John R. Huck

Research

Published:

The Psychological Externalities of Investing: Evidence from Stock Returns and Crime, Review of Financial Studies, 2024

This paper investigates the psychological effects from stock market returns. Using a FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect not only the well-being of investors but also non-investors. Specifically, a contemporaneous negative (positive) relationship between daily stock market returns and violent crime rates is found for investors (non-investors). A similar relationship is also found between local earnings surprises and violent crime. The contrasting relationships for investors and non-investors suggests that well-being may be influenced by relative wealth.

Working Papers:

Asset Pricing with Revealed Utility of Heterogeneous Consumers: Evidence from Crime

This paper proposes violent crime growth as a measure of revealed marginal utility growth of heterogeneous consumers in incomplete markets. Consumer heterogeneity is measured using the cross-sectional average and cross-sectional variance of crime growth exploiting a monthly panel of reported crime incidents from over 11,000 law enforcement agencies across the United States from 1960-2020. Consistent with heterogeneous consumer models, I find that the cross-sectional average and variance of violent crime growth can explain the cross-section of stock returns. Specifically, investors pay a premium for assets that have higher betas to the violent crime growth moments.

Mutual Fund Performance Evaluation with Macroeconomic Risk, with Bob Dittmar and Chris Lundblad

We propose a holdings-based measure of mutual fund performance using a benchmark that captures a funds exposure to consumption risk. We find that before fees, funds are unable to outperform a benchmark that matches its exposure to consumption risk. While on average funds do not outperform, we find evidence that funds with short-term skill can be better identified by our measure and that fund flows based on perceived skill are more sensitive to our measure. This suggests that investors are more concerned about their exposure to consumption risk as suggested by economic theory, than the risk implied from other ad hoc factor or characteristic approaches that appear to be empirically related to average returns. We also show that funds cater to investors’ concerns by successfully timing their exposure to consumption risk.

M&A performance differs by gender of the CEO: Are incentives to blame? with Donglai Bao and Val Sibilkov

We examine the relation between CEO gender and corporate performance in acquisitions during the 2006 – 2019 period characterized by a significant increase in the proportion of female CEOs. We find that acquisitions by firms led by female CEOs with longer tenure underperform relative to a benchmark and relative to male CEOs. We find no underperformance for female CEOs early in their tenure or for male CEOs. Unlike male CEOs, female CEOs are not penalized for poor acquisition performance through turnover or compensation. The findings reveal strong correlation between weak corporate governance, inferior acquisition performance, and female leadership.