David Goldreich

Associate Professor of Finance

105 St. George Street
Toronto, Ontario M5S 3E6

Canada

Tel: +1-416-946-0833

Fax: +1-416-971-3048

E-mail: david.goldreich@rotman.utoronto.ca

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Teaching

MBA: Finance pre-course 2009

MBA: Business Finance (MGT1330)

PhD: Market Microstructure (MGT3090)

Research

Initiating Bargaining (joint with Lukasz Pomorski)

Best Paper Award, Financial Research Association conference (for previous version)

We study whether the success of bargaining and the agreed upon terms depend on the characteristics of the person who initiates negotiations (“the initiator”). We approach this question in the context of high-stakes online poker tournaments, in which participants often negotiate a division of the prize money rather than risk playing until the end. Although initiators typically are in a worse than average position and are less well known, negotiations initiated by better known and better performing agents are more likely to lead to an agreement. This would suggest that gains to trade depend on who the initiator is, but, surprisingly, initiating bargaining does not affect the initiator's payoff in a completed deal.

Additionally, we find strong evidence in support of Cramton, Gibbons, and Klemperer (1987), who argue that bargaining is more likely to succeed when parties' stakes in an enterprise are close to equal.

Underpricing in Discriminatory and Uniform-Price Treasury Auctions

Journal of Financial and Quantitative Analysis, 42, June 2007

This paper examines how the Treasury auction mechanism affects pricing from both a theoretical and empirical perspective. Theoretically, I show that the discriminatory mechanism should result in more underpricing than the uniform-price mechanism, and the amount of underpricing should depend on auction characteristics. Empirically, I find underpricing of a magnitude consistent with the theory, both on average and in the cross section.

Investor Sentiment and Pre-IPO Markets (joint with F. Cornelli and A. Ljungqvist)

Journal of Finance, 61, June 2006

What role do sentiment investors play in the pricing of newly listed stocks? We derive conditions under which we can distinguish between sentiment and rational pricing behavior and test for the rationality of small investors' demand for new stock issues using data from pre-issue (or `grey') markets in Europe. Under sentiment, the model predicts asymmetric relations between the prices at which small investors trade new stock issues in the grey market and i) the subsequent issue price set by the investment bank, ii) prices in the early after-market, and iii) the degree of stock price reversal in the long run. Our empirical results suggest that sentiment demand is present and influences the pricing of newly listed firms.

The Price of Future Liquidity: Time-Varying Liquidity in the US Treasury Market (joint with B. Hanke and P. Nath)

Review of Finance, 9, March 2005 (lead article)

(Nominated for GSAM Prize for best paper in the Review of Finance)

In this paper we show that the value of securities depends on the expected liquidity of the security over its entire life. We take a new approach to valuing liquidity by following Treasury securities over liquidity cycles and we show how the liquidity premium declines as future liquidity falls. Moreover, we are able to distinguish between different aspects of liquidity (such as bid-ask spread and volume) and show how much each of these affects the liquidity premium.

Bookbuilding: How Informative is the Order Book? (joint with F. Cornelli)

Journal of Finance, 58, August 2003

(First Prize, ABN Amro International Conference on Initial Public Offerings)

(Finalist for Brattle Prize for best corporate finance paper in the Journal of Finance)

This paper examines how information in the order book is reflected in the IPO price under the bookbuilding mechanism. We find that the IPO price is closely related to the limit prices in the bids and to a lesser extent, to the level of oversubscription. The bids from certain classes of bidders are more informative than others. Oversubscription and elasticity in the book can be used to predict aftermarket performance.

Bookbuilding and Strategic Allocations (joint with F. Cornelli)

Journal of Finance, 56, December 2001

(Finalist for Brattle Prize for best corporate finance paper in the Journal of Finance)

This paper empirically examines the bids and allocation of shares in international equity issues. We infer the criteria used by the investment banker to allocate shares. We find that the bookrunner favors bidders who provide information and bidders who participate regularly. The results have implications for the theories related to the underpricing of initial public offerings.

Behavioral Biases of Dealers in U.S. Treasury Auctions

"Revise and resubmit" for the American Economic Review

This paper provides evidence of bounded rationality by large dealers in U.S. Treasury auctions. I argue that these dealers use a heuristic of yield-space bidding which leads to biases manifested in three ways: they submit dominated bids, i.e., those that could be improved without raising the bidding price; they bid in a manner that disregards the unevenly spaced price grid; and they round bids in yield space. Consistent with bounded rationality, I show that bidders are less susceptible to bias when the cost of suboptimal bidding is high. While the literature provides substantial evidence of behavioral biases among individual investors, they are less well documented for large sophisticated institutions that are likely to be important for setting asset prices. These primary bond dealers who regularly bid for billions of dollars in Treasury bill auctions are precisely such economic agents.

citations (n=162)

Education

PhD (Financial Economics), Carnegie Mellon University, 1997

MS (Finance), Carnegie Mellon University, 1992

MSIA (MBA), with distinction, Carnegie Mellon University, 1990

BS (Engineering, Economics) with honors, California Institute of Technology, 1988

Media mentions

CBC Radio, 28 Jan 2008 (Societe Generale)

BNN Television, 24 Jan 2008, (Societe Generale)

National Post, 12 Jan 2008 (bargaining)

NY Times, 2 July 2007 (Bell Canada sale)

Letter to Economist, 2 March, 2006, (Modigliani Miller)