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Papers by Alejandro Serrano

Research paper thumbnail of Two Essays on Regulation and Transparency

This dissertation includes two essays. The first essay analyses the effect of demutualization on ... more This dissertation includes two essays. The first essay analyses the effect of demutualization on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Exchanges have undergone significant transformations due to increased competition but some changes have created conflicts of interest, particularly when deciding which firms to delist. On the NYSE, delisting is an autonomous decision whereas on the TSX, external regulators have a larger role. After collecting data from involuntarily delisted firms that continue to trade on smaller listing markets between 2002 and 2009, I create a sample of 195 NYSE and 39 TSX firms. I calculate the percentage spreads on firms from both exchanges and find that spreads are larger and more volatile on the NYSE than on the TSX. These results are stronger after 2006, when the NYSE went public. Similar results are obtained when I look at firms that were delisted for trading below minimum quantitative standards. The second essay studies the effect of post-transparency on the NASDAQ. Transparency has been promoted by the SEC as a measure that can reduce transaction costs and increase liquidity. However, empirical studies have shown that the benefits of transparency have not been entirely positive across different markets. This paper contributes to the transparency literature by measuring the effects on transaction costs after the implementation of the National Market System NMS. The paper looks at a sample of 2,882 firms that have trading information 60 days before and after NMS and were incorporated to the NMS between 1982 and 1989. The paper shows that spreads decrease by 5 percent and spreads of a matching sample also decrease but at a smaller magnitude. Another effect of transparency is a reduction of 41 percent in the volatility of returns after firms start trading on the NMS. This paper also shows that the effects of transparency are much stronger after removing firms that are already trading at very low spreads prior to NMS.

Research paper thumbnail of Short-Term Institutions’ Information Advantage and Overvaluation

SSRN Electronic Journal, 2020

Abstract Prior literature has documented that institutions which trade more frequently are better... more Abstract Prior literature has documented that institutions which trade more frequently are better able to forecast future returns and have an informational advantage. This study examines a proximate explanation for the differences in performance based on institutions’ investment horizon – short-term institutions are better informed because they are better able to identify overvalued stocks that are short-sale constrained and overvalued in the context of Miller’s (1977) overvaluation hypothesis. Analysis is conducted on 6,330 unique firms from 1996 to 2014 using the calendar-time portfolio approach where abnormal returns are estimated from the Fama-French-Carhart four-factor regression model. The results provide evidence that stocks which are extremely overvalued due to short-sale constraints have the greatest decline in short-term institutional ownership, consistent with the notion that short-term institutions are able to correctly assess the components for stock overvaluation.

Research paper thumbnail of Institutional development and foreign banks in Chile

International Review of Financial Analysis, 2018

This paper analyzes the effects of foreign banks on developing countries' bank performance. We st... more This paper analyzes the effects of foreign banks on developing countries' bank performance. We study this relationship from a different perspective by focusing on Chile, an emerging market with strong institutions. The results from dynamic panel regressions on hand-collected financial statement data from 2005 to 2014 indicate that foreign banks improve banking sector competitiveness, reduce the volatility of returns, and increase commercial and consumption loans. The overall evidence suggests that, in the presence of solid institutions, foreign banks improve the banking sector in developing countries. Therefore, public policies on foreign banks should be more effective when accompanied by advances in institutions.

Research paper thumbnail of Foreign banks and credit in Mexico

Global Finance Journal, 2016

Abstract The role that foreign banks play in developing countries has been arduously debated. For... more Abstract The role that foreign banks play in developing countries has been arduously debated. Foreign banks can improve the efficiency of the banking sector in the host country but they can also undermine local banks by selecting only the most trustworthy borrowers. In this paper, I analyze the period between 2005 and 2014 and compare the differences between foreign and domestic banks in Mexico and Colombia. Analyzing Mexico is of great importance given that foreign banks control more than 80% of the banking assets. Also, given the difference in institutional development between Mexico and Colombia, I can control for regulatory environment. After controlling for size, institutional development, and country of origin, I find that foreign banks have not stimulated growth in Mexico through commercial loans. Previous studies suggest that this lack of credit to companies may be due to a weak enforcement of contracts rather than to foreign ownership. However, Colombia has a weaker enforcement of contracts environments and foreign banks also do not provide as many commercial loans as domestic banks. This paper is of particular interest to regulators in developing countries that need foreign capital and those that want to intensify the allocation of commercial credit.

Research paper thumbnail of TWO ESSAYS ON REGULATION AND TRANSPARENCY ABSTRACT OF THE DISSERTATION Two Essays on Securities Regulation

This dissertation includes two essays. The first essay analyses the effect of demutualization on ... more This dissertation includes two essays. The first essay analyses the effect of demutualization on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Exchanges have undergone significant transformations due to increased competition but some changes have created conflicts of interest, particularly when deciding which firms to delist. On the NYSE, delisting is an autonomous decision whereas on the TSX, external regulators have a larger role. After collecting data from involuntarily delisted firms that continue to trade on smaller listing markets between 2002 and 2009, I create a sample of 195 NYSE and 39 TSX firms. I calculate the percentage spreads on firms from both exchanges and find that spreads are larger and more volatile on the NYSE than on the TSX. These results are stronger after 2006, when the NYSE went public. Similar results are obtained when I look at firms that were delisted for trading below minimum quantitative standards. The second essay studies th...

