Blog

I am not a professional blogger but a true passionate about finance research. As various projects are progressing, there is a lot of information which I find to be relevant not only to academics but also to professionals in the finance industry.

The purpose of this blog is to share this information in a concise way and make research knowledge more accessible, with the result of not necessarily using academic references, citations or specific vocabulary. The blog covers topics as varied as FinTech and its applications in finance to the outcomes of my various academic involvements. Enjoy the reading!

Blog

I am not a professional blogger but a true passionate about finance research. As various projects are progressing, there is a lot of information which I find to be relevant not only to academics but also to professionals in the finance industry.

The purpose of this blog is to share this information in a concise way and make research knowledge more accessible, with the result of not necessarily using academic references, citations or specific vocabulary. The blog covers topics as varied as FinTech and its applications in finance to the outcomes of my various academic involvements. Enjoy the reading!

Research Update

My recent research focuses on understanding how investors’ demand pressures alter inventory risk management strategies of market makers in the equity options market.

Derivatives, unlike stocks, are in zero net supply. Thus, positive or negative demand pressures, and inability to hedge perfectly, can lead to various deviations from model-implied prices. These deviations are non-trivial and result in different qualities of executions depending on what time of a day you trade. I am currently working with LiveVol/CBOE to attract attention of academics and industry practitioners about the importance of using intra-day trading equity options data rather than end-of-day closing prices.

Volatility and the Cross-Section of Equity Returns: The Role of Short-Selling Constraints

The negative effect of idiosyncratic volatility (IVOL) on future stocks returns has been a long-standing puzzle. If investors hold diversified portfolios then IVOL should not be priced. If investors hold under-diversified portfolios then higher IVOL is associated with higher risk and should positively predict stock returns. As more data on borrowing fees to short-sell stocks become available in recent years, we are able to explain these puzzling results. Majority of stocks with the highest IVOL are the stocks which are hard to borrow and hence either very expensive or impossible to short-sell. Once these stocks are removed from trading strategies, the predictive relations between IVOL and future stock returns disappears. This is a great example of how market frictions, such as costs of short-selling, can evaporate what could be seen as trading opportunity.

Price Pressures and Option Returns

with Chengyu Zhang (McGill)

Disagreement in the Equity Options Market and Stock Returns

(Revise and Resubmit, Review of Financial Studies)
with Benjamin Golez (Notre Dame)

Do Option-Based Measures of Stock Mispricing Find Investment Opportunities or Market Frictions?

with Martijn Cremers (Notre Dame), Paul Schultz (Notre Dame) and Stephen Szaura (McGill)