Research

Working papers

Supply Chain Shortages, Large Firms' Market Power, and Inflation (with Francesco Franzoni, and Mariassunta Giannetti)

Abstract: Following supply chain disruptions, large firms are less impacted by the resulting shortages. Motivated by this new evidence, we develop a framework to explore the consequences of supply chain shortages on industrial structure. The main prediction is that large firms gain a competitive advantage over smaller competitors. Consistent with this conjecture, following supply chain shortages, the larger firms in an industry experience higher market share, profitability, markups, and stock returns, and smaller cost increases. Shortages are associated with higher price hikes in ex-ante more concentrated industries. This mechanism can explain up to 23% of U.S. inflation during 2021.

In the news:

• Vox-EU column, October 13, 2024

• Featured in The Financial Times’ Unhedged, Greedflation the Big Questions, by Robert Armstrong, August 29, 2024

Mutual Funds' Fire Sales and the Real Economy: Evidence from Hurricanes 

Abstract: This paper proposes a novel empirical design to identify non-fundamental shocks to asset prices and studies how they can affect real economic activities. I exploit hurricanes that hit the headquarters of mutual funds and cause exogenous outflows. These outflows force mutual funds to sell their geographically distant holdings at fire-sale prices, leading to a temporary drop in abnormal returns for firms unrelated to the hurricane. I show that this non-fundamental price variation induces firms to reduce their investment. The effect on investment is permanent, not driven by financing constraints and explained by managerial market timing. These results indicate that when mutual funds outflows are unrelated to firms fundamentals, the resulting non-fundamental price variations affect firms’ real decisions.

Published and Accepted Papers

Strategic Trading As a Response to Short Sellers  (with Marco Di Maggio, Francesco Franzoni, and Massimo Massa)

Journal of Financial Markets, Volume 69, June 2024, 100911

Abstract: We examine whether the strategic response to short selling by other informed investors decelerates the incorporation of positive information. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to short selling. Consistent with strategic behavior, we find that investors with positive views slow down their trades when short sellers are also present. Furthermore, they break up their buy trades across multiple brokers, suggesting they wish to prevent a price impact. Thus, the strategic reaction to short selling appears to have implications for information impounding before public information releases.

SSRN version