From Numbers to Words: Breaking Down Institutional Beliefs

with Federico Bastianello · [SSRN]

Abstract: We examine how large asset managers form and justify long-horizon beliefs by analyzing their Capital Market Assumptions (CMAs), articulated through tables, figures, and narratives. We develop a method that transforms CMA narratives into quantifiable causal networks using large language models, capturing both the complexity of managers' mental models and their allocation of attention across macro-financial topics. Our analysis reveals substantial heterogeneity in asset managers' beliefs, both quantitative and narrative. We document systematic biases using quantitative and textual evidence: return expectations deviate predictably from objective benchmark forecasts, greater cognitive complexity is associated with larger ex-ante forecast errors, and differences in attention to key building blocks affect the degree of over- or underreaction. Institutional expectations are economically meaningful and linked to objective return predictors, yet they still exhibit systematic and predictable deviations from objective benchmarks.

Decentralized and Centralized Options Trading

with Siddharth Naik and Lorenzo Schönleber · [SSRN]

Abstract: On-Chain options refer to option contracts implemented as smart contracts and traded on decentralized exchanges. We report a set of stylized facts about decentralized options trading and how automated market-making, a new model of liquidity provision for options, contributes to market fragmentation and segmentation. Empirically, we document that the prices of On-Chain options exceed those of Off-Chain options traded on centralized exchanges. Key factors driving this include automated market-maker mechanisms to mitigate risks and the impact of trading volume and net demand pressure. We propose a theory to explain the price difference and empirically verify its key implications.

Presentations: Canadian Derivatives Institute (CDI) Conference (Montreal), 2nd Knut Wicksell Conference on Crypto and Fintech (Lund), Annual Conference of the Asia-Pacific Association of Derivatives* (online), ToDeFi 2025* (Rome), Tech 4 Finance #2: AI and Blockchain* (Paris), 1st Bocconi PRIN Workshop in Crypto and Quantitative Finance (Milan), International Fintech Research Conference (Perugia), IFMB 2025 (online), AFA Annual Meeting* (San Francisco), AFA Annual Meeting - Poster Session (San Francisco), AlgoDefi24 Workshop* (Milan), IRMC, FMA European Conference, Universita Cattolica del Sacro Cuore (Milan), 2nd Structured Retail Products and Derivatives Conference, Lancaster-Manchester-Warwick Joint PhD Workshop on Quantitative Finance and Financial Technology (Warwick)
(*presented by coauthor)