Julio A. Crego
I am an Assistant Professor of Finance at Tilburg University. I received my PhD from CEMFI, Madrid in 2017.
My research interests cover topcis in Market microstructure and Econometrics.
jacrego (at) uvt (dot) nl
Finance Department - Office I 502
5037 AB Tilburg - The Netherlands
The arrival of a public signal worsens the adverse selection problem if informed investors are risk-averse. Precisely, the public signal reduces uncertainty which boosts informed investors' participation leading to a more toxic order flow. I confirm the model's empirical predictions by estimating the effect of the publication of the weekly change in oil inventories on liquidity via a difference-in-differences strategy. I show that the mean bid-ask spread doubles immediately after the release and volume increases by 32 percent regardless of the report's content. Further, in line with the model, implied volatility drops and insider's trading increase after the report's publication.
We explore a new dimension of dependence of hedge fund returns with the market portfolio by examining linear correlation and tail dependence conditional on the financial cycle. Using a large sample of hedge funds that are considered "market neutral", we document that the low correlation of market neutral hedge funds with the market is composed of a negative correlation during bear periods and a positive one during bull periods. In contrast, the remaining styles present a positive correlation throughout the cycle. We also find that while they present tail dependence during bull periods, we cannot reject tail neutrality in times of financial turmoil. Consistent with these results, we show that market neutral hedge funds present state timing ability that cannot be explained by other forms of timing ability. Using individual hedge fund data, we find that funds that implement share restrictions are more likely to time the state.
Since September 2008 regulators from different countries, motivated by suspicions regarding an increase in investors aggressiveness, have implemented several temporary short selling restrictions. In this paper, I study the effect of such policies in the context of the 2012 Spanish short selling ban. The results of this paper highlight an important policy trade-off: on the one hand, I provide evidence that, in line with regulator beliefs, investor aggressiveness is extremely high prior to the ban and, it reverts just after the ban implementation. On the other hand, using a novel identification strategy, I find that this policy increases the bid-ask spread. The causal interpretation of these results is obtained under the assumption that the exact time of the implementation is random. Specifically, using intraday data, I apply a methodology inspired in a regression discontinuity design in the time dimension. While the results obtained using this methodology are qualitatively similar to the ones found in previous literature, the quantitative effect is much smaller.
We propose a novel methodology to classify individuals into groups of health and characterize their transition across these groups as they age. We use MCMC techniques to estimate a panel Markov switching model that exploits information from both the crosssectional and time series dimensions. Using the Health and Retirement Study, we identify four clearly differentiated and persistent health groups, depending on individual's physical and mental disabilities, with heterogeneous transitions across gender and education. Our classification outperforms existing measures of health used in the literature at explaining entry in nursing homes, home health care, out-of-pocket medical expenses and mortality.
WORK IN PROGRESS
Competition and Liquidity
In the last decade hundreds of millions of dollars have been invested in reducing the communication time between the CME and NYSE. While some investors argue that the fastest the markets, the more efficient is the price; others claim that differences in speed erode liquidity through an increase in asymmetric information. I estimate the causal effect of one of these technologies, Microwave beams, on liquidity. I identify the causal effect using rain as an exogenous instrument under two mild assumptions: rain along the path between Chicago and New York does not affect liquidity and, microwave signals are attenuated by rain.
This paper studies learning in the stock market. Our contribution is to propose a model to illustrate the endogenous timing decision on trading, taking into account the incentive of learning from others about the fundamental value. The model is similar to Easley and O'Hara (1992), except that we introduce less-informed traders whose private information is inferior to fully-informed traders, but superior to that of random noise traders, and a zero-profit market maker. We also allow both types of informed traders to optimize timing of trading. We show that fully-informed traders act as early birds because it is optimal for them to buy or sell at the earliest possible time; meanwhile, less-informed traders could be better off as second mice by delaying transactions to learn from previous trades. The greater information asymmetry between the less-informed traders and the market maker, the larger profits the former could make even though the latter is learning from all trades.