Research Works

Working paper

Valuation without Cash Flows: What are Cryptoasset Fundamentals?

Cryptoassets represent a novel asset class in which tokens are generated and transacted using cryptography through blockchains. To date, few studies have attempted to derive a fundamental valuation for a cryptocurrency. I developed a model based on the Quantity Theory of Money (QTM) that informs us about fundamental value of a currency, and applied it to understand cryptocurrency valuation. For most cryptocurrencies, an expectation of future use as a currency drives the valuation. I analyzed attention, sentiment, and R&D measures as proxies that form this expectation, and found that they are all significantly related to cryptocurrency returns. A portfolio that was long high attention cryptocurrencies with weekly rebalancing would have earned a 0.58% daily alpha from mid-2017 to the end of 2019. The portfolio which is long high attention cryptocurrencies and short low attention cryptocurrencies has an even higher daily alpha of 0.72%, though it is not currently a tradeable strategy due to short-sale constraints. A portfolio formed from cryptocurrencies with high investor sentiment would have yielded a 0.33% daily alpha. R&D does not show as strong effects, but is still significantly related, and all the proxies for future usage remain significant with a variety of analyses and controls including other crypto market factors such as MKT, SMB, and UMD, and dual portfolio sorts on maturity, size, and momentum.

Working paper

Government Equity Capital Market Intervention and Stock Returns

With Andy Naranjo, Mahendrarajah Nimalendran

As part of their market intervention strategy, the Bank of Japan (BOJ) has been purchasing shares of ETFs tracking Japan’s major stock indices, reaching as much as ¥16.3 trillion in holdings by December of 2017. We show that firms that end up with high BOJ ownership have 1.78% higher daily returns and alpha of 0.29% in the window of (-1, 1) around BOJ purchase days compared to firms with no ownership. We further show that there are significant price distortion effects as the BOJ purchases assets proportionally to their index weighting and not their market value. We analyze the Nikkei 225 as a price-weighted target index, and provide evidence that firms with high price-weightings but low market capitalization out-perform by 9.12% annually compared to the average firm. We show evidence that this out-performance is due to higher Bank of Japan ownership.

Working paper

Are Investors Paying (for) Attention?

I examine the informativeness of investor attention on pricing of assets by using a new proxy based on Google search data. In contrast to prior studies using Google data, my new proxy contains cross-sectional firm attention information in addition to time-series information. I focus on firms that consistently receive high or low attention, rather than attention-grabbing events. I find that firms with low attention outperform firms with high attention by 8.16% annually, and after isolating the unique information in search volume and removing the impact of attention-grabbing events, the outperformance is still statistically and economically significant at 6.36% annually.

Working paper

OSPIN: Informed Trading in Options and Stock Markets

With Yong Jin, Mahendrarajah Nimalendran, Sugata Ray

To gain a better understanding of the role of information in the price discovery of stock and option markets, we propose and estimate a joint structural model of trading in both markets, yielding correlated directional informed trading in both markets, informed volatility trading in the option market, and correlated (buy/sell) liquidity trades in both markets. The model parameters and the probabilities of informed and liquidity trading in both markets are estimated using signed high frequency stock and options trading data for different option contracts. We find that moneyness and maturity play an important role in informed trading and on the microstructure price discovery of the stock and options markets. Further, we find the high frequency informed trading measures in the options market spike just before earnings announcements and remain high for a few days after the announcement.

Work in progress

Explaining the Cross-Section of Cryptocurrency Returns

There are thousands of cryptocurrencies, but no model to explain their price movements. One cryptocurrency stands out in terms of its public awareness and market capitalization: Bitcoin. Anecdotal evidence suggests that cryptocurrency returns are related to Bitcoin returns. This study seeks to determine a pricing model which relates individual cryptocurrency returns to Bitcoin returns.

Work in progress

Does Government Equity Market Intervention Affect Liquidity and Volatility?

With Andy Naranjo, Mahendrarajah Nimalendran

Bank of Japan (BOJ) ETF purchases have resulted in the BOJ owning more than 60% of total outstanding ETFs by December of 2017. Considering such a large volume of purchases, we focus on liquidity effects in both the ETF market and the market for the underlying shares. Further, as the BOJ is only purchasing and not selling, we examine how downside volatility decreases.

Work in progress

The Effect of Equity Market Intervention on Corporate Financing

With Andy Naranjo, Mahendrarajah Nimalendran

We show in prior work that stock prices of the underlying firms increase in response to Bank of Japan (BOJ) purchases of ETFs of major stock indices. Considering a higher share value, firms should be more likely to choose equity than debt when raising capital. This effect may be mediated by the low cost of debt during this time period.

Work in progress

How do CEOs Respond to Public and Investor Scrutiny?

With Corbin Fox

In the United States, there has been a trend towards increased public scrutiny of CEO pay, in both the press and in regulation. As far as regulation, first companies had to release a summary table of compensation, then "Say on Pay" legislation was introduced so that shareholders vote to approve the CEO compensation. We examine the quantity and quality of CEOs that move from the public sector to the private sector, using regulatory changes as exogenous shocks.

Work in progress

Do Insiders Learn From Short Sellers?

With Corbin Fox

Differing groups of investors, such as insiders, short-sellers, and analysts, have different information sets on which to trade. While the use and transmission of information by insiders has been extensively studied, there is a lack of research on how insiders learn from external investors such as short-sellers. We examine the response of insider trading to surprises in short interest.