Andrei Simonov

• PhD, INSEAD 2000, PhD, Moscow State University, 1991
• Professor at Michigan State University

Using microdata from the American Red Cross (ARC) and the Federal Election Commission (FEC) in two natural experiments, we provide evidence that political giving and charitable giving are substitutes. In the first natural experiment, we estimate the effects of a positive shock to charitable donations to the ARC: foreign natural disaster events. We...

We study how managers of funds created for the long run behave when shielded from liquidity constraints and their investors' short-term needs. We focus on Target Date Funds (TDFs) for which the investment horizon of investors changes deterministically over time and is not due to specific idiosyncratic characteristics of the fund that can affect inv...

We study whether mutual funds systematically manage the downside risk of their portfolios in ways that improve their performance. We find that actively managed mutual funds on average possess positive downside-risk-timing ability. Managers adjust funds’ downside risk exposure in response to macroeconomic information; however, downside-risk-timing s...

Using survey-based measures of mutual fund manager loss aversion, we study the effects of institutional investor preferences on their investment decisions, performance, and career outcomes. We find that managers with higher aversion to losses choose portfolios with lower downside risk, increase their risk-taking more in response to poor past perfor...

We provide direct evidence on the effect of financial expertise on investment outcomes by analyzing private portfolios of mutual fund managers. We find no evidence that financial experts make better investment decisions than peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do m...

We study the impact of style representation on portfolio choice using the choices of the Swedish population in their retirement accounts. We show that investor choice depends on how funds are grouped in the menu (“styles”). An exogenous increase in the style representation increases investment in the funds of the style. By using information on the...

We study the effects of establishment of a captive finance subsidiary on parent firm's competitiveness. Firms with captives have higher profitability, larger market share, lower volatility of sales, and maintain lower cash balances. Following the establishment of a captive, a firm's profitability and its industry market share gradually increase, bu...

We study whether mutual funds systematically manage downside risk of their portfolios in ways that improve their performance. We find that actively managed mutual funds on average possess positive downside risk timing ability. Funds investing in large-cap and value stocks have stronger downside risk timing skills. Managers adjust funds’ downside ri...

We study how hedge fund performance is related to the presence of mutual funds operating in the same asset class. We argue that hedge funds are able to exploit the constraints of the mutual funds related to both the high correlation between flows and value of investment and their tendency to cater to investors by invest in stocks that are 'hot'. He...

We study the relationship between the formation of a captive finance subsidiary and a firm’s competitiveness. Firms with captive finance subsidiaries have higher profitability, larger market share, and lower sales volatility, keep lower cash balances, and operate under lower leverage. These results become much stronger economically after accounting...

We study the link between college interaction and portfolio choice. We consider both the general imprinting of values shared by all the students attending the same school—values-based interaction—and the ensuing interaction with the classmates—bonding-based interaction. We show that even after controlling for the standard motivations of portfolio t...

We provide direct evidence on the effect of financial expertise on investment. We analyze private portfolios of mutual fund managers and their less financially astute peers. We find no evidence that financial experts are making better investment decisions: they do not outperform, do not diversify their risks better, and do not exhibit lower behavio...

We hypothesize that age similarity among small shareholders acts as an implicit coordinating device for their actions and, thus, could represent an indirect source of corporate governance in firms with dispersed ownership. We test this hypothesis on a sample of Swedish firms during the 1995-2000 period. Consistent with our hypothesis, we find that...

We study holdings in merger and acquisition (M&A) targets by financial conglomerates in which affiliated investment banks advise the bidders. We show that advisors take positions in the targets before M&A announcements. These stakes are positively related to the probability of observing the bid and to the target premium. We argue that this can be e...

We study the link between a firm’s quality of governance and its alliance activity. We consider alliances as a commitment technology that helps a company CEO overcome agency problems that relate to the inability to ex-ante motivate division managers. We show that well-governed firms are more likely to avail themselves of this technology to anticipa...

