Publications:
Gurdip Bakshi, Xiaohui Gao, and Jinming Xue, "Recovery with Applications to Forecasting Equity Disaster Probability and Testing the Spanning Hypothesis in the Treasury Market," Journal of Financial and Quantitative Analysis, Volume 58, Issue 4, June 2023, pp. 1808 - 1842
Working Papers:
with Chotibhak Jotikasthira, and Christian T. Lundblad
Using machine learning techniques, we uncover an important number of dealers in the U.S. municipal bond market who focus on geographically adjacent states, a characteristic distinct from dealer centrality. These “specialized” dealers enjoy larger market shares in states with greater local ownership and in local bonds with more complex features. We also find that trades intermediated by these specialized dealers have significantly larger markups than those intermediated by national dealers. For the average retail trade, about two-thirds of the differential markup is attributed to rent, with the remaining third to the unique benefits of specialization. Only the latter matters for institution-sized trades. Together, these results suggest that specialized dealers possess some monopoly power yet also provide important differentiated services. Specialized dealers provide immediacy, reward customers with an allocation of new bond offerings, help customers overcome information frictions, and facilitate access to local investor clientele. The latter two account for the bulk of the specialization benefits. Over time, as transparency improves and local ownership declines, the average market share of specialized dealers decreases along with differential markups.
Best Paper semifinalist - Financial Management Association Meeting (2023)
with Hendrik Bessembinder, Shuaiyu Chen, Michael J. Cooper, and Feng Zhang
Mutual fund flows are negatively related to fund performance more than about five years prior. This finding holds for active U.S. and global equity funds, for both institutional and retail share classes, and across fund style categories. We develop and test the investor disappointment hypothesis, which posits that those who extrapolate from recent high returns are subsequently disappointed on average, and which implies both negative flow-performance coefficients at longer lags and interaction effects between recent and distant returns. The empirical evidence supports this hypothesis over the alternative that the negative coefficients at long lags are attributable to investor life cycles.
with Alan Guoming Huang and Russ Wermers
Using a comprehensive database of corporate news, we find that bond funds trade against the direction of news sentiment. The trading against news phenomenon is concentrated in funds selling on positive news and in the post-financial crisis period when dealer liquidity provision is constrained. Funds in so doing exhibit higher alphas, and a potential source of such alphas is bond price reversals post news events. Our findings highlight that bond mutual funds represent a significant liquidity provider in the corporate bond market and play a complementary role to dealers in corporate news events.
Media: Dow Jones
with Gurdip Bakshi, John Crosby, and Xiaohui Gao
with Haibo Jiang and Georgios Skoulakis