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Francesco
Franzoni Professor of Finance, USI Lugano Senior Chair, Swiss Finance Institute Research
Fellow, CEPR Ph.D. in Economics, 2002, Massachusetts Institute of Technology My research focus has been
primarily on Empirical Asset Pricing. I have studied different types of
institutional investors, most prominently ETFs and hedge funds, and their
impact on asset prices. Additionally, I have explored information diffusion
in financial markets. More recently, I have been concerned with issues
relating to the competitive structure of asset management and other
industries. Since July 2024, I have been
an Associate Editor at the Review of
Financial Studies. Email: francesco.franzoni@usi.ch X (ex
Twitter): @FranzFranzoni Address: Via
G. Buffi 13 6904, Lugano - Switzerland Tel.: +41 58 666 4117 Fax: +41 58 666 4734 |
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Teaching
Material (Ph.d.) Published
Research Papers ·
Di Maggio M., Franzoni F., Massa M.,
Tubaldi R. (2024), Strategic Trading as a Response to Short Sellers, Journal
of Financial Markets, forthcoming. ·
Ben-David I., Franzoni F., Moussawi R.,
Kim B. (2023), Competition for Attention in the ETF Space,
Review of Financial Studies, Volume 36, Issue 3, 987–1042. Virtual Finance Seminar in Corporate Finance and
Investments (on youtube) In the news: -
Wall Street Journal,
September 1, 2024, How to Lose Money on the World’s Most Popular
Investment Theme, by James Mackintosh -
MarketWatch, June 3, 2024, These ETFs let you invest like the rich — but you
might want to keep your money, by Mark Hulbert -
The Economist, February 1, 2024, Bitcoin ETFs
are off to a bad start. Will things improve?, Buttonwood -
MarketWatch, January 12, 2024, Do bitcoin ETFs have a place in retirement
portfolios?, by Mark Hulbert -
MarketWatch, October 31, 2023, The new spot-bitcoin ETFs are likely to disappoint, by Mark
Hulbert -
Financial Times Alphaville, October 23, 2023, ETFantasmagoria, by Robin
Wigglesworth -
Financial Times, Op-Ed,
February 2, 2023, From marijuana to the metaverse: specialised ETFs underperform, by Francesco Franzoni -
Barron’s, December 9, 2022, ARK Innovation and Others Offer Tempting ‘Thematic’
ETFs. Just Say No, by Karishma Vanjani -
Financial Times, October
28, 2022, Five of the worst ETF first-year performances are
crypto-related, by Steve Johnson -
Financial Times, April
11, 2022, Thematic funds triple share of global investments
in a decade, by Steve Johnson -
ETF Stream, March 29, 2022, More timing than trend? Thematic ETFs yet to prove critics
wrong, by Tom Eckett -
CityWire, March 18, 2022, Are thematic ETFs stupid? by Alex
Rosenberg -
Financial Times, March
03, 2022, Thematic ETFs tend to
launch just before a steep fall in returns, by Emma
Boyde -
Rational Reminder, January 27, 2022, Lighting
your Money on Fire with Thematic ETFs (episode
185, minute 25) -
MarketWatch, May 04, 2021, Why you should
worry about the flood of new cash into U.S. stock funds, by Mark
Hulbert -
Alpha Architect, May 03,
2021, Competition
for attention in the ETF space, by Tommi Johnsen -
Financial Times, March
24, 2021, Thematic ETF assets surge to new record buoyed by
Ark funds, by
Emma Boyde -
Wall Street Journal, February
5, 2021, New
ETFs, Forced to Chase Trends, Shorten Their Own Lives, by Mark
Hulbert -
Reuters, January 27, 2021, Column:
Bubble-wary markets eye ETF crush in tech and crypto, by Mike
Dolan -
Financial Times, January
26, 2021, Thematic ETFs can deliver significant losses,
academics find, by Emma Boyde -
Bloomberg, January 21, 2021, Day-Trader Frenzy for Trendy Stocks Is Defying
Decades of Losses, by Yakob
Peterseil -
Wall Street Journal, January
15, 2021, The Story Behind the Market’s Hottest Funds, by Jason
Zweig ·
Di Maggio M., Egan M., Franzoni F.
