Francesco Franzoni

Professor of Finance, USI Lugano

Senior Chair, Swiss Finance Institute

Research Fellow, CEPR

Ph.D. in Economics, 2002, Massachusetts Institute of Technology

Email: francesco.franzoni@usi.ch

Twitter: @FranzFranzoni

Address: Via G. Buffi 13

6904, Lugano - Switzerland

Tel.: +41 58 666 4117

Fax: +41 58 666 4734

Link to CV

Teaching Material (Ph.d.)

Published Research Papers

·      Di Maggio M., Egan M., Franzoni F. (2021), The Value of Intermediation in the Stock Market, Journal of Financial Economics, forthcoming.

·         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

VoxEU Column

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.

Internet Appendix

·         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

·         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.

·         Ben-David I., Franzoni F., Moussawi R., Kim B. (2021), Competition for Attention in the ETF Space

NBER Working Paper No. 28369, conditionally accepted at the Review of Financial Studies

Abstract:

Exchange-Traded Funds (ETFs) are the most prominent financial innovation in the last three decades. Early ETFs offered broad-based portfolios at low cost. As competition became more intense, issuers started offering specialized ETFs that track niche portfolios and charge high fees. Specialized ETFs hold stocks with salient characteristics – high past performance, media exposure, and sentiment – that are appealing to retail and sentiment-driven investors. After their launch, these products perform poorly as the hype around them vanishes, delivering negative risk-adjusted returns. Overall, financial innovation in the ETF space follows two paths: broad-based products that cater to cost-conscious investors and expensive specialized ETFs that compete for the attention of unsophisticated investors.

Virtual Finance Seminar in Corporate Finance and Investments (on youtube)

In the news:

-       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., 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.

·      Di Maggio M., Franzoni F., Massa M., Tubaldi R. (2020), Strategic Trading as a Response to Short Sellers

Abstract:

We study empirically whether short selling deters the incorporation of positive information. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to short selling. The price pressure of short sales cannot explain this effect. Rather, consistent with strategic behavior, 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 their information from leaking. The findings suggest that short selling can hinder price discovery when investors receive different information signals.

·         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

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

6^th 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