Essays in Financial Economics

This thesis combines three papers studying the effects of innovations in modern digital platforms on investors and securities. In Chapter 1, I build a model where endogenous prices set by entrepreneurs play a central role in determining the success rates of their projects. Individuals with private information about the value of projects choose the appropriate time for investments using equity crowdfunding platforms. When opportunity costs are sufficiently low, investors with sufficiently high valuations promote the project to others by investing early. As opportunity costs increase, entrepreneurs lower prices to make the project more competitive compared to outside options, creating the "pricing effect." I then show that, as a consequence of the pricing effect, increases in opportunity costs improve project success rates during times of high costs. Furthermore, if prices remained unchanged, then more valued projects would be more likely to succeed. However, entrepreneurs increase asset prices as they have more valued projects, discouraging individuals to invest. As a result of this increase in asset prices, projects with lower expected values have higher success rates than those with higher expected values.Chapter 2 is a joint work with Redouane Elkamhi. We extend Kyle (1985) by introducing transparency in trade orders and insiders with single/multiple accounts. We find that splitting orders across time without fully revealing private information requires multiple accounts. Therefore, insiders with a single account trade more aggressively than insiders with multiple accounts. This heterogeneity in trade behaviors leads to non-monotonicity between volume and fundamental value. In Chapter 3, using an event study analysis with 60 cases from the Coinbase exchange over the period 2016–2021, I discover that newly included coins into the Coinbase exchange, on average, experience 16.8% gain in its price in the first day following the inclusion announcement. Price appreciation continues in the following days, reaching a high of 22.52% on the fourth day. Price depreciation occurs at a slower rate, taking another 14 days to lose all of the gains seen in the first four days, which shows that Coinbase effect is not persistent but leads to short-term bubbles for event coins.

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