Ozsoylev conducts research on financial market imperfections, such as those generated by asymmetric information, imperfect competition, behavioural biases, and bounded memory. He works both independently and collaboratively with colleagues from different institutions and backgrounds.
Networks in financial markets
The social and information networks through which communication in financial markets takes place are significant for financial investors’ decision-making processes. Ozsoylev’s research investigates how such networks affect asset prices and investor welfare.
He argues that profit distribution among investors and their trading volume are intimately linked to those investors’ centrality within the information network. Further, the network that optimizes total investor welfare is typically one with an intermediate degree of connectedness. Ozsoylev’s collaborative empirical research lends support to some of these theoretical findings.
Ozsoylev, H.N. and J. Walden (2011), Asset pricing in large information networks , Journal of Economic Theory, vol. 146, pp. 2252-2280.
Ozsoylev, H.N., J. Walden, D. Yavuz and R. Bildik, Investor networks in the stock market, AFA 2012 Chicago Meetings Paper.
Eren, N. And H.N. Ozsoylev, Communication dilemma in speculative markets, working paper.
Ozsoylev, H.N., Asset pricing implications of social networks, AFA 2006 Boston Meetings Paper.
Ozsoylev, H.N., Rational expectations and social interaction in financial markets, working paper.
Stock market manipulation is an old yet effective game. One of the most well-known manipulation schemes is the ‘hype and dump’ manipulation, also referred to as ‘pump and dump’. This practice is illegal in many countries, yet it is common. Ozsoylev’s research shows that intense regulatory enforcement, which makes dishonest rumour-mongering very costly, may not necessarily curb hype and dump schemes. Market depth and trading volume rise with ‘hype and dump’ while market efficiency decreases.
Eren, N. and H.N. Ozsoylev, Hype and dump manipulation, AFA 2008 New Orleans Meetings Paper.
Ambiguity and market liquidity
The quality of information in financial markets is often hard to estimate. Investors may be unable to form a single probability belief about asset returns conditional on information signals, and act on the basis of ambiguous (or multiple) probability beliefs. Ozsoylev’s research shows that the presence of ambiguous information gives rise to the possibility of an illiquid market where uninformed investors optimally choose not to participate in trading. When the market is illiquid, small informational or supply shocks have relatively large effects on asset prices.
Ozsoylev, H.N. and J. Werner (2011), Liquidity and asset prices in rational expectations equilibrium with ambiguous information, Economic Theory, 2011, vol. 48, pp. 469-491.
Financial fragility and market microstructure
Ozsoylev’s research also explores questions related to basic microstructure theory and financial fragility.
Ozsoylev, H.N. and S. Takayama (2010), Price, trade size, and information revelation in multi-period securities markets, Journal of Financial Markets, 2010, vol. 13, pp. 49-76.
Ozsoylev, H.N. (2008), Amplification and asymmetry in crashes and frenzies,
Annals of Finance, 2008, vol. 4, pp. 157-181.