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Keynes Fund


Summary of Project Plan

This is a proposal to study the effects of individual portfolio trading decisions on aggregate stock market variables. The academic literature has many open questions on how investors trade and if their behavior has any consequences for returns at the aggregate level. For example, how investors react to news and how their portfolio rebalancing decisions affect aggregate fluctuations in the market price of risk. Understanding the consequences of investor behavior is important for optimizing investment decisions and for the design of financial markets regulations.

The limited availability of data is a major constraint for studies in this area. Portfolio holdings data are seldom available and usually cover only a small sample of investors. Previous work has tried to bypass this problem by developing theoretical models and using simulations to study the effects of individual behavior. However, these simulations require strong assumptions to make empirical assessments.

We measure the effects of the behavior of investors by employing a dataset with Brazilian investors’ trading information provided by B3, the Brazilian securities exchange. The dataset contains portfolio holdings and daily trades for all investors in the Brazilian market (more than 550,000 participants) between 2012 and 2013. The data include stocks, derivatives, and other financial assets, allowing us to observe individual portfolios over time. Moreover, the investors are categorized by type, such as individuals, mutual funds, and non-residents.

The data have the potential to become a reference to the study of the behavior of investors. B3 is a large and modern securities exchange who adopts the final beneficiary model, which identifies each transaction and holding with the highest possible level of disclosure. We expect to provide new results that help to promote the efficiency of financial markets.

Here are some of the research questions we aim to study: (i) Do large investors react faster to news? (ii) Is there evidence of information asymmetry and mispricing? (iii) How different are portfolio rebalancing frequencies across investors? (iv) Can rebalancing increase the volatility of the market risk premium? (v) How do investors react to news on recent IPOs?

JEL Codes: E44, G11, G12, G14, G50

Keywords: macroeconomics and financial markets, household finance, securities exchange, information, market risk



Dr. Pedro Saffi


Dr Pedro Saffi is Reader in Financial Economics and Director of the Master of Finance (MFin) Programme at the Cambridge Judge Business School, University of Cambridge. His research interests are Security Lending Markets; Short Selling; Liquidity Risk; and how differences of beliefs affect trading volume.


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