Francesco Franzoni

Professor of Finance, USI Lugano

Senior Chair, Swiss Finance Institute

Ph.D. in Economics, 2002, Massachusetts Institute of Technology


Email: francesco.franzoni@usi.ch

Address: Via G. Buffi 13

6904, Lugano - Switzerland

Tel.: +41 58 666 4117

Fax: +41 58 666 4734

SFI logo



My research interests lie in empirical asset pricing, with a specific regard to institutional investors and their effect on asset prices. Moreover, I am interested in the determinants of institutional behavior, such as investor flows and the organizational structure of the asset management firm.


Link to CV


Teaching Material (Ph.d.)


Published Research Papers


·       Franzoni F. and Schmalz M. (2017). Fund Flows and Market States. Review of Financial Studies, 30(8), pp. 2621-2673


·       Ben-David I., Franzoni F., Landier A., Moussawi R. (2013). Do hedge funds manipulate stock prices? Journal of Finance, 68(6), pp. 2383-2434


·       Ben-David I., Franzoni F., Moussawi R. (2012). Hedge Fund Stock Trading in the Financial Crisis of 2007-2009. Review of Financial Studies, 25(1), pp. 1-54, lead article


·       Franzoni F., Nowak E., Phalippou L. (2012). Private equity performance and liquidity risk, Journal of Finance, December, pp. 2341-2373. Internet Appendix


·       Franzoni F. (2009). Underinvestment vs. Overinvestment: Evidence From Price Reactions To Pension Contributions. Journal of Financial Economics., 92(3), June, pp. 491-518


·       Adrian T., Franzoni F. (2009). Learning about beta: Time-varying factor loadings, expected returns, and the conditional CAPM. Journal of Empirical Finance, 16(4), September, pp. 537-556


·       Franzoni F., Marin J. (2006). Pension Plan Funding and Stock Market Efficiency. Journal of Finance, April, pp. 921-956.


·       Franzoni F., Marin J. (2006). Portable Alphas From Pension Mispricing. Journal of Portfolio Management, Summer, 2006, pp. 44-53.



Review Articles


·       Ben-David I., Franzoni F., Moussawi R. (2016). Exchange Traded Funds (ETFs). Annual Review of Financial Economics, forthcoming.

NBER Working Paper No. 22829




Working Papers


·     Barbon A., Di Maggio M., Franzoni F., Landier A. (2017), Brokers and Order Flow Leakage: Evidence from Fire Sales


We analyze trade-level data to uncover the broker’s role in leaking order flow information. We focus on large portfolio liquidations, which result in temporary drops in stock prices, and identify the brokers that intermediate these trades. We show that these brokers’ best clients tend to predate on the liquidating funds: at the beginning of the fire sale, they sell their holdings in the liquidated stocks. These predatory trades are significantly profitable and adversely affect the liquidation costs. These results suggest an important role of the brokers in fostering predatory behavior and amplifying price fluctuations.


·     Di Maggio M., Franzoni F., Kermani A., Sommavilla C. (2016), The Relevance of Broker Networks for Information Diffusion In the Stock Market

NBER Working Paper No. 23522


This paper shows that the network of relationships between brokers and institutional investors shapes the information diffusion in the stock market. We exploit trade-level data to show that central brokers gather information by executing informed trades, which is then leaked to their best clients. We show that after large informed trades, a significantly higher volume of other institutional investors execute similar trades through the same broker, allowing them to capture higher returns in the first few days after the initial trade. In contrast, we find that when the informed asset manager is affiliated with the broker, such imitation does not occur. Similarly, we show that the clients of the broker employed by activist investors to execute their trades tend to buy the same stocks just before the filing of the 13D. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.


·     Franzoni F., Giannetti M. (2016), Financial Conglomerate Affiliated Hedge Funds: Risk Taking Behavior and Liquidity Provision


We show that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding and lower flow-performance sensitivity than other funds even though they are less likely to impose impediments on withdrawals. Arguably due to their privileged access to funding, during periods of financial turmoil, FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds. During good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk factors. Thus, FCAHFs appear to perform a stabilizing function for the financial system even though they do not generate higher returns for their investors.



