Working PapersSubramanian, Krishnamurthy., Bhowal Subhendu, Tantri Prasanna. "Costs Of Job Rotation: Evidence From Mandatory Loan Officer Rotation"Read Abstract >Close >We highlight the costs from a principal rotating agents among tasks when decision-making inside a firm is driven by soft information. These costs arise because (i) an incoming agent cannot verify the information set that the outgoing agent utilized, and (ii) neither agent receives the entire marginal benefit/penalty for her effort. We provide evidence of this cost using unique loan and officer level data from a large public sector bank in India. Using the bank's fixed-tenure-based policy of loan officer rotation for identification, we find that default probabilities are 8% higher for loans affected by job rotation when compared to other loans. This difference is not explained by differences in hard information or the loss of a lending relationship

Working PapersJain, Ankit.,Tantri, Prasanna., Thirumalai, Ramabhadran S. "Demand Curves For Stocks Do Not Slope Downwards: Evidence Using an Exogenous Supply Shock"Read Abstract >Close >We analyze the price impact of an exogenous share sale by inside blockholders, who were forced to sell a part of their shareholdings due to a regulatory change in India. The affected firms experience a negative excess return of 4.5% during the issue week. Crucially, the price impact reverses in about 55 to 75 days after the event. Our results are consistent with the view that the long term demand curves for stocks are at: a view echoed by classical finance theories. The short term price reaction to a sale is likely to be a result of temporary price pressure.

Working PapersAgrawal, Deepak.,Subramanyam, K.R.,Tantri, Prasanna., Thirumalai, Ramabhadran S. "Do Derivatives Matter?: Evidence From A Policy Experiment"Read Abstract >Close >We study the impact of derivatives on various stock characteristics such as valuation, price efficiency, and liquidity. We resolve the endogeneity issue faced in the extant literature by using an order issued by the Indian market regulator that resulted in the delisting of 51 stocks from the derivative segment. Using this policy experiment, we examine the conflicting hypothesis regarding the impact of derivatives on stock fundamentals. We find that excluded firms underperform the market by 4.07% during the event window. We identify a decline in price efficiency and reduction in liquidity as channels through which the above phenomenon manifests. Contrary to the expectations of the regulators, volatility remains largely unchanged. We rule out regulatory targeting by employing several placebo and robustness tests. We conclude that derivatives indeed add value by improving price efficiency and liquidity of a stock.

Working PapersAgrawal, Deepak.,Subramanyam, K.R.,Tantri, Prasanna., Thirumalai, Ramabhadran S. "Impact of Securities Transactions Tax on Stock Markets and Market Participants: Evidence From India"Read Abstract >Close >We examine the impact of a securities transaction tax imposed on Indian stocks and derivative securities on trading volume of different category of investors. We use daily stock-trader category level proprietary data on trading volumes provided to us by the largest stock exchange in India- National Stock Exchange. We ifnd that a transaction tax leads to a significant reduction in the total traded volume. Interestingly, the proprietary trading volume by institutional investors falls more than both retail and non proprietary institutional trading volume, leading to an overall decrease in institutional trading. Consequently, price efficiency as well as the liquidity of the affected stocks decline significantly.

Working PapersKumar, Nitin., Hoberg, Gerard.,R. Prabhala, N. "Mutual Fund Competition,Managerial Skill, and Alpha Persistence"