Found 2 article(s) for author 'Marco Di Maggio'

The Value of Intermediation in the Stock Market

The Value of Intermediation in the Stock Market. Marco Di Maggio, Mark Egan, August 2019, Paper, “Brokers continue to play a critical role in intermediating institutional stock market transactions. More than half of all institutional investor order flow is still executed by high-touch (non-electronic) brokers. Despite the continued importance of brokers, we have limited information on what drives investors’ choices among them. We develop and estimate an empirical model of broker choice that allows us to quantitatively examine each investor’s responsiveness to execution costs and access to research and order flow information. Studying over 300 million institutional trades, we find that investor demand is relatively inelastic with respect to commissions and that investors are willing to pay a premium for access to top research analysts and order-flow information. There is substantial heterogeneity across investors. Relative to other investors, hedge funds tend to be more price insensitive, place less value on sell-side research, and place more value on order-flow information. Furthermore, using trader-level data, we find that investors are more likely to trade with traders who are located physically closer and are less likely to trade with traders that have misbehaved in the past. Lastly, we use our empirical model to investigate the unbundling of equity research and execution services related to the MiFID II regulations. While under-reporting for the average firm is relatively small (4%), we find that the bundling of execution and research allows some institutional investors to under-report management fees by up to 15%.Link

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Second Chance: Life without Student Debt

Second Chance: Life without Student Debt. Marco Di Maggio, April 26, 2019, Paper, “Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We exploit the plausibly-random debt discharge due to the inability of National Collegiate, the largest owner of private student loan debt, to prove chain of title for thousands of loans across the US. Using hand-collected lawsuits filings matched with individual credit bureau information, we find that borrowers experiencing the debt relief shock reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts, and are 12% less likely to default on other accounts. After the discharge, the borrowers’ geographical mobility increases, as well as, their probability to change jobs and ultimately their income increases by more than $4000 over a three year period, which is equivalent to about two months’ salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.Link

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