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16:30 | Macro Research Seminar
Veronika Selezneva (Job Talk) “A Side Effect of Financial Innovation”
Northwestern University, Evanston, Illinois, USA
Author: Veronika Selezneva
Abstract: Financial innovation often involves the creation of new instruments that bundle existing securities such as mutual funds or exchange traded funds. In this paper I argue that while the creation of such assets has advantages such as lowering transaction costs, there can also be negative side effects. Investment in the new instrument may reveal information about future demand for the underlying securities, as the fund managing the instrument often needs to mechanically rebalance its position. Informed arbitrageurs may trade, exploiting their knowledge of this rebalancing. In general equilibrium, this trading activity can end up making the price of the underlying securities less informative and more sensitive to rebalancing shocks. I show that this loss of information may outweigh the direct gains from lower transaction costs that uninformed investors experience. I argue that potential effect on the market of the underlying securities may be substantial. To illustrate the mechanism, I analyze two episodes of financial innovations in the oil and volatility markets. The magnitude of the effect can be gauged by the fact that introduction of the new instrument in the oil market led to a temporary violation of a no-physical arbitrage condition.
Full Text: “A Side Effect of Financial Innovation”
18:30 | Economics Discovery Hub
Writing Policy Papers under Pressure
Aleš Nechuta from the Office of the Czech Government (Úřad vlády České republiky) is collaborating with the Applied Economics Discovery Hub to provide a free workshop in writing policy papers while under pressure. As an Economic Analyst from the Section for European Affairs, Nechuta will share insider expertise in creating policy reports and dealing with stressful conditions.
In attending this practical workshop, you will gain hands-on experience in preparing policy papers. By collaborating in small groups you will be asked to work on a given a topic. Together with your team, you will have to find relevant data with which you will write a policy paper answering the given problem. At the end of the workshop your team should have a paper ready for presentation. Along with other students you’ll be working on real-world issues with real data in real time!
Find out more and apply now!
