|
|
|
|
|
|
|
|
Andrea Frazzini
The Graduate Office: 773 702 8471 Fax: 773 702 0458
|
|
|
Curriculum Vitae Teaching MBA (restricted) Teaching PHD (restricted) |
|
|
|
|
Research |
|
|
|
We test the hypothesis that sell-side
analysts engage in acts of reciprocity when issuing their stock
recommendations, in exchange for managerial favor-rendering. We identify a specific, observable and
economically important channel of managerial favor rendering: the appointment
of analysts to the boards of directors of firms they formerly covered. We investigate the behavior of
board-appointed analysts during the time period when they were covering these
firms, and find that analysts issue significantly more positive
recommendations on companies for whom they end up on the board of
directors. The magnitude of this
result is large: 80.2% of reciprocal recommendations are strong-buy/buy
recommendations, compared to 56.9% for all other analyst recommendations. We also find that reciprocal analysts’
optimism is stronger at precisely those times when managers would welcome
good news: when firms have high short interest, when firms have higher than
average issuance in the future, and when the last recommendation issued on
the firm was a downgrade. We estimate the value of these acts of reciprocity
to both the firm and analyst involved.
We study
the impact of social networks on agents’ ability to gather superior
information about firms. Exploiting
novel data on the educational backgrounds of sell-side equity analysts and
senior officers of firms, we test the hypothesis that analysts’ school ties
to senior officers impart comparative information advantages in the
production of analyst research. We
find evidence that analysts outperform on their stock recommendations when
they have an educational link to the company. A simple portfolio strategy of
going long the buy recommendations with school ties and going short buy
recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at
impeding selective disclosure, constrained the use of direct access to senior
management. We find a large effect: pre-Reg FD the return premium from school
ties was 8.16% per year, while post-Reg FD the return premium is nearly zero
and insignificant. “The
Small World of Investing: Board Connections and Mutual Fund Returns” (with Lauren Cohen and Christopher
Malloy), April 2007 NBER Working paper
w13121. Revise and Resubmit , Journal
of Political Economy Winner of Barclays Global Investors
Award, Best Paper in Asset Pricing, European Finance Association 2007 This
paper uses social networks to identify information transfer in security
markets. We focus on connections between mutual fund managers and corporate
board members via shared education networks. We find that portfolio managers
place larger bets on firms they are connected to through their network, and
perform significantly better on these holdings relative to their
non-connected holdings. A replicating portfolio of connected stocks
outperforms a replicating portfolio of non-connected stocks by up to 8.4% per
year. Returns are concentrated around corporate news announcements,
consistent with mutual fund managers gaining an informational advantage
through the education networks. Our results suggest that social networks may
be an important mechanism for information flow into asset prices. |
|
|
The Earnings Announcement Premium and Trading Volume (with Owen Lamont), December 2006, NBER Working paper w13090. Revise and Resubmit , Journal of Finance On average, stock prices
rise around scheduled earnings announcement dates. We show that this earnings
announcement premium is large, robust, and strongly related to the fact that
volume surges around announcement dates. Stocks with high past concentration
of trading activity around earnings announcement dates earn the highest
announcement premium, suggesting some common underlying cause for both volume
and the premium. We show that high premium stocks experience the highest
levels of imputed small investor buying, suggesting that the premium is
driven by buying by small investors when the announcement catches their
attention. |
|
|
Economic Links and
Predictable Returns (with Lauren Cohen), 2006, Journal
of Finance, forthcoming. Winner of First Prize, Winner of BSI Gamma Foundation Grant, Firm
Characteristics and Investment Management, 2006 This paper finds evidence
of return predictability across economically linked firms. We test the
hypothesis that in the presence of investors subject to attention
constraints, stock prices do not promptly incorporate news about economically
related firms, generating return predictability across assets. We use a
dataset of firms’ principal customers to identify a set of economically
related firms, and show that stock prices do not incorporate news involving
related firms, generating predictable subsequent price moves. A long/short
equity strategy based on this effect yields monthly alphas of over 150 basis
points. |
|
|
Dumb Money:
Mutual Fund Flows and the Cross-Section of Stock Returns (with Owen
Lamont), 2006, Journal of Financial Economics, forthcoming We use mutual fund flows
as a measure for individual investor sentiment for different stocks, and find
that high sentiment predicts low future returns at long horizons. Fund flows are
dumb money: by reallocating across different mutual funds, retail investors
reduce their wealth in the long run. This dumb money effect is strongly
related to the value effect. High sentiment also is associated high corporate
issuance, interpretable as companies increasing the supply of shares in
response to investor demand. |
|
|
The
Disposition Effect and Under-reaction to News, Journal of
Finance • Vol. LXI, No. 4 • August 2006 Winner of First Prize, Winner of First Prize, PanAgora Asset Management Crowell Memorial Prize Competition , 2004-2005 This paper tests whether the “disposition effect,” that is the tendency of investors to ride losses and realize gains, induces “underreaction” to news, leading to return predictability. I use data on mutual fund holdings to construct a new measure of reference purchasing prices for individual stocks, and I show that post-announcement price drift is most severe whenever capital gains and the news event have the same sign. The magnitude of the drift depends on the capital gains (losses) experienced by the stock holders on the event date. An event-driven strategy based on this effect yields monthly alphas of over 200 basis points.
|
|
In the news |
|
|
|
Stockscreen: Hitting The Links --- Want to capitalize on
booming sales at successful companies? Track down their big supplier, SmartMoney, 1 December 2007. Too much information - Buttonwood, The Economist, 14 July 2007. 7 Money Mistakes To Avoid, SmartMoney, 1 July 2007. Point of View: Study Finds Money In Those Old School Ties, Dow
Jones News Service,
12 June 2007. Quantifying the Role of Old-School
Ties in Investing, The New York Times,
9 June 2007. Blame the Fund Manager, or the Face in the Mirror? The New York Times, 2/26/2006 |
|
|
|
|
|
|
