Imperial College London

Dr Savitar Sundaresan

Business School

Assistant Professor of Finance
 
 
 
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Contact

 

s.sundaresan CV

 
 
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Location

 

5.01cBusiness School BuildingSouth Kensington Campus

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Summary

 

Publications

Publication Type
Year
to

6 results found

Buss A, Sundaresan S, 2023, More Risk, More Information: How Passive Ownership Can Improve Informational Efficiency, The Review of Financial Studies, Vol: 36, Pages: 4713-4758, ISSN: 0893-9454

<jats:title>Abstract</jats:title> <jats:p>We identify a novel economic mechanism through which passive ownership positively affects informational efficiency in the cross-section of firms. Passive investors’ inelastic demand lowers a firm’s cost-of-capital, inducing it to take more risk. The higher cash flow variance, in turn, incentivizes active investors to acquire more precise private information, pushing up price informativeness for firms with high passive ownership. High passive ownership also implies higher stock prices and higher stock-return variances. An increase in the aggregate size of passive investors amplifies these cross-sectional differences. We also document complementarities in firms’ real investment and investors’ information choices that can cause information crashes.</jats:p> <jats:p>Received May 31, 2020; editorial decision January 4, 2023 by Editor Holger Mueller. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online</jats:p>

Journal article

Sundaresan S, 2023, Emergency preparation and uncertainty persistence, Management Science, ISSN: 0025-1909

Unusual events trigger persistent spikes in uncertainty. Standard models cannot match these dynamic patterns. This paper presents a unified framework, motivated by the literature on inattention. Agents choose whether and how to prepare for different possible states of the world by collecting information. Agents optimally ignore sufficiently unlikely events, so theoccurrence of such events does not resolve, but rather increases, uncertainty. Uncertain agents have dispersed beliefs, making it harder to focus future preparation. Thus, uncertainty begets uncertainty for an inattentive agent, endogenously persisting. In a financial application, thisframework matches patterns in volatility, volume of trade, belief dispersion, and spreads.

Journal article

Sundaresan S, 2023, Market Power and Price Informativeness, The Review of Economic Studies, ISSN: 0034-6527

Journal article

Buss A, Sundaresan S, 2023, More risk, more information: how passive ownership can improve informational efficiency, The Review of Financial Studies, ISSN: 0893-9454

We identify a novel economic mechanism through which passive ownership positively affects informational efficiency in the cross-section of firms. Passive investors’ inelastic demand lowers a firm’s cost-of-capital, inducing it to take more risk. The higher cash flow variance, in turn, incentivizes active investors to acquire more precise private information, pushing up price informativeness for firms with high passive ownership. High passive ownership also implies higher stock prices and higher stock-return variances. An increase in the aggregate size of passive investors amplifies these cross-sectional differences. We also document complementarities in firms’ real investment and investors’ information choices that can cause information crashes.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Journal article

Kacperczyk M, Sundaresan S, Wang T, 2021, Do Foreign Institutional Investors Improve Price Efficiency?, The Review of Financial Studies, Vol: 34, Pages: 1317-1367, ISSN: 0893-9454

<jats:title>Abstract</jats:title> <jats:p>We study the impact of foreign institutional investors on price efficiency with firm-level international data. Using additions to the MSCI index and the U.S. Jobs and Growth Tax Relief Reconciliation Act as exogenous shocks to foreign ownership, we show that greater foreign ownership increases stock price informativeness, especially in developed economies. This increase arises from new information that foreign investors bring in and displacement of less-informed domestic retail investors. Finally, we show that foreign ownership, particularly from active investors, increases market liquidity, reduces firms’ cost of equity, and increases firms’ real investment growth.</jats:p>

Journal article

Nimark KP, Sundaresan S, 2019, Inattention and belief polarization, Journal of Economic Theory, Vol: 180, Pages: 203-228, ISSN: 0022-0531

Disagreement persists over issues that have objective truths. In the presence of increasing amounts of data, such disagreement should vanish, but it is nonetheless observable. This paper studies persistent disagreement in a model where rational Bayesian agents learn about an unobservable state of the world through noisy signals. We show that agents (i) choose signal structures that are more likely to reinforce their prior beliefs and (ii) choose less informative signals when their prior beliefs are more precise. For sufficiently precise beliefs, agents choose completely uninformative signals. We call the former the confirmation effect and the latter the complacency effect. Taken together, the two effects imply that the beliefs of ex ante identical agents over time can cluster in two distinct groups at opposite ends of the belief space. The complacency effect holds uniformly when information cost is proportional to channel capacity, but not when cost is proportional to reduction in entropy.

Journal article

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