Mariassunta Giannetti

Publications (4)1.77 Total impact

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  Available from: SSRN

  Article: Investor Protection, Equity Returns, and Financial Globalization

  Mariassunta Giannetti, Yrjö Koskinen
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  ABSTRACT: We study the effects of investor protection on stock returns and portfolio allocation decisions. In our theoretical model, if investor protection is weak, wealthy investors have an incentive to become controlling shareholders. In equilibrium, the stock price reflects the demand from both controlling shareholders and portfolio investors. Due to the high demand from controlling shareholders, the price of weak corporate governance stocks is not low enough to fully discount the extraction of private benefits. Thus, stocks have lower expected returns when investor protection is weak. This has implications for domestic and foreign investors participation in the domestic stock market and home equity bias are positively related to investor protection and provide original evidence in their support.
  Journal of Financial and Quantitative Analysis 01/2010; 45(01):135-168. · 1.77 Impact Factor
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  Available from: SSRN

  Article: Investor Protection and the Demand for Equity

  Mariassunta Giannetti, Yrjö Koskinen
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  ABSTRACT: Anecdotal evidence suggests that investor protection affects the demand for equity, but existing theories emphasize only the effect of investor protection on the supply of equity. We build a model showing that the demand for equity is important in explaining financial development. If the level of investor protection is low, wealthy investors have an incentive to become controlling shareholders and pay a high price for their stocks, because they can earn additional benefits by expropriating outside shareholders. As a consequence of lower expected returns both domestic and foreign portfolio investors have a disincentive to hold stocks. The model implies that differences in stock market participation rates across countries and the pervasiveness of home equity bias depend on the degree of investor protection. Additionally, we uncover a good country bias in investment decisions as portfolio investors from countries with low level of investor protection hold relatively more foreign equity. We provide novel international evidence on stock market participation rates, and on holdings of domestic and foreign stocks consistent with the predictions of the model.
  06/2003;
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  Available from: SSRN

  Article: Investor Protection and Equity-Holdings: An Explanation of Two Puzzles?

  Mariassunta Giannetti, Yrjö Koskinen
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  ABSTRACT: While the existence of fixed costs in entering asset markets is the leading rationalization of the “participation puzzle” —the fact that most households do not hold stocks, despite the diversification gains and the significant risk-premium involved—, most motivations of these fixed costs are as incompatible with conventional portfolio theory as the non participation itself. Nevertheless, we believe that these motivations are empirically correct, and thus we are forced to explore alternatives to conventional portfolio theory. We find in Choquet expected utility theory a tool that is better equipped to deal with more complex forms of ignorance than expected utility is. Within such model, we are able to express the idea that staying out of the market may be a rational response to the own ignorance. Within a Probit model for the 2001 Survey of Consumer Finances, we show suggestive evidence in its favor.
  C.E.P.R. Discussion Papers, CEPR Discussion Papers. 01/2003;
• Source

  Available from: SSRN

  Article: Risk sharing and firm size: theory and international evidence

  Mariassunta Giannetti
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  ABSTRACT: This paper investigates the relationship between financial development and firm size. The model shows that the efficiency of the financial system, measured by the level of monitoring costs, affects the extent of risk sharing within an economy and through this channel the availability of external finance to growing firms. If the provision of finance to projects is concentrated in few individuals and firm shocks are idiosyncratic, the risk premium is likely to rise with the amount of funds firms demand. As a consequence, keeping constant the level of opacity and risk, firms with better growth opportunities face higher costs of external finance in countries where the financial system does not favor risk sharing; this limits firm size. Empirical evidence is also provided. Financial constraints appear more stringent for firms whose optimal size is larger in countries where the financial system is less developed.
  12/2001;