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Category Archives: G

The Cost of Delay: Evidence from the Ethereum Transaction Fee Market

by Yinhong “William” Zhao


Delaying a financial transaction can be costly, but the cost of delay is difficult to estimate in traditional
finance. I exploit the unique data offering and market design of the Ethereum blockchain to estimate the
cost of delaying financial transactions in decentralized finance (DeFi). I construct a dynamic auction
model for the Ethereum transaction fee market that relates users’ optimal transaction fee bids to their delay
cost functions and network conditions, and I structurally estimate the delay cost functions for different
users and transaction types. The average cost of delaying a transaction by one minute is 8.78 US dollars,
but the distribution of delay costs is highly skewed to the right. Delay costs are higher for complex
transactions and users who trade more frequently. I estimate that welfare loss due to network delay on
Ethereum was 14.03 million US dollars per day in July 2021, and I apply the delay cost estimates to
evaluate the welfare losses under alternative transaction fee mechanisms.

Campbell Harvey, Faculty Advisor
Michelle Connolly, Faculty Advisor

JEL Codes: D44; G10; L17;

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Short Term Effectiveness of Chinese Stock Connect Program — a Study of the Pricing Dynamics of Cross-listed Stocks

by Kaiyu Ren


This thesis examines the pricing dynamics of cross-listed stocks in the Chinese A-share and
Hong Kong H-share markets. By identifying an announcement-implementation window, I offer a
fresh perspective on the short-term price adjustment of cross-listed stocks around the launch of
the first Stock Connect program. My findings reveal a significant increase of the A-H price ratio,
but this price discrepancy appears to have been mitigated by the implementation of the Stock
Connect program.Additionally, my observations suggest the existence of market inefficiencies,
particularly among the groups of A-share stocks that are excluded from the Stock Connect

Ronald Leven, Faculty Advisor

JEL codes: G14; G18

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What Affects Post-Merger Innovation Outcomes? An Empirical Study of R&D Intensity in High Technology Transactions Among U.S. Firms

by Neha Karna


High levels of global M&A activity have characterized the past decade, making the policy debate
over the impact of mergers on innovation even more pertinent. Innovation is a significant driver
of economic growth and therefore a negative effect of mergers on innovation outcomes may have
detrimental consequences. Nevertheless, the existing literature demonstrates mixed results
leaving it unclear whether the overall effect is positive or negative. This paper contributes to
existing literature on the relationship between mergers and innovation and examines the effects
of M&A on the subsequent innovative activity of acquiring firms that operate in high technology
(high-tech) industries. I construct a sample of U.S.-based public-to-public deals from 2010-2019
involving high-tech acquiring firms. Using multivariable regression with robust considerations, I
analyze factors that may explain post-merger R&D intensity defined as the merged entity’s R&D
expenditure divided by its total assets one year after deal completion. I consider firm
characteristics of the target and acquirer, including size, industry, and age, and industry
competition. I find potential positive impact of relative target size on post-merger R&D intensity
and significant interaction effects between relative target size and firm age, relative target size
and industry relatedness, and target industry competition and industry relatedness. My results
suggests that beyond the occurrence of a merger, specific deal characteristics may affect postmerger
innovation outcomes.

Grace Kim, Faculty Advisor

JEL Classification: G3; G34; L40; O31; O32;

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Private Equity IPOs: Long-term Performance and Drivers of Success

by Ignacio Hidalgo Perea


In this paper, I explore the impact Private Equity ownership has on portfolio companies post-exit. This thesis aims to add to the discussion of whether the proliferation of Private Equity in the United States is a positive development for the country. Using a proprietary dataset that compiles thousands of IPOs between the years 2000 and 2016, I look at whether there are significant differences in performance between IPOs that come from Private Equity firms and those that go public on their own. Specifically, I use empirical analysis with robust regression to estimate the effects of Private Equity ownership on four key measures of financial success: MCAP growth, Revenue Growth, EBITDA Margin, and EV / EBITDA multiple. By looking at the changes in these measures of performance across three different time windows: 3 years post-IPO, 6 years post-IPO, and 9 years post-IPO, this paper determines how Private Equity ownership affects company performance post-exit and whether those effects persist over time.

Grace Kim, Faculty Advisor

JEL Codes: G23, G24

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Heterogeneity in Mortgage Refinancing

By Julia Wu

Many households who would benefit from and are eligible to refinance their mortgages fail to do so. A recent literature has demonstrated a significant degree of heterogeneity in the propensity to refinance across various dimensions, yet much heterogeneity is left unexplained. In this paper, I use a clustering regression to characterize heterogeneity in mortgage refinancing by estimating the distribution of propensities to refinance. A key novelty to my approach is that I do so without relying on borrower characteristics, allowing me to recover the full degree of heterogeneity, rather than simply the extent to which the propensity to refinance varies with a given observable. I then explore the role of both observed and unobserved heterogeneity in group placement by regressing group estimates on a set of demographic characteristics. As a complement to my analysis, I provide evidence from a novel dataset of detailed information on borrower perspectives on mortgage refinancing to paint a more nuanced picture of how household characteristics and behavioral mechanisms play into the decision to refinance. I find a significant degree of heterogeneity in both the average and marginal propensity to refinance across households. While observables such as education, race and income do significantly correlate with group heterogeneity, it is clear that much heterogeneity may still be attributed to the presence of unobservable characteristics.