·     Franzoni F., Massa M., and Sommavilla C. (2015), Short Selling Activity and Waiting Games


The paper studies the reaction of informed investors to the presence of short sellers in the market. We find that other informed investors break down their trades across more brokers when short sellers are active. Consequently, they turn to more unfamiliar brokers and end up bearing higher trading costs. This behavior can lead to a slow-down of information impounding. Consistent with this conjecture, we find that prices are less efficient when short selling occurs in stocks that are intermediated by more brokers. These findings suggest that competition among brokers may in fact reduce price efficiency, if informed traders use it to hide their information.


·     Ben-David I., Franzoni F., Moussawi R., Sedunov J. (2015), The Granular Nature of Large Institutional Investors

NBER Working Paper No. 22247

Featured in the Harvard Law School Forum on Corporate Governance and Financial Regulation


Over last 35 years institutional ownership became concentrated at unprecedented levels; e.g., the stock holdings by the largest ten asset management firms quadrupled from 5.6% to 23.1%. Due to their sheer size, institution-level shocks cannot be diversified away and can spill over to the underlying securities. We document that stock ownership by the largest institutional investors leads to an increase in the volatility of the assets that they hold. Furthermore, stocks held by the largest institutional investors exhibit patterns of price inefficiency. We show that these effects are triggered by institution-level idiosyncratic news and channeled through large trades.


·       Ben-David I., Franzoni F., Moussawi R. (2015), Do ETFs Increase Volatility?

Internet Appendix

NBER Working Paper No. 20071

Featured in the NBER Digest – September 2014

Best Paper Award at the 20th Annual MFS Conference 2013


A long-lasting debate in finance centers on the impact of derivatives on the efficiency of prices of the underlying securities. The paper contributes to this literature by studying whether exchange traded funds (ETFs) — an asset of rising importance — affect the non-fundamental volatility of the stocks in their baskets. Using identification strategies based on the mechanical variation in ETF ownership, including regression discontinuity, we show that stocks owned by ETFs exhibit significantly higher intraday and daily volatility. Variance-ratio tests, as well as price reversals, suggest that the mean-reverting component of stock prices is inflated by ETF ownership. We estimate that an increase of one standard deviation in ETF ownership is associated with an increase of 19% in intraday stock volatility. The driving channel appears to be arbitrage activity which propagates liquidity shocks from the ETF market to the underlying stocks


·       Franzoni F. and Plazzi A. (2015), What Constrains Liquidity Provision? Evidence From Hedge Fund Trades

Winner of the Inquire Europe Research Grant in 2012

Online Appendix


The paper investigates the determinants of limits of arbitrage for liquidity providers. Using data on institutional transactions, we compare hedge fund trades to those of other institutions. We find that hedge funds’ liquidity provision is more exposed to financial conditions than that of other institutions. We identify leverage, low redemptions restrictions, asset illiquidity, and reputational capital as a relevant set of characteristics that explain the exposure of hedge funds’ liquidity supply to funding conditions. Finally, we find that the trades of financially constrained hedge funds underperform for at least one quarter following negative funding shocks.


·       Franzoni F. (2008), The changing nature of market risk


In the first three decades of CRSP data, value stocks have higher betas than growth stocks. Later on, the ranking is reversed and the gap in beta widens. What makes growth strategies nowadays bear more market risk than value strategies? What are the causes of the reversal in the ranking of betas? The paper argues that the negative link between beta and BM is due to growth options. The shift of listed firms towards more growth-oriented businesses has progressively changed the nature of market risk. The ultimate determinant of this evolution is conjectured to be financial market development, which has lowered the cost of capital. For this reason, the facts described in this paper resonate with other long-run phenomena, such as the rise in idiosyncratic risk and the R&D boom.