(2022), The Value of Intermediation in the Stock Market, Journal of Financial Economics, Volume
145, Issue 2, Part A, 208-233. ·
Ben-David I., Franzoni F., Moussawi R.,
Sedunov J. (2021), The Granular Nature of Large Institutional
Investors, Management Science, 67(11), 6629–6659, lead article. Harvard Law School Forum on Corporate Governance
and Financial Regulation Post Stigler Center Pro-Market Blog Post
·
Cotelioglu E.,
Franzoni F. and Plazzi A. (2021), What Constrains Liquidity Provision? Evidence From
Institutional Trades, Review of Finance, 25(2),
485–517. ·
Barbon A., Di
Maggio M., Franzoni F., Landier A. (2019), Brokers and Order Flow Leakage: Evidence from Fire
Sales, Journal of Finance, 74(6), 2703-2705, lead
article. ·
Ben-David I., Franzoni F., Moussawi R.
(2019), A Note
to “Do ETFs Increase Volatility?”: An Improved Method to Predict Assignment
of Stocks in to Russell Indexes, Journal of Finance, Replications and Comments
(web-only). ·
Franzoni F., Giannetti M. (2019), Costs and Benefits of Financial Conglomerate
Affiliation: Evidence from Hedge Funds, Journal of Financial Economics, 134(2), 355-380. ·
Di Maggio M.,
Franzoni F., Kermani A., Sommavilla C. (2019), The Relevance of Broker Networks for Information Diffusion
In the Stock Market, Journal of Financial Economics,
134(2), 419-446. ·
Ben-David I., Franzoni F., Moussawi R.
(2018), Do ETFs Increase Volatility? Journal
of Finance, 73(6), 2471-2535, lead
article. ·
Franzoni F. and Schmalz M. (2017). Fund Flows and Market States.
Review of Financial Studies, 30(8), 2621-2673. ·
Ben-David I., Franzoni F.,
Moussawi R. (2017). Exchange Traded Funds (ETFs). Annual Review of Financial
Economics, 169-189. NBER Working Paper No. 22829 ·
Ben-David I., Franzoni F., Landier A., Moussawi
R. (2013). Do hedge funds manipulate stock prices?
Journal of Finance, 68(6), 2383-2434. ·
Ben-David I., Franzoni F.,
Moussawi R. (2012). Hedge Fund Stock Trading in the Financial Crisis of
2007-2009.
Review of Financial Studies, 25(1), 1-54, lead article. ·
Franzoni F., Nowak E., Phalippou L.
(2012). Private
equity performance and liquidity risk, Journal of Finance, December,
2341-2373. Internet
Appendix ·
Franzoni
F. (2009). Underinvestment vs. Overinvestment: Evidence From Price Reactions To Pension Contributions.
Journal of Financial Economics, 92(3), June, 491-518. ·
Adrian T., Franzoni F. (2009). Learning about beta: Time-varying factor loadings,
expected returns, and the conditional CAPM. Journal of Empirical Finance,
16(4), September, 537-556. ·
Franzoni
F., Marin J. (2006). Pension Plan
Funding and Stock Market Efficiency. Journal
of Finance, April, 921-956. ·
Franzoni
F., Marin J. (2006). Portable
Alphas From Pension Mispricing. Journal
of Portfolio Management, Summer, 2006, 44-53. Working
Papers ·
Bergen D., Franzoni F., Obrycki D.,
Resendes R. (2024), Intrinsic Value: A Solution to the Declining
Performance of Value Strategies Abstract: The paper proposes to
use intrinsic value as an alternative measure of fundamentals in predicting
stock returns. To construct intrinsic value, we add the book value of equity
to the discounted sum of future economic profits and use a firm-specific
discount rate that accounts for size and leverage. The
intrinsic-value-to-market (IVM) ratio has strong forecasting power for the
cross-section of stock returns even in the last two decades, where the
book-to-market ratio and similarly constructed price multiples fail to
predict returns. In particular, the CAPM alpha of a long-short portfolio of
large stocks based on the IVM ratio is 56 bps per month between 1999 and
2023, while the alpha of the corresponding portfolio based on the
book-to-market ratio is indistinguishable from zero. We relate the difference
in performance between the two approaches to the fact that book value better
approximates the true intrinsic value of the firm only when future economic
profits are not a significant component of firm value. In particular,
as discount rates decline, the component of firm value due to future
economic profits becomes more relevant and the link between book value and
intrinsic value becomes more tenuous. These findings have significant
implications for investors and financial analysts seeking to refine stock
valuation methodologies in response to evolving market conditions and
macroeconomic regimes. Featured in Alpha
Architect: Fixing the poor performance of the book-to-market
ratio by Tommi Johnsen, August
19, 2024 ·
Franzoni F., Giannetti M., Tubaldi R.