We show that individuals residing in highly entrepreneurial neighborhoods are more likely to become entrepreneurs and invest more into their own businesses, even though their entrepreneurial profits are lower and their alternative job opportunities more attractive. Our results suggest that peer effects create nonpecuniary benefits from entrepreneur...

We study the strategies of the market in the inter-dealer market. We show that market makers actively learn from the dealers they trade with and strategically react to the information content of the orders they receive. We identify "hiding" and "experimenting" as main types of market makers' strategies. We show how market makers in order to assess...

We study how related conglomerates, financial conglomerates that had a previous advisory/underwriting relationship in the bond market with a firm and hold an equity stake in it, condition the firm's payout policy. We focus on share repurchases. We argue that the prior underwriting/advisory position in the bond markets leaves the conglomerate with a...

We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 fi...

We study the effects of the controlling shareholders' portfolio diversification on the initial public offering (IPO) process. Less diversified shareholders have more to gain from taking their firm public, and are more willing to accept a lower price for shares. We test these hypotheses using the data on all IPOs in Sweden between 1995 and 2001. Usi...

We study how the introduction of a defined contribution market based retirement system affects the propensity of the investor to participate in the stock market. By using data on the "Swedish experiment", we focus on the decision to invest directly in stocks and we see how it changes once the households are allowed to participate to the new pension...

We exploit the restrictions of intertemporal portfolio choice in the presence of nonfinancial income risk to test hedging using the information contained in the actual portfolio of the investor. We use a unique data set of Swedish investors with information broken down at the investor level and into various components of investor wealth, income, an...

We study how the shareholding structure of a firm affects its stock price and profitability. We argue that the degree of shareholder homogeneity affects firm value. Homogeneous shareholders act as a disciplining device on managers, inducing them to be more transparent and to engage less in value destroying activities. This leads to higher firm prof...

We study the impact of menu representation on portfolio choice and we show that investors choose assets as a function of the way they are represented in the menu available to them. We use the choices of mutual funds for retirement accounts of the Swedish population. We show that investors prefer the funds that belong to categories that are more rep...

Using a data set that provides unprecedented detail on investors' stockholdings, we analyze whether investors take the quality of corporate governance into account when selecting stocks. We find that all categories of investors (domestic and foreign, institutional and small individual) who generally enjoy only security benefits are reluctant to inv...

We study whether the individual decision to become an entrepreneur, entrepreneurial profits and investment are affected by the decisions of other individuals belonging to the same social group. To overcome identification problems, we include local labor market fixed effects, social group fixed effects, and extensive controls. Moreover, we instrumen...

We investigate the way investors react to prior gains/losses. We directly examine investor reactions to different definitions of gains and losses (i.e., overall wealth, paper gains and losses, and realized capital gains and losses) and investigate how gains and losses in one category of wealth (e.g., real estate) affect holdings in other categories...

We empirically assess how the uncertainty induced by investors’ learning about the fundamentals affects stock returns. We identify two components of induced uncertainty: learning uncertainty and dispersion of beliefs. We characterize these in terms of their relationship to uncertainty about the fundamentals as estimated by surveys of economic forec...

We study the link between social interaction and stock market bubbles. We argue that an increase in social interaction may facilitate the birth of a cascade-type pattern and indirectly of a bubble. We concentrate on a form of interaction that is rooted back in the past: college-based interaction - defined as the one that relates the portfolio choic...

We study IPOs by focusing on the degree of portfolio diversification of the shareholders taking the company public. We argue that a less diversified shareholder has more to gain from taking the company public and would be more willing to accept a lower price for the sale of its shares, i.e. tolerate higher underpricing. We test these hypotheses by...

This paper uses data-rich estimation techniques to study monetary policy in an open economy. We apply the techniques to a small, forward-looking model and explore the importance of the exchange rate in the monetary policy rule. This approach allows us to discern whether a monetary authority targets the exchange rate per se, or instead simply respon...

