with lower bid-ask spread and lending fees. Finally, the evidence that ETF ownership increases stock turnover suggests that ETF arbitrage adds a new layer of trading to the underlying s...
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