Research

Working Papers

Fund Flows and Income Risk of Fund Managers [Coverage by NBER Digest] [Online Appendix] [Additional Materials]

    (with Xiao Cen, Winston Wei Dou, and Leonid Kogan), Revise and Resubmit 

April, 2023

The constructed dataset is the first-ever to contain detailed information on fund managers' compensation and career history, having been compiled based on the US Census Bureau's LEHD program and leveraging various "big" textual data sources.    

Presentations: TAMU Mays (2023), Michigan Ross (2023), NBER Big Data and Securities Markets (2023), Colorado Finance Summit (2023), MFA (2024), WFA (scheduled, 2024), Bretton Woods Accounting and Finance Ski Conference (2024), Chicago Booth (2024), Adam Smith Workshop (scheduled, 2024), FIRS (scheduled, 2024), EFA (scheduled, 2024)

Abstract: We develop a unique dataset, the first-ever of its kind, by leveraging the US Census Bureau’s LEHD program and various big textual data sources, to examine the factors influencing the compensation and career trajectories of US active equity mutual fund managers. We find that managers’ compensation is primarily determined by assets under management (AUM), with return performance directly influencing bonuses beyond its impact on AUM. Despite not aligning with client interests, fund flows significantly affect manager compensation and career outcomes. Large fund outflows increase a manager’s likelihood of job turnover (with a substantial decline in compensation) by 4 percentage points.

Evidence on the Importance of Market Competition in Distress Propagation [Online Appendix]

    (with Winston Wei Dou and Shane Johnson) 

    Winner of CFA Institute Asia-Pacific Research Exchange Award, NZFM

Presentations: WFA (2023), Chicago (Booth, 2023), Macro Finance Workshop (2022), FIRS (2022), Yale (SOM, 2022), INSEAD (2022), University of Washington (Foster, 2022), MFA (2022), Young Scholars Finance Consortium (2022), SFS Cavalcade (2021), EFA (2021), Wolfe Virtual Global Quantitative and Macro Investment Conference (2021), Northwestern (Kellogg, 2021), PanAgora Asset Management (2021), UBC (Sauder, 2021), ASU (W.P.Carey, 2021), Shanghai Advanced Institute of Finance (SAIF, 2021), UPenn (Wharton, 2020)

Abstract: Drawing on a quasi-experimental setting induced by the local-natural-disaster occurrences, we find that firms affected by disasters face heightened distress risk levels, prompting both these firms and their industry rivals to engage in more aggressive competition by reducing profit margins, even leading to a collapse of "competitive balance." Consequently, untreated firms in the same industry also face an increased likelihood of covenant violations or defaults in the short run, particularly in tradable industries or those with high price flexibility, high entry barriers, high inventories, or high financial constraints. Quasi-experimental settings induced by other prominent events provide consistent findings. Furthermore, we observe that distress risk shocks and the subsequent changes in competition intensity can extend beyond the boundaries of a single industry. This propagation occurs primarily through financially-consolidated common market leaders, particularly in tradable industries or those with high financial constraints.

Competition Network and Predictable Industry Returns

    (with Winston Wei Dou)

    Winner of Richard A. Crowell Memorial Prize, Second Prize, PanAgora Asset Management

Abstract: We document robust industry return predictability through the lens of a competition network, connecting two industries that share a multi-industry market leader. Equity returns in an industry exhibit a delayed response to cross-industry effects due to investors' limited attention and constrained information-processing capabilities. Focal industries have higher contemporaneous and future returns when connected peer industries, through the competition network, exhibit higher stock returns. This information incorporation process happens faster with more analyst coverage and higher institutional ownership of the focal industries. Additionally, higher future returns in focal industries often follow an increase in peers' profit margins, supporting our economic mechanisms.

Insider Purchases after Short Interest Spikes: a False Signaling Device?

    Journal of Financial and Quantitative Analysis, Revise and Resubmit 

Presentations: AFA (2017), FIRS (2016), SFS Cavalcade (2016), CICF (2017)

Abstract: I study the information content of corporate insiders’ purchases when their firms experience sharp increases in short interest. Insider purchases mitigate the negative impact of short selling on stock prices, but this effect is temporary and reverts within one year. The cumulative abnormal returns associated with these insider purchases exhibit a hump-shaped pattern, which is more pronounced when insiders have greater incentives to engage in false signaling. Although insiders incur trading losses, they gain larger benefits from increased compensation and extended tenure. My findings suggest that insiders may strategically use their purchases to boost stock prices, which impedes market efficiency.

Information Asymmetry and Insider Trading 

    Media Coverage: The Wall Street Journal (MoneyBeat Blog), Capital Ideas

Presentations: CICF (2016)

Abstract: By exploiting the exogenous reductions of analyst coverage due to closures and mergers of brokerage firms, I examine the causal impact of information asymmetry on insider trading. I find that corporate insiders’ abnormal returns increase sharply after coverage reductions. This effect is stronger for opportunistic insiders, in time periods with weaker regulatory enforcement, and when the exiting analysts are of higher quality. Insiders from liquid firms also trade more aggressively after coverage reductions. My paper highlights the role of information asymmetry as a crucial determinant of insiders’ abnormal profits and trading behavior and provides empirical support for informed trading models.