סמינר במימון חשבונאות

Speaker:            Idan Hodor, Boston University, School of Management

Abstract

In this paper we develop an asset pricing model with heterogeneous institutional investors, and we provide a comprehensive analysis of the effects of benchmark heterogeneity on equilibrium prices and portfolio allocations. We find that an institution's holdings are higher for those assets that are exclusively part of its benchmark, and that are financed by taking short positions in the assets that are only in other institution's benchmark, while keeping a zero cash balances at all times. This result implies that correlation across benchmarks is negative. We define a measure of asymmetry between benchmarks and show how it effects asset prices and portfolio allocations.

Institutions revert their holdings to their benchmarks when fundamental volatility is high flight to benchmark  thus creating a demand pressure on the overlapping part of benchmarks, which in turn pushes prices up and Sharpe ratios down even further. Our model also addresses the twin stocks discrepancy, the low volatility puzzle and the asset class effect. We conclude our analysis by characterizing an endogenous choice of benchmark, and show that institutions optimally select the same fully diversified index.

The article will be available for download from the Finance-Accounting seminar website:

http://en-recanati.tau.ac.il/Finance-Accounting-Seminars2015a