Mariassunta Giannetti
Bio sketch:
Mariassunta Giannetti is a professor of Finance at the Stockholm School of Economics, a CEPR research fellow in the financial economics program, and a research associate of the European Corporate Governance Institute. She received a Ph.D. in Economics from the University of California, Los Angeles in 1999 and completed her undergraduate studies (BA and M.Sc.) with the highest honours at Bocconi University (Italy) in 1995. Her research interests lay at the intersection between corporate finance, international finance and development economics. Mariassunta is recipient of several grants and awards. She was awarded the Corporate Partners’ Research Award by the Stockholm School of Economics and was nominated Lamfalussy Research Fellow by the European Central Bank. Her work is regularly presented at leading finance conferences (including American Finance Association, American Economic Association, Western Finance Association, European Finance Association and CEPR and NBER meetings) and academic departments. Her publications have appeared in leading journals including Journal of Finance, Review of Financial Studies, Journal of Financial and Quantitative Analysis, and Economic Journal.
Abstract:
After negative shocks, investors with short trading horizons are inclined or forced to sell their holdings to a larger extent than investors with longer trading horizons. This may amplify the effects of market-wide shocks on stock prices. We test the relevance of this mechanism by exploiting the negative shock caused by Lehman Brothers’ bankruptcy in September 2008. Consistent with our conjecture, we find that short-term investors sell significantly more than long-term investors around and after the Lehman Brothers’ bankruptcy. Most importantly, we show that stocks held by short-term institutional investors experience more severe price drops and larger price reversals than those held by long-term investors. Since they are obtained after controlling for the stocks’ exposure to volatility, various firms’ and investors’ characteristics, including the momentum effect and the propensity of institutional investors to follow an index, our results cannot be explained by characteristics of the institutions’ investment styles other than their investment horizons. We also show that the effect of shareholder trading horizon emerges during other large market declines. Overall, the empirical evidence strongly indicates that investors’ short horizons amplify the effects of market-wide negative shocks.
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