Alex Petkevich

Alex Petkevich

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Alex Petkevich is an associate professor in the Reiman School of Finance. His research interests are in empirical asset pricing, fixed income, derivatives and institutional investors, with a specific focus on market inefficiencies. His research has appeared in top scientific journals such as the Journal of Financial and Quantitative Analysis, Journal of Accounting and Economics, Journal of Banking and Finance, and Journal of Financial Markets.

He earned his PhD in finance and a master of science in mathematics from Texas A&M University. He previously taught at the University of Toledo, where he also served as a chair of the Neff Department of Finance.

What do you study? What got you interested in the field?
My research focuses on traditional investments and theoretical finance, particularly asset pricing models. I have a background in mathematics, which led me to look into securities pricing and the behavior of different asset classes. Initially, I worked on theoretical models, but I transitioned to empirical testing to see how these models hold up in the real world, which often diverges from the theoretical “pure” world without imperfections like transaction costs and taxes. These divergences, or anomalies, are fascinating to explore, especially across different asset classes like equities, bonds, options and real estate.

What are you currently working on?
Recently we have had this trend in the financial markets where we see an influx of funds to Exchange Traded Funds (ETFs). These are specialized products that represent indices and portfolios that can be traded like any other stock in the market. Moreover, many companies have started innovating and offering leveraged products on these ETFs. These products increase potential returns. However, they increase the risk as well.

The most famous example is, of course, an array of leveraged products that has been introduced on SPDR S&P 500 ETF Trust (SPY). For example, let’s take SPXL. This product amplifies the performance of SPY by three times. We would say that if the market goes up by 1%, then this particular new product will go up by 3%. But what will happen if the market goes down by 1%? Obviously, the leveraged product will go down by 3% as well because of the leverage. So, in this recent paper, we looked at leveraged ETFs and option trading activity, which are special contracts that give you even more leverage. Without getting too technical, we document that this special contract trading in the leveraged contracts is very informative, but you have to be very careful. It’s a double-edged sword—you can win a lot and you can lose a lot. It’s really important to have research behind all of this because we need to be able to regulate the market a little bit and make sure there are higher restrictions to get to this level of risky product.

What is the goal of your research?

The research is going to have direct policy implications, hopefully, to ensure that regulatory policies create fairer and more efficient markets, in particular, to protect the retail investor. This recent ETF paper has been picked up by a few agencies and hedge funds, so I think it’s creating a good discussion around how to regulate this trading behavior properly. In general, I want my research to enhance our understanding of financial markets and improve investment strategies.

Can you expand more on how you bring your work into the classroom?

My students are going to be finance professionals when they graduate, and go on to get their CFA designations and Series 7 licenses, etc. So for me, it’s very important that they have a solid background in the basics. My teaching is geared towards the case-based model and talking about real-world implications. I like to talk about Warren Buffett, who people tend to think has some kind of secret sauce in his investment strategies. What he’s doing though really isn’t a secret at all. He’s looking at safe companies where there’s a lot of profitability and a lot of cash but, at the same time, are undervalued, have good potential and low systematic risk. It’s a long-term strategy; you have to understand that you’re not going to beat the market every single year, but you’ll probably beat it after 10.