Alexi Savov Assistant Professor of Finance asavov@stern.nyu.edu.edu
Research interests Asset pricing with asymmetric information; endogenous noise trading. Consumption-based asset pricing, especially non-market consumption. Empirical asset pricing.
Experience Curriculum Vitae
Papers Have Financial Markets Become More Informative? (With Jennie Bai and Thomas Philippon) The finance industry has grown. Financial markets have become more liquid. Information technology has been revolutionized. Have market prices become more informative? We use stock and bond prices to forecast earnings and find that the information content of market prices has not increased since 1960. We use a model with information acquisition and investment to link financial development, price informativeness, and investment. As information costs fall, the predictable component of future earnings rises, improving capital allocation and enhancing welfare. We find that this component has remained stable in the data. Our model also allows us to decompose price informativeness into two components, one produced in markets, the other reflected by them. Both are unchanged. Prices have become stronger predictors of R&D investment, but this has not translated into stronger earnings predictability. The Price of Skill: Performance Evaluation by Households Skilled investors make money off uninformed investors. When acting as intermediaries, they provide a hedge to the uninformed investors themselves. I present a model where households have imperfect information about expected returns. They also receive non-traded income shocks that cause them to rebalance. As a result, households sometimes buy or sell at the wrong time. Active intermediaries hedge this risk by trading in the direction of true expected returns. In equilibrium, active funds pay off when non-traded income disappoints. The premium for this service is high enough to make active funds appear to underperform index funds net of fees. Empirical results on the dynamics of active fund flows support the mechanism of the model. Asset Pricing with Garbage The Journal of Finance Smith Breeden Prize (Distinguished Paper) A new measure of consumption, garbage, is more volatile and more correlated with stocks than the standard measure, NIPA consumption expenditure. A garbage-based CCAPM matches the U.S. equity premium with relative risk aversion of 17 versus 81 and evades the joint equity premium-risk-free rate puzzle. These results carry through to European data. In a cross section of value, size and industry portfolios, garbage growth is priced and drives out NIPA expenditure growth. Wall Street Journal article Internet Appendix Slides The Puzzle of Index Option Returns (With George Constantinides and Jens Jackwerth) We document that leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2010, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible unconditional factor models and find that only factors which capture jumps in the market index and jumps in the market volatility and, to a lesser extent, volatility and liquidity reasonably explain the cross-section of index options. The principal finding is that these factors require economically and statistically different factor premia on subsamples split across type (calls and puts), maturity, and moneyness, pointing towards market segmentation.