We study IPOs by focusing on the degree of portfolio diversification of the shareholders taking the company public. We argue that a less diversified shareholder has more to gain from taking the company public and would be more willing to accept a lower price for the sale of its shares, i.e., tolerate higher underpricing. We test these hypotheses by...

We study the link between portfolio choice and different college-based interaction – defined as the one that relates the portfolio choice of an investor to that of the other investors who went to the same college. We explain it in terms of a common cultural imprinting and the development of long-term friendship and alumni network and we directly qu...

This paper reviews the literature on the determinants of entrepreneurial activity and investigates to what extent differences in population, business environment and cultural values contribute to explaining differences in entrepreneurial activity across Swedish municipalities. Individual characteristics and business environment are the most importa...

We exploit the restrictions of intertemporal portfolio choice in the presence of non-financial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish in-vestors with information broken down at the investor level and into various components o...

This Paper investigates whether social norms play an important role in the decision to become an entrepreneur. We study whether the individual decision to become an entrepreneur or entrepreneurial income are affected by the decisions of other individuals living in the same municipality. To overcome the identification problems, we use very detailed...

Business cycles in different regions of the United States tend to synchronize. This study investigates the reasons behind this synchronization of business cycles and the consequent formation of a national business cycle. Trade between regions may not be strong enough for one region to "drive" business cycle fluctuations in another region. This stud...

We investigate the way investors react to prior gains/losses and the so called "familiarity" bias. We use a new and unique dataset with detailed information on investors' various components of wealth, income, demographic characteristics and portfolio holdings identified at the stock level. We distinguish between different behavioral theories (loss...

Trading generates not only information about the payoff of the assets traded, but also information about the traders themselves. Over time this information creates reputation. By using a unique dataset on the Treasury bond market, we derive a measure of reputation. This is then used to group dealers on the basis of their reputation and to analyze h...

Using a data-set that provides unprecedented details on individual investors’ stockholdings, we analyse whether investors take into account corporate governance when they select stocks. After controlling for the supply effect via free float and other firm characteristics, we find that all categories of investors who generally enjoy only security be...

We show that individuals residing in highly entrepreneurial neighborhoods are more likely to become entrepreneurs and invest more in their own businesses, even though their entrepreneurial profits are lower and their alternative job opportunities more attractive. These findings are robust to the inclusion of local labor market fixed effects, neighb...

The US economy is arguably following an unsustainable trajectory. The main indicators of this are a large current account deficit, a large federal budget deficit and trend-wise increasing costs of Social Security and Medicare. In this chapter, we will discuss these observations and to what extent the financial and economic crisis may have changed t...

Competition among sellers of information in a noisy rational expectation equilibrium is considered. Trader's preferences for information are explicitly characterized. It is shown that the competition on market for information makes providers of financial information to price their products in a way that leads traders to purchase all signals availab...

Trading generates not only information about the payoff of the assets traded, but also information about the traders themselves. Over time this information creates reputation. By using a unique dataset on the Treasury bond market we derive a measure of reputation. This is then used to group dealers on the basis of their reputation and to analyze ho...

We study the link between social interaction and portfolio choice. We concentrate on a form of interaction that is rooted in the past: college-based interaction, relating the portfolio choice of an investor to that of other investors who went to the same college. We explain it in terms of a common cultural imprinting — values-based interaction — an...

We study the dark side of the advisory banks in the market for corporate control. We argue that advisors are privy to information about the deal that they directly exploit in the market by investing in the target. We show that the banks advisors to the bidders tend to have positions in the target before the deal. The existence of a direct stake of...

We study how financial conglomerates that had a previous advisory/underwriting relationship with a firm and hold a stake in it – related conglomerates – condition the firm's payout policy. We focus on share repurchases. We document a negative correlation between the probability of the share repurchase and the equity ownership by the related conglom...

A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision.

Using a data set that provides unprecedented details on the stockholders of Swedish listed companies, we investigate whether small investors are less likely to invest in companies where controlling shareholders are expected to extract more private benefits. We identify the companies where shareholders' value is less likely to be maximized by using...

A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision.