Publications:
Mutual Fund Strategy: Swing for the Fences or Bat for Average
Journal of Financial and Quantitative Analysis, Forthcoming.
with John Chalmers
Available Here
We document two distinct mutual fund strategies: “Swinging for the Fences” (SF), where managers hold stocks with extreme style-adjusted returns on either tail of the return distribution, and “Batting for Average” (BA), where managers seek stocks with consistent moderate performance. We provide evidence that these strategies are persistent and deliberate. Existing measures of active management and known asset pricing factors do not explain the strategies. SF attracts more flow, particularly when funds mention specific stock holdings in shareholder reports. SF funds charge higher fees and hold riskier portfolios; yet, they fail to deliver higher risk-adjusted returns. In falsification tests, SF strategies are not present in passive funds, supporting our conclusion that SF and BA are intentional strategies.
Dual-class Ownership Structure and Voluntary Disclosure of Earnings Guidance
Financial Management, Forthcoming.
Available Here
This paper shows that dual-class firms issue more quarterly management earnings guidance, particularly when the guidance contains negative news. This effect is driven by the fact that insiders in dual-class firms maintain sufficient control to be isolated from market pressure and disciplinary outcomes following disclosure. The higher propensity to issue guidance is stronger among dual-class firms that are controlled or managed by their founders and becomes more pronounced as dual-class firms age. Moreover, dual-class managers, having close reputational and financial ties to their firms, issue more frequent guidance when they face higher litigation risk. I also find that dual-class managers are less likely to time their disclosures opportunistically, such as releasing them after trading hours to dampen market reaction. I address the endogeneity of ownership structure with a difference-in-differences estimation using a sample of dual-class firms that unified their share-classes. Importantly, I find that the disclosure quality of dual-class firms, measured by both accuracy and precision, is unaffected despite issuing more guidance.
Patent Trolls and The Market for Acquisitions
Journal of Financial and Quantitative Analysis, 2023, Volume 58, 2928-2958
Available Here
I study the effect of patent-infringement claims by patent trolls on acquisitions of small firms. Exploiting staggered adoption of state anti-patent troll laws, I find that the laws have two effects. First, the number of acquisitions of small firms declines after these laws are adopted. Second, the anti-troll laws increase the acquisition price for acquirers. The market reflects the increased cost of acquisition as measured by lower acquisition announcement returns. Large firms increase R&D after the adoption of state laws, replacing external innovation. Using a sample of acquisitions that are plausibly unaffected by the laws, I disentangle alternative explanations.
CEO Inside Debt and Mutual Fund Investment Decisions
Journal of Banking & Finance, 2022, Volume 145, 106-641
Available Here
I show equity mutual funds invest less in companies with higher CEO inside debt, whereas corporate bond funds invest more in such companies. The effect persists after accounting for endogeneity using first-time mandatory disclosure of inside debt in 2007 as a quasi-natural experiment, and using state-level personal income tax rates as instruments for inside debt. This finding suggests that fund managers pay attention to incentive implications of inside debt when making portfolio decisions. The effect of inside debt on portfolio allocation is stronger in firms with higher likelihood of default and higher idiosyncratic risk, firms suffering from debt overhang, and firms with lower credit ratings. Lastly, equity funds that underweight high-inside debt firms and bond funds that overweight them deliver positive alphas.
Running a Mutual Fund: Performance and Trading Behavior of Runner Managers
Journal of Empirical Finance, 2022, Volume 69, 43-62
with Sima Jannati
Available Here
This paper examines the relationship between the representation of marathon runners in a fund management team and its future performance. We find that funds with a larger proportion of runner managers have a higher level of risk-adjusted excess returns. We also find that these funds have a lower level of the disposition bias, deviate more from their benchmark portfolios, hold fewer stocks in their portfolios, and hold their stocks for a longer duration. Also, they tend to hold more stocks that are about to experience desirable earnings outcomes. Overall, the results suggest that personality traits that affect achievements in other dimensions of life may translate into fund management success.
Transient Emotions, Perceptions of Well-being, and Mutual Fund Flows
Finance Research Letters, 2021, Volume 41, 101-825
with William Bazley and Sima Jannati
Available Here
Investors’ sentiment is typically proxied by aggregate measures. However, it is composed of distinguishable elements, including impermanent emotions and subjective appraisals of well-being. We show that experiencing transient happiness is associated with flows to mutual funds in the following month. When considering funds’ investment style, heterogeneous effects arise. Happiness and perceived well-being correspond with flows to growth funds but not value funds. Ultimately, broad measures of sentiment may conceal nuances of investor behavior, which can potentially affect asset prices through investment style preferences.
Working Papers:
The Unintended Governance Consequences of Regulatory Oversight: Evidence from Institutional Investors
with Bela Zykaj
Available Here
This paper examines how regulatory scrutiny affects institutional investors' ability to act as stewards of their portfolio firms. We show that institutional investors distracted by regulatory investigations exhibit lower portfolio trading activities, and we propose "regulatory scrutiny" as a novel measure of institutional distraction. This distraction, as an external shock to institutions' attention, reduces their monitoring effectiveness in preventing self-interested managerial decisions in the firms they hold. Specifically, we find that firms with a larger share of distracted institutions are more likely to increase CEO compensation and to pursue value-destroying acquisitions, with underperformance persisting for up to four years. This distraction also carries costs for the institutions themselves, which are less likely than peers to exit firms after value-destroying actions, consistent with scrutiny diverting attention from value-relevant information. Taken together, our findings indicate that while regulatory oversight of financial intermediaries is crucial for promoting market fairness and systemic stability, it may inadvertently weaken institutions' capacity to monitor corporate behavior.
What Dividends Reveal About Risk: Evidence from Option Prices
with Pat Akey and Brandon Julio
Available Here
We use option prices to examine how dividend changes convey information about firm risk. Because options price the full distribution of future stock prices, we can decompose the dividend signal into changes in general price risk and changes in downside tail risk. We find that dividend changes carry substantial risk information, and that this information is asymmetric. For dividend omissions, implied volatility rises sharply and the implied volatility slope steepens, indicating large increases in both general price risk and tail risk. The risk signal is large for bad dividend news and small for good dividend news, consistent with the asymmetry observed in stock returns. This risk information is largely distinct from the price reaction, suggesting that options reveal a dimension of the dividend signal that stock returns do not capture.
Consumer Response to ESG News: Evidence From Supermarket Goods
with John Chalmers and Gretchen Gamrat
Permanent Working Paper
Using detailed weekly sales data for more than 17,000 consumer products, we show that product sales increase immediately after positive and decrease following negative ESG news events relative to sales of matched products. Consumer response to the ESG news events are not driven by prices. Furthermore, the responses are short-lived and ultimately disappear eight weeks after the news. Consumer responses steadily increase in magnitude over our sample period, are stronger for environmental news than social news, are mainly driven by products that share their name with the firm, and are concentrated among
high-income consumers.