David Berger, Faculty Advisor
Michelle Connolly, Faculty Advisor

JEL codes: D9, E52, G21

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After The Mega-Buyout Era: Do Public-to-Private Transactions Still Outperform?

By Bryn Wilson

This thesis contributes to existing knowledge of the private equity asset class by examining whether public-to-private leveraged buyouts outperform public peers before and after the mega-buyout era (2005 – 2007). This paper considers the impact of four groups of value drivers on both market- and peer-adjusted returns. These value drivers include operational improvements, leverage, multiple expansion and market timing, and management and corporate decision making. I analyze how these factors change over time, aiming to determine whether public-to-private target firms improve profitability, return on assets, and investment more than peers. I also examine how employment changes at target firms relative to peers. Multivariable regression analysis is used to quantify the impact of operating performance changes, leverage, multiple expansion, credit market conditions, GDP growth, and management and corporate decisions on market- and peer-adjusted returns. The paper constructs a sample of 227 public-to-private transactions from 1996 – 2013 and analyzes 74 transactions with post-buyout financial information available. Results suggest that private equity ownership post-buyout does not lead to significant operational improvements relative to peers, but that improving profitability and ROA are crucial to outperforming the market and peers.

Dr. Connel Fullenkamp, Faculty Advisor

JEL classification: G3; G34; G32; G11

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Withdrawal: The Difficulty of Transitioning to a Cashless Economy

By Praneeth Kandula

In 2021, modern payment methods such as mobile pay have increased nearly fivefold since their introduction in 2015. This shift to an increasingly cashless, digital economy has been marked by inequitable financial and technological divides. Historically, Black and Latino adults have had less access to financial systems and are less likely to own traditional computers and home broadband. Without rectifying these issues, a cashless, digital economy only serves to widen divides. Using data from the Diary of Consumer Payment, this study descriptively examines the use of cash and alternative payment methods by different racial and ethnic groups from 2015 through 2020. I also extend this effort to address the effects of COVID-19. I find that racial differences not only exist but also the gap between Black and Latino adults and White adults grows between 2015 and 2019. Still, this paper finds that in 2020 the likelihood to employ cash for a transaction falls for Black adults but not for Latino adults. COVID-19 has been a critical driver of change, forcing both consumers and corporations to shift to a more digital-centric economy. While there have been positive shifts for Black adults, policy ensuring that all racial groups have access to the necessary financial and digital networks will be critical in establishing an equitable economy moving forward.

Professor Lisa A. Gennetian, Faculty Advisor
Professor Michelle P. Connolly, Faculty Advisor

JEL Classification: D1 D31 G20 I24 J11

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Financial Inclusion and Women’s Economic Empowerment in India

By Nehal Jain

On August 14th, 2014 India’s Prime Minister Narendra Modi implemented the largest ever
financial inclusion scheme to date known as Pradhan Mantri Jan Dhan Yojana (PMJDY). The
program aimed to bank all of India’s unbanked population. Prior to the program, India had one of
the highest rates of unbanked citizens. The program also included measures that prioritized women’s
access to these financial institutions given the gender gap in financial inclusivity. This paper aims
both to understand the effectiveness of PMJDY on granting women equal access as men to financial
institutions and whether financial inclusion results in increased economic empowerment, I find that
PMJDY was successful in increasing access to bank accounts and separately, that access to bank
accounts economically empowers women.

Pengpeng Xiao, Faculty Advisor
Michelle Connolly, Faculty Advisor

JEL classification: J1; G28; I31

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The Elusive “Stock-Picker’s Market”: Dispersion and Mutual Fund Performance

By Jacob Epstein  

This paper explores the relationship between active mutual fund performance and market dispersion from January 1990 to December 2018. I find a significant positive relationship between dispersion and 4-factor alpha overall, providing some evidence of managerial skill. There are large differences in this relationship by decade and fund selectivity. The results suggest active mutual funds were able to take advantage of stock-picking opportunities during the 1990s and 2000s, particularly the most active subset of funds. However, I find a significant negative relationship between dispersion and alpha for funds in the 2010s, indicating this relationship has changed over time. I discuss several possible explanations for this reversal, which could present interesting avenues for further research.

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Advisors: Professor Emma Rasiel | JEL Codes: G1, G12, G23

Comparing the Performance of Active and Passive Mutual Funds in Developing and Developed Countries

By Nalini Gupta  

This paper seeks to test the hypothesis that developing countries or informationally inefficient countries should see higher returns for active mutual funds on average than passive funds and the trend should be reversed in developed nations or informationally efficient economies. This analysis is done using a cross section of eight countries, four developed and four developing. Using a fund universe of 20 active and 20 passive funds per country and controls such as volatility, market return, financial market development and Human Development Index among others, we see that there is no clear systematically dominant strategy between active and passive investment universally. While developing countries are associated with lower returns, we do not find a significant difference between active and passive based on development classification. A key finding is that an increase in liquidity, acting as proxy for informational efficiency, leads to a co-movement of active and passive returns in each country. The paper also lends itself to further analysis regarding confounding factor such as noise trading and movement of foreign capital which impact the effect of increased liquidity on mutual fund returns.

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Advisors: Professor Connel Fullenkamp, Professor Kent Kimbrough | JEL Codes: G1, G11, G14


Undergraduate Program Assistant
Matthew Eggleston

Director of the Honors Program
Michelle P. Connolly