Research paper thumbnail of Reducing asymmetric information in venture capital backed IPOs

Managerial Finance, 2016

Purpose – The purpose of this paper is to model asymmetric information and study the profitabilit... more Purpose – The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group. Design/methodology/approach – The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to estimate the mixture model via maximum likelihood. Findings – The authors find strong evidence that companies can be separated into two groups based on how IPO returns are determined. For companies in the first group the results are similar to previous studies. For companies in the second group the author...

Research paper thumbnail of Short-term Institutions’ Information Advantage and Overvaluation

The North American Journal of Economics and Finance, 2020

Prior literature has documented that institutions which trade more frequently are better able to ... more Prior literature has documented that institutions which trade more frequently are better able to forecast future returns and have an informational advantage. This study examines a proximate explanation for the differences in performance based on institutions' investment horizon - short-term institutions are better informed because they are better able to identify overvalued stocks that are short-sale constrained and overvalued in the context of Miller's (1977) overvaluation hypothesis. Analysis is conducted on 6,330 unique firms from 1996 to 2014 using the calendar-time portfolio approach where abnormal returns are estimated from the Fama-French-Carhart four-factor regression model. The results provide evidence that stocks which are extremely overvalued due to short-sale constraints have the greatest decline in short-term institutional ownership, consistent with the notion that short-term institutions are able to correctly assess the components for stock overvaluation.

Research paper thumbnail of Institutional Development and Foreign Banks in Chile

International Review of Financial Analysis, 2018

This paper analyzes the effects of foreign banks on developing countries' bank performance. We st... more This paper analyzes the effects of foreign banks on developing countries' bank performance. We study this relationship from a different perspective by focusing on Chile, an emerging market with strong institutions. The results from dynamic panel regressions on hand-collected financial statement data from 2005 to 2014 indicate that foreign banks improve banking sector competitiveness, reduce the volatility of returns, and increase commercial and consumption loans. The overall evidence suggests that, in the presence of solid institutions, foreign banks improve the banking sector in developing countries. Therefore, public policies on foreign banks should be more effective when accompanied by advances in institutions.

Research paper thumbnail of Two Essays on Regulation and Transparency

This dissertation includes two essays. The first essay analyses the effect of demutualization on ... more This dissertation includes two essays. The first essay analyses the effect of demutualization on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Exchanges have undergone significant transformations due to increased competition but some changes have created conflicts of interest, particularly when deciding which firms to delist. On the NYSE, delisting is an autonomous decision whereas on the TSX, external regulators have a larger role. After collecting data from involuntarily delisted firms that continue to trade on smaller listing markets between 2002 and 2009, I create a sample of 195 NYSE and 39 TSX firms. I calculate the percentage spreads on firms from both exchanges and find that spreads are larger and more volatile on the NYSE than on the TSX. These results are stronger after 2006, when the NYSE went public. Similar results are obtained when I look at firms that were delisted for trading below minimum quantitative standards. The second essay studies the effect of post-transparency on the NASDAQ. Transparency has been promoted by the SEC as a measure that can reduce transaction costs and increase liquidity. However, empirical studies have shown that the benefits of transparency have not been entirely positive across different markets. This paper contributes to the transparency literature by measuring the effects on transaction costs after the implementation of the National Market System NMS. The paper looks at a sample of 2,882 firms that have trading information 60 days before and after NMS and were incorporated to the NMS between 1982 and 1989. The paper shows that spreads decrease by 5 percent and spreads of a matching sample also decrease but at a smaller magnitude. Another effect of transparency is a reduction of 41 percent in the volatility of returns after firms start trading on the NMS. This paper also shows that the effects of transparency are much stronger after removing firms that are already trading at very low spreads prior to NMS.

Research paper thumbnail of Short-Term Institutions’ Information Advantage and Overvaluation

SSRN Electronic Journal, 2020

Abstract Prior literature has documented that institutions which trade more frequently are better... more Abstract Prior literature has documented that institutions which trade more frequently are better able to forecast future returns and have an informational advantage. This study examines a proximate explanation for the differences in performance based on institutions’ investment horizon – short-term institutions are better informed because they are better able to identify overvalued stocks that are short-sale constrained and overvalued in the context of Miller’s (1977) overvaluation hypothesis. Analysis is conducted on 6,330 unique firms from 1996 to 2014 using the calendar-time portfolio approach where abnormal returns are estimated from the Fama-French-Carhart four-factor regression model. The results provide evidence that stocks which are extremely overvalued due to short-sale constraints have the greatest decline in short-term institutional ownership, consistent with the notion that short-term institutions are able to correctly assess the components for stock overvaluation.