·       Franzoni F. (2002), Where is beta going? The riskiness of value and small stocks (cite as: Ph.d. Thesis, Massachusetts Institute of Technology)


This paper finds that the market betas of value and small stocks have decreased by about 75% in the second half of the twentieth century. The path of beta can be closely tracked using variables that summarize the state of the economy. On the basis of this analysis, the decline in beta can be related to a long-term improvement in economic conditions that made these companies less risky. Decomposing beta into the cash flow and expected return news components confirms that the payoffs of these companies are less sensitive to market conditions. This finding has implications for the debate on the CAPM anomalies.



Media clips


Finanz und Wirtschaft, September 9, 2017, ETF führen zu stärkeren Kursausschlägen, by Sandro Rosa


Dealbreaker, July 11, 2017, In The Dog-Eat-Dog World Of Asset Management, Prime Brokers Are Vultures, by Owen Davis


Wall Street Journal, MoneyBeat Blog, June 21, 2017, Are Activists Being Sabotaged by Their Brokers?, by Alexander Osipovich


Institutional Investor, June 20, 2017, Brokers May Be Giving Away Investors’ Best Ideas


Bloomberg View, June 20, 2017, Bank Relationships and Index Rules (scroll down to Leaky Brokers section), by Matt Levine


6th Swiss Asset Management Day, April 6, 2017, Panel Discussion on Private Markets, Active Management, and Hedge Funds


ETF.com, December 28, 2016, ETFs A Double-Edged Sword, by Larry Swedroe


Alpha Architect, December 8, 2016, A Really Cool Paper (and Graphic) on ETFs, by Wesley R. Gray


Financial Times, November 17, 2016, Debate Intensifies over ETFs’ Impact on Markets.


Bloomberg View, November 8, 2016, Broker Networks, by Matt Levine


Chief Investment Officer, August 4, 2016, How Investment Management Giants Cause Volatility, by Amy White


Financial Times, February 1, 2015, Has the death knell of active management been rung too soon?, by Robert Pozen and Theresa Hamacher


PBS Newshour, September 12, 2014, Why is Wall Street becoming more bipolar?


Alphaville (Financial Times), May 1, 2014, When ETFs make things more volatile, by Izabella Kaminska


Reuters, April 30, 2014, A volatile love affair with exchange funds and indexes, by Mike Dolan


IFR, September 25, 2013, Investing when the tide goes out, by James Saft


Wall Street Journal, December 6, 2012. Article citing the “Do Hedge Funds Manipulate Stock Prices?” paper


TheStreet.com, August 2, 2012, ETF Arbitrage May Be Driving Market Volatility


Gianfranco Ursino, Plus–Il Sole 24 Ore, Rischio arbitraggi fra prezzi e Nav, February 18, 2012


WealthAdviser, ETFs, arbitrage and contagion: a potential link?, February, 2012


Wall Street Journal, The Intelligent Investor, Now That's Performance Art, December 2011


HandelsZeitung, Alphatiere Auf Abwegen, December, 2011


Jeff Grabmeier, Hedge Funds Sold Stocks Quickly During Financial Crisis, Hurting Mutual Fund Investors, Research News at OSU, 25 August, 2011


Insider Monkey, Do hedge funds manipulate stock prices?, June, 2011


Fabio Sottocornola, Il Mondo, Così l’Hedge gioca con i prezzi, June, 2011


AllAboutAlpha.com, Hedge funds and “stock manipulation”: Perpetrators, accomplices or just in the wrong place at the wrong time (again)?, March 2, 2011


Fabio Sottocornola, Il Mondo, Mosse tattiche da Hedge, December, 2010


AllAboutAlpha.com, Under the hood: Ground breaking private equity study examines actual investments, not just funds, AllaboutAlpha.com, August 30, 2010


AllAboutAlpha.com, Study: Hedge funds’ role in 2008 market drawdown “questionable”, March 14, 2010


CFA digest, Lester C. Cheng, Pension Plan Funding and Stock Market Efficiency, 2006