Cryptocurrencies and equities have exhibited a high and positive correlation since March 2020. Without obvious fundamental drivers, we theoretically show that trading flows by retail investors can drive this correlation. Using a unique dataset of investor-level holdings from a bank offering trading accounts and cryptocurrency wallets, we show that retail investors tend to trade equities and cryptocurrencies simultaneously in the same direction. This behavior became prominent in March 2020. We provide suggestive evidence showing that stocks preferred by crypto-traders exhibit a stronger correlation with Bitcoin, especially when the cross-asset retail volume is high.
Media: Financial Times, VoxEU (see Outreach)
We study how the introduction of a central bank digital currency (CBDC) interacts with ongoing monetary policies. We distinguish two policies: standard policy, where the central bank holds treasuries, and quantitative easing, where the central bank holds risky securities. In each scenario, we introduce an interest-bearing CBDC, and study the equilibrium allocations. We reach three main conclusions. First, the equilibrium impact of a CBDC depends on the ongoing monetary policy. Second, when the central bank conducts quantitative easing, the introduction of a CBDC is neutral under two conditions: the cost of issuing a CBDC is equal to the interest on reserves, and the demand for CBDC deposits is smaller than the amount of excess reserves in the system. Third, the introduction of a CBDC might render quantitative easing a quasi-permanent policy, as commercial banks optimally use their excess reserves to accommodate retailers' demand for switching from bank to CBDC deposits.
Honors: Finalist for the 2022 ECB Young Economist Prize
Presentations: Bank of England, ECB Forum on Central Banking (Poster Session, June 2022), The Future.s of Money - Paris (June 2022), 26th Spring Meeting of Young Economists (SMYE, May 2022), ASSA 2022 Virtual Annual Meeting (AEA Poster Session, January 2022), Day-Ahead Workshop on Financial Regulation at the University of Zurich (October 2021), Swiss Finance Institute Research Days (June 2021), 14th Financial Risks International Forum (March 2021), Finance BB seminar at the University of Geneva (January 2021)
Media: Financial Times (see Outreach)
CBDC and Banks: Threat or Opportunity? (2022), with M. Fraschini
A Central Bank Digital Currency (CBDC) would provide households with a superior payment technology, but it would also reduce bank deposits. We develop a structural model of the banking sector, calibrate it, and introduce a CBDC to run counterfactual analyses. We find that banks have limited ability to compensate for the reduction in funding, and that channelling funds back to the banking sector would reduce this negative impact. Nevertheless, we find that banks would exploit this new funding channel to capture part of the consumer surplus stemming from technological innovation.
Presentations: Bank of England, Swiss Finance Institute Research Days 2021
We document abnormal correlations between the performance of hedge funds' managers with an elite socio-economic background. In particular, Columbia, Harvard, University of Pennsylvania, Stanford, and NYU alumni are highly correlated among themselves. We take steps toward linking this phenomenon to a shared information pool with a quasi-natural experiment: the 2009 Galleon Capital insider trading scandal. The difference-in-difference analysis shows a significant reduction in returns of the elite managers following the scandal. Finally, we present evidences suggesting that investors recognize this pool's value, as funds with access to elite information are associated with 55\% higher assets under management at launch.
In recent years, governments have allocated increasing capital to direct startup funding through Government-sponsored Venture Capital funds (GVC). In this paper, we study the role of GVCs in the venture capital market and their relationship with Private Venture Capitalists (PVC). Using European data, we find that GVCs invest consistently with their policy mandates, favoring specific industries, geographical areas, and firms with high innovation potential, but have lower average performances. These findings indicate that GVCs can identify innovative companies and prioritize positive externalities over profit maximization. We build an asset pricing model with heterogeneous preferences to study the role of GVCs in catalyzing PVC investments. We find that PVCs invest less in startups previously funded by GVCs, in line with empirical evidence. At aggregate level, GVC investments can crowd-in private ones if they focus on startups in VC hubs.
Presentations: Swiss Finance Institute Research Days 2021
Making Sense of Retail Investors (2022), with A.Didisheim
How rational are retail investors? We propose a structural methodology to estimate individual agents' preferences and optimism bias. Using a novel dataset of 19,600 Swiss retail investors' portfolios, We find that a few key mechanisms explain most retail investors' choices. Even without optimism bias, we can rationalize 76.88% of portfolios when accounting for skewness preferences and inattention. Assuming fixed preferences, We find that optimism decreases with experience. New investors exhibit an abnormally high optimism bias (6% annualized) which converges monotonically toward zero after 16 months of activity. Finally, while extreme returns influence investors' bias, this effect is short-lived (3 to 4 months).