Financial markets

Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, Ansgar Walther, 11 January 2019

The use of machine learning in credit allocation should allow lenders to better extend credit, but the shift from traditional to machine learning lending models may have important distributional effects for consumers. This column studies the effect of machine learning on mortgage lending in the US. It finds that machine learning would offer lower rates to racial groups who already were at an advantage under the traditional model, but it would also benefit disadvantaged groups by enabling them to obtain a mortgage in the first place.

Manapol Ekkayokkaya, Suppasit Jirajaroenying, Christian Wolff, 09 January 2019

Retail investors are generally considered to be uninformed noise traders, but a recent literature suggests that such investors accumulate novel information about smaller stocks. Using new data from Thailand, this column argues that retail investors systematically outperform institutions, especially domestic institutions. In addition, retail investors have a comparative advantage in executing trades of small stocks. 

JT Hamrick, Farhang Rouhi, Arghya Mukherjee, Amir Feder, Neil Gandal, Tyler Moore, Marie Vasek, 09 January 2019

The surge of interest in cryptocurrencies has been accompanied by a proliferation of fraud, largely in the form of pump and dump schemes. This column provides the first measure of the scope of such schemes across cryptocurrencies. The results suggest that the phenomenon is widespread and often quite profitable, and highlight the need for concerted efforts from industry and regulators to fight cryptocurrency price manipulation. 

Laura Veldkamp, Maryam Farboodi, 02 January 2019

Technological change is making it possible to process more and more information. This column looks at the implications of this for trading strategies. It finds that growth in the amount of data investors can process is a logical and predictable cause of a shift from fundamentals-based to order flow-based strategies. 

Charles Calomiris, Mauricio Larrain, Sergio Schmukler, 24 December 2018

In emerging economies, studies of the relationship between foreign investor participation in public equity markets and aggregate economic activity find strong effects on productivity, investment, economic growth, and the price of publicly traded stocks. But it is not clear why. The column shows that equity capital inflows increase the supply of funding available to firms in emerging market economies, encouraging firms to obtain more equity financing to invest and expand. Large firms benefit most from those inflows. 

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