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Essays in financial economics

Pellicioli, Alberto (2021) Essays in financial economics. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004340


In the first chapter, co-authored with Dr. Christian Julliard, we study the impact of option expiration on underlying stock volatility. We find a negative direct effect on stock realized volatility and a positive and significant effect on stock implied volatility. Moreover, a positive spillover effect on stocks with no options expiring on a given expiration date is observed. Two possible explanations are discussed, namely investors’ delta hedging and stock pinning around option expiration dates. Both seem to affect stock volatility. Finally, we implement a trading strategy that takes advantage of these findings. The second chapter studies the investment behaviour of mutual funds during financial bubbles. I find that mutual funds over-invest in bubble sectors during the run-up and withdraw money right before the collapse. This result is robust across different benchmark specifications and across fund styles. I also document that this strategy generates a positive and significant alpha (4% on an annual basis), with respect to both a risk-neutral expectation and the Fama-French factors. The paper provides evidence supporting the theory that mutual funds ride the bubble rather than causing it. It also demonstrates that mutual fund holdings can predict the future returns of a sector over a short to medium horizon. Building on the previous findings, the third chapter studies the fee setting behaviour of mutual funds during financial bubbles. It shows that, besides the well-documented persistence of fees, mutual funds charge higher fees during price run-ups. Two theoretical models support the finding: the first shows that investors’ sensitivity to fees decreases during bubble episodes, while the second demonstrates that the increase in fees translates into a higher mark-up over marginal cost.

Item Type: Thesis (PhD)
Additional Information: © 2021 Alberto Pellicioli
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Departments > Finance
Supervisor: Julliard, Christian

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