Ponzi Funds  (joint with Jean-Philippe Bouchaud, Dario Villamaina)

Many active funds hold concentrated portfolios. Flow-driven trading pushes up the funds’ existing positions resulting in self-inflated returns. We show that when allocating capital across funds, investors are unable to identify whether realized returns are self-inflated or fundamental. Flows that chase self-inflated returns predict bubbles in ETFs and lead to a daily wealth reallocation of $500 Million from ETFs alone. We provide a simple regulatory reporting measure – fund illiquidity – which captures a fund’s potential for self-inflated returns.

The returns to sustainable investing are strongly driven by price pressure from flows towards sustainable funds, causing high realized returns that do not reflect high expected returns.  In the absence of flows,  sustainable funds would have underperformed the market from 2017 to 2022. 

The Equity Market Implications of the Retail Investment Boom                  (joint with Coralie Jaunin)

We quantify the impact of Robinhood traders on the US stock market in a structural model. Robinhood traders account for 18% of the variation in stock returns in the second quarter of 2020. Without the surge in retail trading activity the aggregate market capitalization of small stocks would have been 20% lower. 

The key parameter in relating demand and equilibrium prices is investors' elasticity of demand with respect to the price. Unlike previous studies, which rely on cross-sectional estimates in levels, this paper proposes estimating elasticities from investors' trades, that is changes in their portfolios. Using the estimation, I find that elasticities are 4 times larger than what previous estimates suggest. 

The Equilibrium Flow-Return Relation                                               (joint with Antoine Didisheim, Andreas Schrimpf and Semyon Malamud)

Returns and flows exhibit a high contemporaneous correlation. How can we identify whether returns are driven by flows or flows simply respond to contemporaneous returns? We develop a simple equilibrium model that disentangles the two channels and leads to an explicit bias-correction formula.

Portfolio Holdings and the Origins of Demand Elasticities     (joint with Lorenzo Bretscher and Giorgio Ottonello)

We study the use of holdings data across different asset classes more broadly. We document a set of stylized facts and show that the inference of structural parameters (such as demand elasticities) critically depends on the asset class-specific definitions of demand, supply and price and their joint distribution.