{"id":{"repo_id":"mit","oai_identifier":"oai:dspace.mit.edu:1721.1/129363"},"canonical_url":"https://search.dev.ndltd.org/etd/mit/oai:dspace.mit.edu:1721.1/129363","repository":{"repo_id":"mit","name":"MIT","base_url":"https://dspace.mit.edu/oai/request"},"display":{"title":"Essays in financial economics","abstract":"Chapter 1 constructs a theoretical model of an ETF. Conventional wisdom warns that exchange-traded funds (ETFs) harm stock price discovery, either by ``stealing'' single-stock liquidity or forcing stock prices to co-move. Contra this belief, I develop a theoretical model that investors with stock-specific information trade both single stocks and ETFs. While the ETF is payoff-redundant, asymmetric information and a position limit for informed traders combine to make the ETF non-redundant. Single-stock investors can access ETF liquidity by means of this tandem trading, and stock prices can flexibly adjust to ETF price movements. Effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. I conclude that ETFs can provide single-stock price discovery. Chapter 2 empirically tests the predictions of the ETF model. Using high-resolution data on SPDR and the Sector SPDR ETFs, I exploit exchange latencies in order to show that investors place simultaneous, same-direction trades in both a stock and ETF. Consistent with my model predictions, effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. Chapter 3 models how risk-averse investors trade when they are uncertain about the quality of their signal. I show that when traders are risk-averse, traders can submit demands which are non-monotone in their signal. While their expected value for the asset may rise with stronger signals, so does the risk that the signal is noise. This leads to short-term behavior which is herding-like. Unlike herding, investors maintain a positive expected value for the asset, but it is their risk aversion leads them to take smaller positions, which has a similar slowing effect on price discovery.","abstract_html":"Chapter 1 constructs a theoretical model of an ETF. Conventional wisdom warns that exchange-traded funds (ETFs) harm stock price discovery, either by ``stealing'' single-stock liquidity or forcing stock prices to co-move. Contra this belief, I develop a theoretical model that investors with stock-specific information trade both single stocks and ETFs. While the ETF is payoff-redundant, asymmetric information and a position limit for informed traders combine to make the ETF non-redundant. Single-stock investors can access ETF liquidity by means of this tandem trading, and stock prices can flexibly adjust to ETF price movements. Effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. I conclude that ETFs can provide single-stock price discovery. Chapter 2 empirically tests the predictions of the ETF model. Using high-resolution data on SPDR and the Sector SPDR ETFs, I exploit exchange latencies in order to show that investors place simultaneous, same-direction trades in both a stock and ETF. Consistent with my model predictions, effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. Chapter 3 models how risk-averse investors trade when they are uncertain about the quality of their signal. I show that when traders are risk-averse, traders can submit demands which are non-monotone in their signal. While their expected value for the asset may rise with stronger signals, so does the risk that the signal is noise. This leads to short-term behavior which is herding-like. Unlike herding, investors maintain a positive expected value for the asset, but it is their risk aversion leads them to take smaller positions, which has a similar slowing effect on price discovery.","abstract_has_math":false,"creators":["Ernst, Thomas(Thomas H.)"],"institution":"Massachusetts Institute of Technology","degree_name":"Doctoral","degree_level":null,"degree_discipline":null,"degree_department":"Sloan School of Management","school":null,"contributors":[],"advisors":["Haoxiang Zhu."],"committee_chairs":[],"committee_members":[],"year":2020,"date_issued":"2020","date_published":"2020","updated_at":"2026-07-22T22:22:12Z","subjects":["Sloan School of Management."],"languages":["eng"],"rights":["MIT theses may be protected by copyright. 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Contra this belief, I develop a theoretical model that investors with stock-specific information trade both single stocks and ETFs. While the ETF is payoff-redundant, asymmetric information and a position limit for informed traders combine to make the ETF non-redundant. Single-stock investors can access ETF liquidity by means of this tandem trading, and stock prices can flexibly adjust to ETF price movements. Effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. I conclude that ETFs can provide single-stock price discovery. Chapter 2 empirically tests the predictions of the ETF model. Using high-resolution data on SPDR and the Sector SPDR ETFs, I exploit exchange latencies in order to show that investors place simultaneous, same-direction trades in both a stock and ETF. Consistent with my model predictions, effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. Chapter 3 models how risk-averse investors trade when they are uncertain about the quality of their signal. I show that when traders are risk-averse, traders can submit demands which are non-monotone in their signal. While their expected value for the asset may rise with stronger signals, so does the risk that the signal is noise. This leads to short-term behavior which is herding-like. Unlike herding, investors maintain a positive expected value for the asset, but it is their risk aversion leads them to take smaller positions, which has a similar slowing effect on price discovery."]},{"key":"dc:description.degree","label":"Dc Description Degree","values":["Ph. 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Consistent with my model predictions, effects are strongest when an individual stock has a large weight in the ETF and a large stock-specific informational asymmetry. Chapter 3 models how risk-averse investors trade when they are uncertain about the quality of their signal. I show that when traders are risk-averse, traders can submit demands which are non-monotone in their signal. While their expected value for the asset may rise with stronger signals, so does the risk that the signal is noise. This leads to short-term behavior which is herding-like. Unlike herding, investors maintain a positive expected value for the asset, but it is their risk aversion leads them to take smaller positions, which has a similar slowing effect on price discovery."],"dc:description.degree":["Ph. D."],"dc:identifier.uri":["https://hdl.handle.net/1721.1/129363"],"dc:language.iso":["eng"],"dc:publisher":["Massachusetts Institute of Technology"],"dc:rights":["MIT theses may be protected by copyright. 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