CAREER: Relationships in Finance

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

This award is funded under the American Recovery and Reinvestment Act of 2009 (Public Law 111-5). Intellectual Merit Anyone interested in studying price movements in any asset market needs first to understand how information moves through agents in the market, and ultimately into prices. A critically important, and yet understudied, mechanism for this information transfer is through social and economic relationships amongst individuals and organizations. In this research project, the PI plans to move this relationship finance research agenda forward. By executing on the research agenda, his end goal will be a more accurate description of how information really does flow through agents in financial markets, a clearer explanation of their resulting behaviors acting on this information, and so richer empirical predictions and explanations for the asset price movements we see. The PI is in a unique position to move forward on this agenda in the field as much of his work up until this point has been on discovering and measuring real effects of these relationships on behaviors and resultant price movements. One barrier to doing research in this field is that collecting data on substantive relationships can be time consuming and take a number of assistive RAs. Given the resources of the CAREER grant and the PI's existing knowledge of data sources, there should not be constraints on his ability to collect rich data on relationships. Broader Impacts Along with the academic research focused on relationships, the PI plans to create a new course at the Harvard Business School called Relationship Finance. This course will stress the importance of thinking through economic and social connections when attempting to evaluate, and make inferences, on how financial market participants behave, and the resulting impacts on prices. The course will contain a collection of new case studies focused on this goal, with the hope that students' involvement and experiences will help to spur future case research to support the course. In terms of dissemination, the results of this agenda will be disseminated in a number of ways. First, academically focused research will continue to be produced and submitted to academic journals that help circulate the research. In addition, by presenting at universities and seminars, the PI plans to not only help spread key findings and ideas, but elicit valuable feedback from his colleagues across the profession that will help strengthen the work. The PI plans to also present to audiences of practitioners in financial markets to gain their first-hand insight into how relationships affect their approach to the markets they deal in. For the curricular research,the first-order impact will be through the newly developed course. Second, Harvard Business School Publishing (which publishes the case studies) has a very developed case services department, selling over 6 million cases per year to outside schools and organizations. So the PI believes that his course materials will be used and affect not only those students that take his course at Harvard, but students in other universities and organizations that use the cases to be developed for the course. There are thus a number of ways that both the academic and curricular piece of the Relationship Finance research agenda can have influence both in and outside of the profession.