Dimitri is an unremunerated non-executive director of Ricardo Research, with the role of overseeing the academic and technical content of the intellectual capital developed by the firm.

Dimitri is Professor of Finance at the London School of Economics, where he also directs the Paul Woolley Centre for the Study of Capital Market Dysfunctionality. He is a Fellow of the British Academy; a Director and former Managing Editor of the Review of Economic Studies; a Research Fellow at the Centre for Economic Policy Research and a former Director of its Financial Economics program; a Research Associate at the National Bureau of Economic Research; and a former Director of the American Finance Association.

His research, published in leading economics and finance journals, focuses on financial markets, and especially on what drives market liquidity, why asset prices can differ from fundamental value, why bubbles and crises can occur, and what are appropriate regulatory and policy responses. He is a former editor of the blog Greek Economists for Reform, one of the editors of the book “Beyond Austerity: Reforming the Greek Economy”, and one of the authors of the European Safe Bonds (ESBies) proposal.

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Giant funds and market mispricing

The short-termism of corporate managers has been a recurring concern of policymakers for decades due to the close tie with mispricing in capital markets. This article shows that a root cause of mispricing is the tight tracking of asset managers to market cap benchmarks. This seemingly prudent practice is commonly adopted by giant pensions, sovereign-wealth funds and endowment funds. However, it gives rise to momentum trading, excessive focus on short-term price movements, high volatility for overvalued assets, and overvaluation for the aggregate market.

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Giant funds must curb short-termism

Many of the problems of present-day finance have their origins in the horizons set along the investment chain. The key players in this chain are the giant pension, sovereign wealth and endowment funds who appoint external asset managers, who in turn invest in companies. If these funds invest with their eyes set partially or largely on the short term, it sends a clear message down the line and embeds similar standards throughout the capitalist system.

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