Chad Kendall

Assistant Professor, Finance and Business Economics
Marshall School of Business
University of Southern California

Phone: (213) 740-7804
Office: Hoffman Hall, 805
Mailing address: 
USC FBE Department
701 Exposition Blvd, Ste. 231
HOH-231, MC-1422
Los Angeles, CA 90089-1422

Curriculum Vitae

Research Interests

    Finance, Political economy, Economic theory, Experimental economics

Completed Research Papers

    Herding and Contrianism: A Matter of Preference?

Herding and contrarian strategies in financial markets produce informational inefficiencies because investors ignore private information, instead following or bucking past trends. In a simple trading environment, I demonstrate theoretically that investors with prospect theory preferences ignore private information by following a strategy that looks like herding or contrarianism, but which is actually trend-independent. I confirm the theory's predictions in a laboratory experiment designed to rule out other sources of these behaviors, and find that approximately 70% of subjects exhibit herd-like behavior. Finally, I perform a calibration exercise using actual market data to demonstrate the applicability of the results to more general settings.

    Are Biased Beliefs Fit to Survive? An Experimental Test of the Market Selection Hypothesis Revise and Resubmit JET

We experimentally study the market selection hypothesis, the classical claim that competitive markets bankrupt traders with biased beliefs, allowing unbiased competitors to survive. Prior theoretical work suggests the hypothesis can fail if biased traders over-invest in the market relative to their less biased competitors. Subjects in our experiment divide wealth between consumption and a pair of securities whose values are linked to a difficult reasoning problem. While most subjects in our main treatment form severely biased beliefs and systematically over- consume, the minority who form unbiased beliefs consume at near-optimal levels - an association that strongly supports the market selection hypothesis.

    The Time Cost of Information in Financial Markets Revise and Resubmit JET
      (Supplementary Material)

I model a financial market in which traders acquire private information through time-consuming research. A time cost of information arises due to competition - through the expected adverse price movements due to others' trades - causing traders to rush to trade on weak information. This cost monotonically increases with asset value uncertainty, so that, exactly opposite to the result under the standard modeling assumption of a monetary cost of information, traders acquire the least information when this uncertainty is largest. The model makes several novel testable predictions regarding volume and order imbalances, some of which have existing empirical support.

    Market Panics, Frenzies, and Informational Efficiency: Theory and Experiment

In a market rush, the fear of future adverse price movements causes traders to trade before they become well-informed, reducing the informational efficiency of the market. I derive theoretical conditions under which market rushes are equilibrium behavior and study how well these conditions organize trading behavior in a laboratory implementation of the model. Market rushes, including both panics and frenzies, occur more frequently and severely when predicted by theory. However, because subjects use momentum-like strategies, rushing and positive correlations in returns not predicted by theory also occur. The results therefore suggest that commonly-discussed momentum strategies may exacerbate panics and frenzies.

Refereed Publications:

    How Do Voters Respond to Information? Evidence from a Randomized Campaign (with Tommaso Nannicini and Francesco Trebbi),
    American Economic Review, 2015, 105(1), 322-353 Online appendix

In a large-scale controlled trial in collaboration with the reelection campaign of an Italian incumbent mayor, we administered (randomized) messages about the candidate's valence or ideology. Informational treatments affected both actual votes in the precincts and individual vote declarations. Campaigning on valence brought more votes to the incumbent, but both messages affected voters' beliefs. Cross-learning occurred, as voters who received information about the incumbent also updated their beliefs about his opponent. With a novel protocol of beliefs elicitation and structural estimation, we assess the weights voters place upon politicians' valence and ideology and employ the model to simulate counterfactual campaigns.

    Incumbency Advantages in the Canadian Parliament (with Marie Rekkas),
    Canadian Journal of Economics , 2012, 45(4), 1560-1585

We apply a regression discontinuity approach to determine incumbency advantages in the Canadian Parliament, finding that incumbents enjoy a 9.4–11.2% increased probability of winning over non-incumbents. Owing to the presence of multiple parties, an incumbency advantage in terms of vote share does not always translate to an increased probability of winning, because incumbents do not necessarily obtain votes from their closest opponent. Also, under the assumption that strategic exit is not an issue, we are able to split the incumbency advantage into party incumbency and individual candidate incumbency components, finding that the advantage is almost entirely due to the individual.