(2023),
Supply Chain Shortages, Large Firms’ Market Power,
and Inflation Abstract: We suggest an
equilibrium mechanism for the widely debated argument that “greedflation” has
fostered widespread price hikes. We construct firm and industry-level
measures of supply chain backlogs and delivery delays and provide evidence
that supply chain shortages lead to a decrease in competition at the industry
level. We show that “star” firms acquire market shares and increase their
markups and profitability relative to the smaller firms in the industry. We
also show that the large increase in supply chain backlogs during the
COVID-19 pandemic can help explain about 19% of the US inflation in industries
with more asymmetric firm size distribution, where supply chain shortages are
more likely to benefit large firms at the expense of smaller firms. Economic
magnitudes are comparable in the international sample. Vox-EU column,
October 13, 2024 Featured in The
Financial Times’ Unhedged, Greedflation the Big Questions,
by Robert Armstrong, August 29, 2024 ·
Franzoni F., Obrycki D., Resendes R.
(2022), The Wealth Creation Effect in Stock Returns Abstract: In the asset pricing
literature, higher investment is associated with lower expected stock
returns. On the other hand, practitioners view investment as a value-creating
activity when it generates payoffs above the cost of capital. The paper
reconciles these views. Starting from a discounted cash-flow tautology, we
argue that expected returns correlate positively with expected investment
whenever the return on equity is large enough. We label this prediction the
wealth creation effect. The empirical evidence supports this channel. The
interaction of profitability and investment positively correlates with stock
returns controlling for the usual characteristics. A wealth creation factor
earns a premium of about 24bps per month leading to sizeable Sharpe ratio
improvements relative to popular factor models. · Di
Maggio M., Franzoni F., Kogan S., Xing R. (2021), Avoiding Volatility: Institutional Trading Before Scheduled News Abstract: The paper studies institutional trading
ahead of scheduled information releases, notably earnings announcements. While
scheduled news are known to be preceded by sizeable stock returns, we find
that institutional investors on average forego part of these premia as they
decrease their exposure to the stocks involved in these events. This behavior
appears to be motivated by the avoidance of stock-level volatility and
extreme downside risk. Although the effect of a single stock holding on fund
performance is small, we identify a new friction that motivates institutional
behavior. Specifically, strongly negative earnings announcement returns for a
single portfolio holding lead to substantially larger outflows. Reducing the
exposure to the stock before the announcement mitigates these outflows. ·
Franzoni F. (2008), The changing nature of market risk Abstract: In
the first three decades of CRSP data, value stocks have higher betas than
growth stocks. Later on, the ranking is reversed and
the gap in beta widens. What makes growth strategies nowadays bear more
market risk than value strategies? What are the causes of the reversal in the
ranking of betas? The paper argues that the negative link between beta and BM
is due to growth options. The shift of listed firms towards more
growth-oriented businesses has progressively changed the nature of market
risk. The ultimate determinant of this evolution is conjectured to be
financial market development, which has lowered the cost of capital. For this
reason, the facts described in this paper resonate with other long-run
phenomena, such as the rise in idiosyncratic risk and the R&D boom. ·
Franzoni F. (2002), Where is beta going? The riskiness of value and
small stocks (cite as: Ph.d. Thesis,
Massachusetts Institute of Technology) Abstract: This paper finds that the market betas of value and
small stocks have decreased by about 75% in the second half of the twentieth
century. The path of beta can be closely tracked using variables that
summarize the state of the economy. On the basis of
this analysis, the decline in beta can be related to a long-term improvement
