Research
The focus of my current research is the development of emerging stock markets. Emerging markets in developing countries provide excellent settings in which to study processes of institutional change and market construction in real time. My dissertation is a case study of the institutionalization of investor capitalism in Kenya, where the number of domestic investors on the Nairobi Stock Exchange has increased ten-fold since 2006 despite a weak property rights regime, low incomes, and little prior experience with formal financial products. In the following three parts, the dissertation addresses the adoption, utilization, and abandonment of shareholding in Kenya.
First, I study adoption of shareholding by the Kenyan public as a diffusion process, modeling the relative contributions of state-sponsored advertising campaigns against the influence of personal with previous adopters. My results suggest that the practice of shareholding is legitimated not through the presence of previous adopters but by the performance of proximate previuos adopters' investments, and that the influence of "proximate performance" is approximately ten times that of large scale advertising campaigns. Furthermore, potential investors seem to mimic the behaviors of status superiors when entering the stock market, as the returns to wealthy proximate investors account for the entirety of the effect of proximate previous adopters.
Second, I study how newly recruited investors utilize their shares by studying trading patterns of investors of varying levels of wealth, experience in the market, and geographic proximity to the stock exchange. Empirically, this work focuses on comparing the rates of speculative investing in the market by newly recruited, lower income retail investors against more experienced, better capitalized institutional investors. Theoretically, this research provides a sociological take on behavioral finance theories by endogenizing investor sophistication. Rather than assuming financial literacy based on wealth or other atomistic traits of individuals, I operationalize it as a function of one's interactions with other investors who engage in particularl trading behaviors and with repeated exposure to regular market movements created by state policies. These endogenous processes create patterns of learning in which inexperienced retail investors quickly learn to mimic the more profitable trading patterns of experienced institutional investors. Results from this analysis strongly suggest that later adopting, first-time investors in Kenya demonstrate strong tendencies toward short-term, speculative share ownership, while lower-income investors demonstrate a very rapid learning pattern. In doing so, both come to mimic the more profitable trading patterns of institutional investors in a very short period of time.
In the third part of the dissertation, I study the rates of investor exit from the stock exchange as a function of asset performance and exposure to fraud. Theoretically, this work addresses the role played by trust and confidence in facilitating capital market investment in developing countries. Using event history methods, I model the time to market exit for investors whose shares gain and lose in value and those who experience one of several common types of fraud, primarily malfeasance by one's stockbroker. I hypothesize that declining share prices will be the strongest cause of market exit, a result of the practice itself losing legitimacy. Defrauded investors, however, will be among the least likely to exit the market, having reason to hope that their investments would have increased in value and the true cause of their misfortune was corruption rather than a weakness in the practice itself.
My quantitative work is made possible by access to the electronic clearing and settlement databases that underlie the NSE. The databases contain complete records of transactions for all 1.5 million Kenyan investors and include demographic background data for each investor as well as location of residence. I'm used this data to map each investor, allowing me to construct measures of the market entry and trading behaviors of proximate others as well as link geographic locations to other data sources on income, education, tribal ethnicity, and use of other financial product. My study of the Kenyan capital market is intended to launch future work in other emerging markets in multiple regions around the world. I enjoy strong relationships with practitioners, regulators, and policy makers in Kenya and other developing countries, and this outreach component is an important part of my work.
Selected Grants and Awards:
Most Promising Dissertation Proposal. International Management Division, Academy of Management. 2010.
Postdoctoral Fellowship. Max Planck Institute for the Study of Societies, Cologne, Germany. 2010-2011. (Declined)
2010 Robert McGinnis Best Paper Award. Department of Sociology, Cornell University. The Social Structure of Speculation: Investor Attributes and Short Term Share Trading in Kenya's Emerging Stock Market.
National Science Foundation Dissertation Improvement Grant. Transplanting and Translating Stock Markets into the Developing Countries of Sub-Saharan Africa. ($7500). 2008-09.