Financial markets are often seen as the epitome of efficiency, where prices reflect all available information and investors act rationally. But for Dr Alireza Aghaee, newly appointed Assistant Professor of Finance at Imperial Business School, the real story lies in the imperfections. His research probes where theory and reality diverge, uncovering the frictions, strategies, and constraints that shape how capital markets truly function.

“Across my projects, I investigate market efficiency and frictions within capital markets, with a focus on how corporate and investor actions deviate from theoretical benchmarks due to practical constraints and strategic behaviours,” he explains.

Dr Aghaee’s research took him to pursue a PhD at Bocconi University. Along the way, his empirical work on asset pricing and corporate finance earned him recognition from leading finance associations, including the European Finance Association Doctoral Tutorial Best Paper Prize (2024) and runner-up for the EEA/UniCredit Econ Job Market Best Paper Award (2024).

Joining Imperial, he says, offers an opportunity to expand his research in a collaborative, interdisciplinary environment, “I am excited to join Imperial’s vibrant research community, where collaboration across disciplines drives innovative thinking in finance. The School’s strong ties to policy and industry provide a unique environment to translate research into real-world impact, and I look forward to contributing to its legacy of excellence.”

Investigating the index effect

His award-winning job market paper revisits one of finance’s enduring puzzles: the index effect in the S&P 500. Why do stocks added to the index often see abnormal returns? And why has this effect been fading in recent decades?

Using a novel identification strategy that analyses incumbents (firms already in the index whose portfolio weights adjust when index’s composition changes), he shows that after 2000, demand (and not information) is the main force behind the index effect. His findings suggest the decline is linked to improved substitution patterns across stocks and smaller risks for traders who provide liquidity to the market.

The implications offer new insights into how markets function when investors face practical constraints and how market efficiency relates to the risk borne by the liquidity providers.

Global debt structures under the microscope

Another stream of Dr Aghaee’s work investigates how legal environments shape corporate debt structures worldwide. In collaboration with Stefano Rossi (Bocconi) and Lorenzo Bretscher (HEC Lausanne), he has reconstructed the debt structure of more than 10,000 firms across 52 countries between 2002 and 2021.

The findings reveal striking contrasts: debt ownership is most concentrated in civil law countries and most dispersed in common law countries. In environments with weaker investor protection, firms are less likely to borrow on a secured basis, issue shorter-maturity debt, and often denominate debt in USD to mitigate local risks.

Building on this, his ongoing projects explore how common creditors influence competition among firms, extending the conversation on financial interdependencies and common ownership’s risks.

Looking ahead at Imperial

For Dr Aghaee, joining Imperial is as much about the people as the research. The Business School’s finance group is known for combining rigorous theory with applied relevance, and its London location provides access to both policy circles and industry leaders.

“Imperial has a unique position at the intersection of finance, technology, and policy,” he says. “This is an exciting place to collaborate with colleagues across disciplines and to ensure our research not only advances academic debates but also informs practice.”

Beyond research, he is keen to contribute to the classroom experience, embedding insights from his projects into teaching that challenges students to think critically about the assumptions behind financial models. By showing how real-world constraints shape behaviour, he hopes to inspire future finance professionals to navigate complexity with rigour and creativity.

At its heart, Dr Aghaee is working to bridge the gap between elegant financial theory and messy financial reality. Whether studying how demand shifts affect stock prices or how laws shape firms’ choices, his research sheds light on the frictions that shape global finance.