Jeanine Baumert

Jeanine Baumert

Research

Working Papers

Chatbots, Investor Coordination, and Financial Fragility

This paper studies the adoption of AI investment tools in a noisy rational-expectations market. Retail investors can adopt an AI technology that pools the positions disclosed by its users and thereby provides information about aggregate liquidity conditions, which helps them interpret market prices. The technology contains no information about fundamentals. Adoption affects equilibrium trading and price informativeness, so the private value of the technology depends on its market-wide use. I characterize the competitive linear rational-expectations equilibrium and the associated adoption incentives. Because the AI signal multiplies the precision of the information that the price contains, rather than adding to it as a signal about fundamentals would, its value can rise with price informativeness. Greater adoption makes prices more informative, so AI adoption can be a strategic complement at stable trading equilibria, including unique ones. Adoption can then have multiple equilibria, and small changes in the cost of the technology or in expectations about its use can produce discrete changes in adoption and price informativeness

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Blockholder Influence

Blockholder influence has attracted recent interest, not only in the context of corporate boards but also in the context of decentralized autonomous organizations (DAOs). I analyze a model of project choice with dispersed information. I focus on the question whether a blockholder should delegate control to a set of delegates. I assume that agents preferences are not aligned, in the sense that delegates derive private benefits from the acceptance of the proposal while the blockholder derives benefits from the rejection of the proposal. The blockholder chooses composition of the board between delegates and direct representatives of her own interests. I find that when private interests are low, or signals are imprecise there can be multiple equilibria. The most preferred equilibrium for the blockholder is the one with minimum meaningful delegation. This equilibrium also turns out to be the second best and in particular, the equilibrium value of the firm is higher compared to full delegation. This gives rise to a blockholder premium. Furthermore, I solve the information acquisition problem of the committee in closed form.

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Insider Trading and Communication among Peers

This paper investigates how insiders in financial markets might profit from sharing information with their peers. I develop a three-period model based on the seminal Kyle (1985) paper on strategic insider trading, where in contrast to the previous literature, informed traders can share information about the fundamental value of the asset with their peers without disclosing it publicly to the whole market. I show that in such environment it can be ex-ante profitable for a trader to share some of its information with others. The intuition is the following: By sending information with some noise, the trader introduces noise into the economy and only he knows the precise realization of. This helps him to better interpret prices and he thus learns more about information of other traders compared to the market maker and thus makes a more profitable trade in the last period.

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Sovereign Debt and CDS - A Welfare Analysis

This paper presents a model of government borrowing, where the lender can insure himself against government default by signing a contract with a third party. Under quite general specifications I characterize the sub-game perfect equilibrium and compare it to the second-best and an economy where no such insurance is available. I find that under risk-neutrality of all parties the lender always chooses the efficient level of credit insurance and credit insurance is thus welfare improving compared to an economy without credit insurance. This is however no longer true in the case of risk-aversion of the government. I provide precise conditions under which an economy with credit insurance is strictly pareto-inferior compared to an economy without credit insurance.

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