RESEARCH
Publications
(with Nicholas Papageorge and Kevin Thom), Journal of Political Economy, 28(4), pp. 1474-1522, 2020
The same genetic endowments that predict years of schooling also predict household wealth at retirement, stock market participation, beliefs about the likelihood of macroeconomic events, risk aversion, the financial planning horizon, and more. These endowments matter much less for defined-benefit pension participants, who are better able to outsource financial decisions.
Management Science, 64(11), pp. 5263-5288, 2018
Wealth and direct stock ownership are positively related because higher wealth implies that information need not be as cheap and beliefs about payoffs need not be as optimistic. Parameter estimates suggest most households have modestly optimistic beliefs, a few are wildly optimistic, and information costs are high.
(with Stephen H. Shore and Shane T. Jensen), Quantitative Economics, 8(2), pp. 553-587, 2017
Individuals who identify as risk tolerant have riskier incomes, but this correlation is far from perfect. Our model offers an economic interpretation: idiosyncratic fit is an important determinant of career choice. Parameter estimates suggest a one standard deviation increase in career "enjoyment" is worth a 36% increase in pay.
Working Papers
(This paper was previously circulated under the title "The Hedge Fund Industry is Bigger (and Has Performed Better) Than You Think")
(with Juha Joenvaara, Mikko Kauppila, and Russ Wermers), 2023, Revise and Resubmit at Review of Financial Studies
We combine data from six leading commercial hedge fund vendor databases with confidential regulatory filings to provide a comprehensive evaluation of hedge fund industry size, performance, and investor flows. We estimate that, as of 2019, the industry managed $6.0 trillion in worldwide net assets, 67% larger than the largest vendor estimate. Funds that report only via regulatory filings exhibit better risk-adjusted performance (“alpha”), stronger performance persistence, and a lower sensitivity of investor flows to past returns, relative to those reporting to vendor databases. Our results suggest that “non-vendor-listed” hedge funds have less fragile capital and higher alphas than publicly-marketed funds.
(with Jay Kahn), 2023, Reject and Resubmit at Journal of Monetary Economics
We document the rise and fall of an arbitrage trade among hedge funds known as the Treasury cash-futures basis trade. From the end of 2017 to the end of 2019, hedge fund Treasury exposures increased by $960 billion and repo borrowing increased by $553 billion, much of which is directly associated with the basis trade. Hedge funds' basis positions accounted for roughly a quarter of dealers' repo lending. While Treasury market disruptions in March 2020 spurred hedge funds to sell Treasuries, the unwinding of the basis trade was likely a consequence rather than the primary cause of the stress. Prompt intervention by the Federal Reserve may have prevented the trade from accelerating the deterioration of Treasury market functioning.
(with Nicholas Papageorge, Kevin Thom, and Mateo Velasquez-Giraldo), Under Review
We develop and estimate a life-cycle consumption savings model in which observed genetic variation is allowed to affect wealth accumulation through several distinct channels. We allow genetic markers that predict educational attainment to affect earnings, the disutility of labor, stock market participation costs, and idiosyncratic rates of return on risky investments. Parameter estimates suggest that, in addition to earnings, genetic differences are significantly associated with risky asset returns, both of which contribute to wealth inequality. Counterfactual policy analyses indicate that cutting social security benefits or raising the minimum age to claim benefits have similar magnitudes and distributions of welfare costs, even though the former policy reduces wealth differences between agents with different genetic endowments. This illustrates the importance of welfare calculations when evaluating how genes interact with policy, which is possible when genetic data is incorporated into structural models.
(with Laurel Hammond and Phillip Monin), 2020
The equilibrium relationship between hedge fund leverage and realized risk is virtually flat. This is because the most leveraged funds invest in the lowest volatility assets. Consistent with theories of leverage constraints, we find more leveraged funds hold assets with much smaller market betas and have larger alphas.
(with Phillip Monin), 2020
Using regulatory hedge fund data, we estimate an annual illiquidity premium of 56 basis points for an additional log-day needed to sell assets without price impact, of which investors capture 77%. Portfolio illiquidity explains 27% of alpha, but share restrictions explain 55%. Consistent with compensation for undiversifiable illiquidity risk, managers of illiquid funds charge higher incentive fees.
(with Haelim Anderson and Dong Beom Choi), 2020
Our theory shows that extended shareholder liability reduces bank risk-taking due to increased skin-in-the-game, but increases risk-taking due to reduced monitoring by depositors. Empirically, we find no evidence that double liability reduced bank risk-taking prior to the Great Depression, but do find that it made banks less susceptible to runs during the Great Depression.