Topic: Price
Pressure from Coordinated Noise Trading: Evidence from Pension Fund
Reallocations
Speaker: Zhi Da, Associated Professor of Finance,
Mendoza College of Business, University of Notre Dame
Date: May 21st (Thu.)
Time: 2:00pm-3:30pm
Location: Building
4, Room 101
Language: English
Abstract:
We document a novel channel through which coordinated
noise trading can exert large price impact at the aggregate level in both
equity and bond markets. In Chile, pension investors often switch their entire
pension investments between funds holding mostly risky stocks to funds holding
mostly risk-free government bonds in an attempt to \time the market."
These frequent portfolio reallocations are coordinated across individual
investors by an investment advisory firm that has recently gained substantial
popularity on social media. In order to implement the resulting fund switches,
pension fund companies often face redemption requests amounting to 10% of their
domestic equity and 20% of their bond portfolios within a few days. Not surprisingly,
this coordinated noise trading leads to large price pressure of almost 2.5% in
the equity market and more than 30 basis points even in the relatively liquid
government bond market.
About the speaker:
Zhi Da
is Viola
D. Hank Associated Professor of Finance at Mendoza College of
Business, University of Notre Dame. Professor
Da received a BBA and MSc in Financial Engineering from National University of
Singapore and Ph.D. in Finance from Northwestern University. His research interests focuses on what drives asset return in
both short-term (liquidity shock, investor sentiment, limited attention, etc.)
and long-term (cashflow and discount rate news). His
papers have been published in Review of Financial Studies, Journal of Financial Economics, Journal of
Financial and Quantitative Analysis and Management Science and other leading finance journals.
