Joint with: Amit Goyal, Adam Reed & Esad Smajlbegovic

Abstract: Short sellers are widely known to be informed, which would typically suggest that they demand liquidity. We obtain comprehensive transaction-level data to decompose daily short volume into liquidity-demanding and liquidity-supplying components. Contrary to conventional wisdom, we show that the most informed short sellers are actually liquidity suppliers, not liquidity demanders. They are particularly informative about future returns on news days and trade on prominent cross-sectional return anomalies. Our analysis suggests that market making and opportunistic risk-bearing are unlikely to explain these findings. Instead, our results align with recent market microstructure theory, pointing to strategic liquidity provision by informed traders. 

Conferences: Financial Research Conference (Las Vegas, December 2024), 16th Annual Hedge Fund Research Conference (Paris, January 2025), FMA Consortium on Asset Management (Cambridge, February 2025), SFS Cavalcade North America (New Jersey, May 2025), FIRS (Seoul, 2025)

Revise & Resubmit at Journal of Financial Economics

Abstract: Non-standard errors capture variation due to differences in research design choices. We document large variation in design choices in the context of asset pricing factor models and find that the average ratio of the non-standard error to the standard error across factors exceeds one. Using NAN breakpoints instead of NYSE breakpoints improves the average Sharpe ratios the most, from 0.46 to 0.63. Other important design choices relate to excluding microcaps, industry-adjusting, and the rebalancing frequency, which highlights the need for researchers to clearly describe and motivate these choices. 

Conferences: Frontiers of Factor Investing (2022), Portuguese Finance Network (2022)

Published: Journal of Empirical Finance, Volume 78, September 2024

Abstract: Stocks with high net gamma exposure systematically underperform stocks with low net gamma exposure. This effect is distinct from other well-known return predictors, and survives many robustness checks. We show that stocks with low net gamma exposure negatively predict future realized volatility, and argue that investors command a risk premium to hold low net gamma exposure stocks, which are riskier. Lastly, we show that the volatility predictability stems from a non-informational channel, and not from private information. 

Conferences: FMA Europe (2023)

Published: Journal of Empirical Finance, Volume 74, December 2023

Abstract: We study the appeal of basic preference conditions that underpin health inequality indices, including the widely used concentration index. We did a lab experiment in which 349 respondents had to choose repeatedly between two policies that generated a distribution of income and health among five groups in society. We found stronger support for preference conditions that focus on inequality in the marginal distribution of health (and income) than for preference conditions that favor reduced correlation between both dimensions. Respondents’ choices were more in line with the principle of income related health transfers when policies did not affect the ranking of groups in terms of health. Respondents also expressed more concern about the correlation between income and health when health was expressed as a shortfall rather than an attainment. Support for the preference conditions was unaffected when all groups in society experienced the same absolute or relative health change. 

Published: Journal of Health Economics, Volume 90, July 2023