in economic conditions that made these companies less risky. Decomposing beta
into the cash flow and expected return news components confirms that the
payoffs of these companies are less sensitive to market conditions. This
finding has implications for the debate on the CAPM anomalies. Media clips Wall Street Journal, September 1, 2024, How to
Lose Money on the World’s Most Popular Investment Theme, by James
Mackintosh Financial Times, August 29, 2024, Greedflation the Big Questions, by
Robert Armstrong MarketWatch, June
3, 2024, These ETFs let you invest like the rich — but you
might want to keep your money, by Mark Hulbert The Economist, February 1, 2024, Bitcoin ETFs
are off to a bad start. Will things improve?, Buttonwood Corriere del Ticino, February 1, 2024, Bitcoin, i fondi non decollano
e i dubbi sui rischi restano, by Dimitri Loringett (in
Italian) MarketWatch, January 12, 2024, Do bitcoin ETFs have a place in retirement
portfolios?, by Mark Hulbert Traders Magazine, December 13, 2023, Are Passive Funds Negatively Impacting the Stock
Market?, by Philipp Höfler MarketWatch, October 31, 2023, The new spot-bitcoin ETFs are
likely to disappoint, by Mark Hulbert Financial Times Alphaville, October 23, 2023, ETFantasmagoria, by Robin Wigglesworth Alpha Architect, October 2, 2023, The democratization of investing and the evolution
of ETFs, by Tommi
Johnsen Roger Montgomery – Market Commentary, September 11,
2023, The Themed ETF Trap Clayton County Register, September 10, 2023, The Perils of Investing in Thematic ETFs, by
Emmanuel Ellerbee Behavioral Investment, July 25, 2023, Why do thematic funds fail?, by Joe
Wiggins Wall Street Journal, March 22, 2023, Credit Suisse Write-Off Upends European Bank
Capital Bonds, by Josh Mitchell and Anna Hirtenstein Corriere del Ticino, February 18, 2023, ETF
«tematici»: più rischiosi, meno redditizi e sopravvalutati, by Dimitri Loringett (in
Italian) Financial Times, Op-Ed, February 2, 2023, From
marijuana to the metaverse: specialised ETFs
underperform, by Francesco Franzoni Barron’s, December 9, 2022, ARK Innovation and Others Offer Tempting ‘Thematic’
ETFs. Just Say No, by Karishma Vanjani Financial Times, October 28, 2022, Five of the worst ETF first-year performances are
crypto-related, by Steve Johnson Financial Times, October 17, 2022, IMF calls on policymakers to re-examine ETF risks, by Emma
Boyde Financial Times, April 11, 2022, Thematic funds triple share of global investments
in a decade, by Steve Johnson ETF Stream, March 29, 2022, More timing than trend? Thematic ETFs yet to prove
critics wrong, by Tom Eckett CityWire, March
18, 2022, Are thematic ETFs stupid? by Alex
Rosenberg Financial Times, March 03, 2022, Thematic ETFs tend to
launch just before a steep fall in returns, by Emma
Boyde Rational Reminder, January 27, 2022, Lighting
your Money on Fire with Thematic ETFs (episode
185, minute 25) Finanz und Wirtschaft,
November 24. 2021, Eine passive
Revolution mit Schönheitsfehlern (in German) MarketWatch, May 04, 2021, Why you should
worry about the flood of new cash into U.S. stock funds, by Mark
Hulbert Financial Times, March 24, 2021, Thematic ETF assets surge to new record buoyed by
Ark funds, by
Emma Boyde Wall Street Journal, February 5, 2021, New ETFs, Forced to Chase Trends,
Shorten Their Own Lives, by Mark Hulbert Reuters, January 27, 2021, Column:
Bubble-wary markets eye ETF crush in tech and crypto, by Mike
Dolan Financial Times, January 26, 2021, Thematic
ETFs can deliver significant losses, academics find, by Emma
Boyde Bloomberg, January 21, 2021, Day-Trader Frenzy for Trendy Stocks Is Defying
Decades of Losses, by Yakob
Peterseil Wall Street Journal, January 15, 2021, The
Story Behind the Market’s Hottest Funds, by Jason
Zweig Seeking Alpha, August 27, 2020, The Impact Of Concentration Of Assets At
Institutional Fund Managers, by Larry Swedroe Le Temps, August 24, 2020, Big is
not beautiful, by Jean Keller (in French) Financial Times, August 8, 2020, Top 10 institutional investors fuel market
volatility, study finds, by Chris Flood Finnews.ch, October 2, 2019, Some Investors Have To Do The Heavy Lifting, by
Claude Baumann Forbes, April 17, 2019, Concentration In The Asset Management Industry:
