Professor of Finance, USI Lugano
Senior Chair, Swiss Finance Institute
Research Fellow, CEPR
Ph.D. in Economics, 2002, Massachusetts Institute of Technology
Address: Via G. Buffi 13
6904, Lugano - Switzerland
Tel.: +41 58 666 4117
Fax: +41 58 666 4734
My research interests lie in empirical asset pricing, with a specific regard to institutional investors and their effect on asset prices. Moreover, I am interested in the determinants of institutional trading and the role of institutions in spreading information in financial markets.
Teaching Material (Ph.d.)
Published Research Papers
· Barbon A., Di Maggio M., Franzoni F., Landier A. (2018), Brokers and Order Flow Leakage: Evidence from Fire Sales, Journal of Finance, forthcoming.
· Franzoni F., Giannetti M. (2018), Costs and Benefits of Financial Conglomerate Affiliation: Evidence from Hedge Funds, Journal of Financial Economics, forthcoming.
· Di Maggio M., Franzoni F., Kermani A., Sommavilla C. (2018), The Relevance of Broker Networks for Information Diffusion In the Stock Market, Journal of Financial Economics, forthcoming.
· 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., 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.
· Ben-David I., Franzoni F., Moussawi R. (2017). Exchange Traded Funds (ETFs). Annual Review of Financial Economics, Annual Review of Financial Economics, 169-189.
NBER Working Paper No. 22829
· Di Maggio M., Franzoni F., Massa M., Tubaldi R. (2019), Strategic Trading as a Response to Short Sellers
We study empirically informed traders’ reaction to the presence of short sellers in the market. We find that investors with positive views on a stock strategically slow down their trades when short sellers are present in the same stock. Moreover, they purchase larger amounts to take advantage of the price decline induced by short sellers. Furthermore, they break up their buy trades across multiple brokers, suggesting that they wish to hide from the short sellers. This behavior may impact price discovery, as we find a sizeable reduction of positive information impounding for stocks more exposed to short selling during information sensitive periods. The evidence is confirmed exploiting exogenous variation in short interest provided by the Reg SHO Pilot Program. The findings have relevance for the regulatory debate on the market impact of short selling.
· Di Maggio M., Egan M., Franzoni F. (2018), The Value of Intermediation in the Stock Market
Abstract Brokers continue to play a critical role in intermediating stock market transactions for institutional investors. More than half of all institutional investor order flow is still executed by high-touch (non-electronic) brokers. Despite the importance of brokers, we have limited information on what drives investors' choices among brokers. We develop an empirical model of intermediary choice to investigate how institutional investors trade across different brokers. We analyze investors' responsiveness to the commissions paid, the broker's ability to efficiently execute the trades, as well as access to better research analysts and order flow information. We find that investors are relatively insensitive to commissions, but on average value research, execution, and access to information. Furthermore, using trader-level data we find that investors are more likely to trade with brokers who are physically located closer and are less likely to trade with brokers whose traders have misbehaved in the past. There is also significant heterogeneity across investors, with the best performing investors placing a higher value on order flow information and less value on research. We use the model to analyze several counterfactuals highlighting key inefficiencies in the market that raise trading costs.
· Ben-David I., Franzoni F., Moussawi R., Sedunov J. (2015), The Granular Nature of Large Institutional Investors
NBER Working Paper No. 22247
Over last 35 years institutional ownership became concentrated at unprecedented levels; e.g., the stock holdings by the largest ten asset management firms quadrupled from 5.6% to 23.1%. Due to their sheer size, institution-level shocks cannot be diversified away and can spill over to the underlying securities. We document that stock ownership by the largest institutional investors leads to an increase in the volatility of the assets that they hold. Furthermore, stocks held by the largest institutional investors exhibit patterns of price inefficiency. We show that these effects are triggered by institution-level idiosyncratic news and channeled through large trades.
Franzoni F. and Plazzi A. (2015), What Constrains Liquidity Provision? Evidence From Hedge Fund Trades
Winner of the Inquire Europe Research Grant in 2012
The paper investigates the determinants of limits of arbitrage for liquidity providers. Using data on institutional transactions, we compare hedge fund trades to those of other institutions. We find that hedge funds’ liquidity provision is more exposed to financial conditions than that of other institutions. We identify leverage, low redemptions restrictions, asset illiquidity, and reputational capital as a relevant set of characteristics that explain the exposure of hedge funds’ liquidity supply to funding conditions. Finally, we find that the trades of financially constrained hedge funds underperform for at least one quarter following negative funding shocks.
· Franzoni F. (2008), The changing nature of market risk
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)
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.
Forbes, April 17, 2019, Concentration In The Asset Management Industry: Implications For Corporate Engagement, by Bob Eccles
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
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
Gianfranco Ursino, Plus–Il Sole 24 Ore, Rischio arbitraggi fra prezzi e Nav, February 18, 2012
WealthAdviser, ETFs, arbitrage and contagion: a potential link?, February, 2012
Wall Street Journal, The Intelligent Investor, Now That's Performance Art, December 2011
HandelsZeitung, Alphatiere Auf Abwegen, December, 2011
Jeff Grabmeier, Hedge Funds Sold Stocks Quickly During Financial Crisis, Hurting Mutual Fund Investors, Research News at OSU, 25 August, 2011
Insider Monkey, Do hedge funds manipulate stock prices?, June, 2011
Fabio Sottocornola, Il Mondo, Così l’Hedge gioca con i prezzi, June, 2011
AllAboutAlpha.com, Hedge funds and “stock manipulation”: Perpetrators, accomplices or just in the wrong place at the wrong time (again)?, March 2, 2011
Fabio Sottocornola, Il Mondo, Mosse tattiche da Hedge, December, 2010
AllAboutAlpha.com, Under the hood: Ground breaking private equity study examines actual investments, not just funds, AllaboutAlpha.com, August 30, 2010
AllAboutAlpha.com, Study: Hedge funds’ role in 2008 market drawdown “questionable”, March 14, 2010