Working papers

Mutual Funds' Fire Sales and the Real Economy: Evidence from Hurricanes (new draft coming soon)

Job market paper

Abstract: A recent debate questions whether nonfundamental price variations can actually affect the real economy. Exploiting a novel identification based on hurricanes, this paper establishes the link between nonfundamental shocks and real economic activities. Hurricanes create liquidity demand from investors living in disaster zones, which translates into additional outflows of about $2.5 billion for mutual funds headquartered in the same areas. Such outflows cause fire sales, followed by temporary price drops of 7% in stocks unrelated to the natural disaster, which is then reverted within ten months. The nonfundamental price decline induces firms to reduce investment, which is replaced by increased share repurchases. These results indicate that when the source of outflows is identified ex-ante and stems from investors’ liquidity needs unrelated to fund performance, the resulting nonfundamental price variations distort firms’ real decisions.

with Marco Di Maggio, Francesco Franzoni, and Massimo Massa

Abstract: We study empirically whether informed traders’ reaction to the presence of short sellers affects price discovery. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to exogenous variation in the threat of short selling. Consistent with strategic behavior by informed investors, we show that investors with positive views on a stock slow down their trades when short sellers are present in the same stock. Furthermore, they break up their buy trades across multiple brokers, suggesting that they wish to prevent their information from leaking. The findings suggest that short selling can deter information impounding when information is spread across several investors.

Work in progress

Sustainable Analysts

with Silvia Dalla Fontana, Laurent Frésard, and Nicola Mano

Climate Risks and Household Debt

with Emirhan Ilhan, and Lee Seltzer