Topic: Impediments to Financial Trade: Theory and Measurement

Speaker: Stavros Panageas, Associate Professor of Finance, Booth School of Business, University of Chicago

Date: May 27th (Wed.)

Time: 2:00-3:30pm

Location: Building 4, Room 101

Language: English

Abstract:

We propose a tractable model of an informationally inefficient market. We show the equivalence between our model and a substantially simpler model whereby investors face distortive investment taxes depending both on their identity and the asset class. We use this equivalence to assess existing approaches to inferring whether individual investors have informational advantages. We also develop a methodology of inferring the magnitude of the frictions (implicit taxes) that impede financial trade. We illustrate the methodology by using data on cross country portfolio holdings and returns to quantify these frictions, and locate the directions in which financial trade seems to be especially impeded. We argue that our measure of frictions contains useful information for the sources of failure of frictionless models, and it helps in studying whether certain factors (such as the size of the financial sector) are associated with lower financial frictions.

About the speaker:

Stavros Panageas, is the Associate Professor of Finance at Booth School of Business, University of Chicago. He was awarded with Utah Winter Finance Conference Best Paper Award, Winner of the Simth Breeden Prize (First Price) for the year and Four Nations cup and other awards. His work has been published in leading academic journals including Journal of Finance, Review of Financial Studies and Journal of Financial Economics.