Research paper thumbnail of Institutional development and foreign banks in Chile

International Review of Financial Analysis, 2018

This paper analyzes the effects of foreign banks on developing countries' bank performance. We st... more This paper analyzes the effects of foreign banks on developing countries' bank performance. We study this relationship from a different perspective by focusing on Chile, an emerging market with strong institutions. The results from dynamic panel regressions on hand-collected financial statement data from 2005 to 2014 indicate that foreign banks improve banking sector competitiveness, reduce the volatility of returns, and increase commercial and consumption loans. The overall evidence suggests that, in the presence of solid institutions, foreign banks improve the banking sector in developing countries. Therefore, public policies on foreign banks should be more effective when accompanied by advances in institutions.

Research paper thumbnail of Foreign banks and credit in Mexico

Global Finance Journal, 2016

Abstract The role that foreign banks play in developing countries has been arduously debated. For... more Abstract The role that foreign banks play in developing countries has been arduously debated. Foreign banks can improve the efficiency of the banking sector in the host country but they can also undermine local banks by selecting only the most trustworthy borrowers. In this paper, I analyze the period between 2005 and 2014 and compare the differences between foreign and domestic banks in Mexico and Colombia. Analyzing Mexico is of great importance given that foreign banks control more than 80% of the banking assets. Also, given the difference in institutional development between Mexico and Colombia, I can control for regulatory environment. After controlling for size, institutional development, and country of origin, I find that foreign banks have not stimulated growth in Mexico through commercial loans. Previous studies suggest that this lack of credit to companies may be due to a weak enforcement of contracts rather than to foreign ownership. However, Colombia has a weaker enforcement of contracts environments and foreign banks also do not provide as many commercial loans as domestic banks. This paper is of particular interest to regulators in developing countries that need foreign capital and those that want to intensify the allocation of commercial credit.

Research paper thumbnail of TWO ESSAYS ON REGULATION AND TRANSPARENCY ABSTRACT OF THE DISSERTATION Two Essays on Securities Regulation

This dissertation includes two essays. The first essay analyses the effect of demutualization on ... more This dissertation includes two essays. The first essay analyses the effect of demutualization on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Exchanges have undergone significant transformations due to increased competition but some changes have created conflicts of interest, particularly when deciding which firms to delist. On the NYSE, delisting is an autonomous decision whereas on the TSX, external regulators have a larger role. After collecting data from involuntarily delisted firms that continue to trade on smaller listing markets between 2002 and 2009, I create a sample of 195 NYSE and 39 TSX firms. I calculate the percentage spreads on firms from both exchanges and find that spreads are larger and more volatile on the NYSE than on the TSX. These results are stronger after 2006, when the NYSE went public. Similar results are obtained when I look at firms that were delisted for trading below minimum quantitative standards. The second essay studies th...

Research paper thumbnail of Reducing asymmetric information in venture capital backed IPOs

Managerial Finance, 2016

Purpose – The purpose of this paper is to model asymmetric information and study the profitabilit... more Purpose – The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group. Design/methodology/approach – The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to estimate the mixture model via maximum likelihood. Findings – The authors find strong evidence that companies can be separated into two groups based on how IPO returns are determined. For companies in the first group the results are similar to previous studies. For companies in the second group the author...

Research paper thumbnail of Short-term Institutions’ Information Advantage and Overvaluation

The North American Journal of Economics and Finance, 2020

Prior literature has documented that institutions which trade more frequently are better able to ... more Prior literature has documented that institutions which trade more frequently are better able to forecast future returns and have an informational advantage. This study examines a proximate explanation for the differences in performance based on institutions' investment horizon - short-term institutions are better informed because they are better able to identify overvalued stocks that are short-sale constrained and overvalued in the context of Miller's (1977) overvaluation hypothesis. Analysis is conducted on 6,330 unique firms from 1996 to 2014 using the calendar-time portfolio approach where abnormal returns are estimated from the Fama-French-Carhart four-factor regression model. The results provide evidence that stocks which are extremely overvalued due to short-sale constraints have the greatest decline in short-term institutional ownership, consistent with the notion that short-term institutions are able to correctly assess the components for stock overvaluation.

Research paper thumbnail of Institutional Development and Foreign Banks in Chile

International Review of Financial Analysis, 2018

This paper analyzes the effects of foreign banks on developing countries' bank performance. We st... more This paper analyzes the effects of foreign banks on developing countries' bank performance. We study this relationship from a different perspective by focusing on Chile, an emerging market with strong institutions. The results from dynamic panel regressions on hand-collected financial statement data from 2005 to 2014 indicate that foreign banks improve banking sector competitiveness, reduce the volatility of returns, and increase commercial and consumption loans. The overall evidence suggests that, in the presence of solid institutions, foreign banks improve the banking sector in developing countries. Therefore, public policies on foreign banks should be more effective when accompanied by advances in institutions.