Implications For Corporate Engagement, by Bob
Eccles Finanz und Wirtschaft,
Institutionelles Anlegen, October 27, 2018, Gefahren Im ETF-Markt, (English translation) Investir, August 15,
2018, L’impact des ETF sur la volatilité des marches, by Fabio Lopes (in French) Wall Street Journal, July 19, 2018, ETFs
Ruffle Markets, by Asjylyn
Loder Finanz und Wirtschaft, June 23, 2018, Wenn passive Anlagen Sorgen bereiten (in German) Neue Zürcher Zeitung,
June 21, 2018, ETF machen den Markt volatile, by Christof Leisinger (in
German) Le Temps, June 20, 2018,
Les ETF augmentent l’instabilité des marchés, by Mathilde Farine (in French) CNBC, February 14, 2018, Insider trading is still rampant on Wall Street,
two new studies suggest, by Thomas Franck The Economist, February 8, 2018, Insider trading has been rife on Wall Street,
academics conclude. Swiss National Radio (RSI 1), Modem, February 7,
2018, Discussing the Market Drop of February 5,
2018 (in Italian). Financial Times, February 5, 2018, ETF growth is in danger of devouring capitalism, by Robin
Wigglesworth Bloomberg View, December 14, 2017, Broker
Leaks, by Matt Levin MarketWatch, November 17, 2017, Fears grow that popularity of ETFs is a ticking
time bomb, by Ryan Vlastelica Finanz und Wirtschaft,
September 9, 2017, ETF führen zu stärkeren
Kursausschlägen, by Sandro Rosa Dealbreaker, July 11, 2017, In The Dog-Eat-Dog World Of Asset Management, Prime
Brokers Are Vultures, by Owen Davis Wall Street Journal, MoneyBeat
Blog, June 21, 2017, Are Activists Being Sabotaged by Their Brokers?, by
Alexander Osipovich Institutional Investor, June 20, 2017, Brokers May Be Giving Away Investors’ Best Ideas Bloomberg View, June 20, 2017, Bank Relationships and Index Rules (scroll down to
Leaky Brokers section), by Matt Levine 6th Swiss Asset
Management Day, April 6, 2017, Panel
Discussion on Private Markets, Active Management, and Hedge Funds ETF.com, December 28, 2016, ETFs A Double-Edged Sword, by Larry
Swedroe Alpha Architect, December 8,
2016, A Really Cool Paper (and Graphic) on ETFs, by
Wesley R. Gray Financial Times, November
17, 2016, Debate Intensifies over ETFs’ Impact on Markets. Bloomberg View, November 8,
2016, Broker Networks, by Matt
Levine Chief Investment Officer,
August 4, 2016, How Investment Management Giants Cause Volatility, by Amy
White Financial Times, February 1,
2015, Has the death knell of active management been rung
too soon?, by Robert Pozen and Theresa Hamacher PBS Newshour, September 12,
2014, Why is Wall Street becoming more bipolar? Alphaville (Financial
Times), May 1, 2014, When
ETFs make things more volatile, by
Izabella Kaminska Reuters, April 30, 2014, A volatile love affair with exchange funds and
indexes, by Mike Dolan IFR, September 25, 2013, Investing when the tide goes out, by James
Saft Wall Street Journal,
December 6, 2012. Article citing the “Do Hedge Funds Manipulate Stock
Prices?” paper TheStreet.com, August 2,
2012, ETF Arbitrage May Be Driving Market Volatility Plus–Il Sole 24 Ore, February 18, 2012, Rischio arbitraggi fra prezzi e Nav, by Gianfranco Ursino WealthAdviser, February, 2012, ETFs,
arbitrage and contagion: a potential link?, Wall Street Journal, The
Intelligent Investor, December
24, 2011, Now That's Performance Art, by Jason Zweig HandelsZeitung, December, 2011, Alphatiere Auf Abwegen Research News at OSU, 25 August, 2011, Hedge Funds Sold Stocks Quickly
During Financial Crisis, Hurting Mutual Fund Investors, by Jeff Grabmeier Insider Monkey, June, 2011, Do hedge funds manipulate stock prices?, Il Mondo, June, 2011, Così l’Hedge gioca con i prezzi, by Fabio Sottocornola AllAboutAlpha.com, March 2,
2011, Hedge
funds and “stock manipulation”: Perpetrators, accomplices or just in the
wrong place at the wrong time (again)?, Il Mondo, December, 2010, Mosse tattiche da Hedge, by Fabio Sottocornola AllAboutAlpha.com,
August 30, 2010, Under the hood: Ground breaking private equity study
examines actual investments, not just funds,
AllaboutAlpha.com, AllAboutAlpha.com, March 14,
2010, Study: Hedge funds’ role in 2008 market drawdown
“questionable” CFA digest, 2006, Pension Plan
Funding and Stock Market Efficiency, by Lester
C. Cheng |
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