Marco Di Maggio is a faculty member in the Finance Unit and a faculty research fellow at the National Bureau of Economic Research. Before joining HBS, he was a faculty member in the finance and economics division of Columbia Business School.
Professor Di Maggio has recently developed the first HBS course on FinTech tailored to MBA students. In 2019 Professor Di Maggio will lead a new Executive Education Program on Fintech (https://www.exed.hbs.edu/leveraging-fintech-innovation-grow-compete/). This program is ideal for rising executives in a broad array of financial institutions, from banks to asset management firms, as well as for individuals who are planning to launch new enterprises aimed at disrupting key areas of financial markets (For questions, please contact executive_education@hbs.edu).
Professor Di Maggio’s current research focuses on financial intermediation with a particular focus on how new technologies have disrupted financial markets and its effects on firms and individuals. His work has been published in leading academic peer-reviewed journals such as the American Economic Review, Journal of Finance, Journal of Financial Economics, The Review of Financial Studies, Management Science and has been widely cited by outlets such as the Wall Street Journal, The Economist, Bloomberg, Institutional Investor, and Forbes.
In 2016, Poets and Quants named him to its list of the Best 40 Under 40 Business School Professors.
Rising student debt is considered one of the creeping threats of our time. This paper examines the effect of student debt relief on individual credit and labor market outcomes. We find that borrowers experiencing debt relief reduce their indebtedness by 26%, by both reducing their demand for credit and limiting the use of existing credit accounts, and are 12% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases, as well as, their probability to change jobs and ultimately their income increases by more than $4000, which is equivalent to about two months' salary. These findings speak to the benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.
Fintech Borrowers: Lax-Screening or Cream-Skimming?
Did Fintech lenders ease credit access for borrowers underserved by the traditional banking? Are borrowers able to improve their credit outcomes through a personal loan by a Fintech lender? We address these questions using a unique individual-level data providing detailed information about borrowers’ credit histories and lenders’ identities and the Madden vs. Midland Funding, LLC case as source of exogenous variation. We find that Fintech borrowers earn more, live in higher income neighborhoods, are on average younger, and more likely to be professionals. However, we show that Fintech borrowers are significantly more likely to default and exhibit higher indebtedness than similar individuals borrowing from traditional financial institutions. Fintech borrowers tend to carry a significant credit card balance, and are more likely to consume the additional funds rather than using them to consolidate high-cost credit card debt. Overall, these findings suggest that Fintech lenders enable households with a particular desire for immediate consumption to finance their expenses and borrow beyond their means.
Using trade-level data, we study whether brokers play a role in spreading 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, to then cover their positions once asset prices start recovering. The predatory trades generate at least 50 basis points over ten days and cause the liquidation costs for the distressed fund to almost double. These results suggest a role of brokers in fostering predatory behavior and raise a red flag for regulators. Moreover, our findings highlight the trade-off between slow execution and potential information leakage in the decision of optimal trading speed.
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 trades channeled through central brokers earn significantly positive abnormal returns. We find that a key driver of these excess returns is the information that central brokers gather by executing informed trades, which is then leaked to their best clients. Brokers share information about one client's trades with other clients, who then profit by copying those trades. The best clients of the broker executing the informed trade, and the asset managers affiliated with the broker, are among the first to benefit from the information about order flow. This evidence also suggests that an important source of alpha for fund managers is the access to better connections rather than superior skill.
When LSAPs are needed the most, simply bending the yield curve through purchasing government debt is not effective for stimulating the mortgage market (a key sector of the economy for the transmission of monetary policy). Purchasing mortgage-backed securities when banks are reluctant to lend can very effectively open a direct-lending channel from central-bank purchases to households. Given the limited spillover of Fed purchases during times of stress, Federal Reserve Act provisions that restrict Fed purchases to government-guaranteed debt have important consequences in allocating credit to certain sectors (i.e., housing) and particular segments within those sectors (i.e., conforming mortgages).
Our novel evidence suggests that in the times of unusually low interest rates money market fund managers increased, on average, their portfolios’ risk. We also show that funds that were not successful in retaining their investors’ base, or were worried about negative reputation spillovers, were more likely to exit. Our results further suggest that the zero lower bound policy triggered a reduction in capital supply to financial and large corporate sectors and increased the financial markets’ exposure to costly runs and defaults.
Our recent work investigates dealers' trading behavior and pricing strategy in the corporate bond market to shed new light on the role of the network of existing relationships among dealers in shaping the transmission of risk and influencing market liquidity. We show that trading relationships may sometimes act as a buffer in periods of distress, but they might also accentuate systemic fragility, as connections with vulnerable dealers might affect trading outcomes even for sound dealers. Finally, we find evidence that dealers drastically reduced their inventory during the financial crisis. These results can help inform the debate on the risks posed by the interconnectedness of the financial system, showing how this could be a source of market fragility and illiquidity.
