Lei Xie

Ph.D. Candidate in Finance, Yale School of Management

Contact information                                                                                   

Yale School of Management
135 Prospect Street
New Haven, CT 06511

Curriculum Vitae

Research Interests

Empirical Asset Pricing, Financial Intermediation, Financial Crisis, Securitization

Working Papers

Call Your Clients First: An Examination of How Analysts Add Value to Their Fund Clients, 2012 (Job Market Paper).

Abstract: This paper examines whether the sell-side research industry adds value to its mutual fund clients. I use a novel data set to identify the network of broker-client relationships. I find that, within a mutual fund's portfolio, the stocks covered by the fund's brokers outperform the uncovered stocks by 6.3% per year, on average. This supports the view that sell-side analysts add value to their clients by helping them make better investment decisions. I further test whether the value added can be attributed to private communications between analysts and their clients. First, I find that, before an analyst releases a negative (positive) recommendation on a stock, her clients sell (buy) significantly more of the stock than do non-clients. Second, among stocks with a strong buy recommendation, those bought by clients before the recommendation announcements earn a 120-day post-announcement abnormal return that is 1.78% higher, on average, than those sold by clients before the recommendations. These results suggest that brokers help their clients gain an information advantage over non-clients by providing private services and information. Overall, the paper helps to make sense of the existence and size of the sell-side research industry.

The Seasons of Money: ABS/MBS Issuance and the Convenience Yield, 2012.

Abstract: Theoretical research suggests that earning the convenience yield carried by safe assets could be one of the most important driving forces for the boom of the securitization market before the crisis of 2007-2009. This paper empirically tests this hypothesis by examining the relationship between a high frequency ABS/MBS issuance series and a new proxy for the convenience yield. I use two shocks as instruments: the seasonal fluctuation of the convenience yield and the variation in Treasury issuance. Both of them are independent of the securitization market but are correlated with the convenience yield. I find that ABS/MBS issuers react to the change in convenience yield, i.e., they issue more ABS/MBS when the expected convenience yield is high and vice versa. A similar phenomenon can be found in another market for private safe assets, the ABCP market, too. But it does not exist in markets for risky debt, such as the corporate bond market.

The Flight from Maturity (with Gary Gorton and Andrew Metrick), 2012.

Abstract: Why did the failure of Lehman Brothers make the financial crisis dramatically worse? Our answer is that following the initial runs on repo and asset-backed commercial paper, the financial crisis was a process of a build-up of risk during the crisis. We produce a chronology of the crisis which formalizes the dynamics of the crisis. We test for common breakpoints in panels, showing the date of the subprime shock and the dates of runs in the secured and unsecured money markets. During the crisis market participants tried to preserve the "moneyness" of money market instruments by shortening their maturities - the flight from maturity. The failure of Lehman Brothers was the tipping point of this build-up of systemic fragility.

Time-varying Performance-flow Sensitivity and Fund Manager Effort, 2011.

Abstract: It is well-documented that mutual fund flows are positively related to funds' past performance. In this paper, I focus on the time-series variation in the performance-flow relationship. First, I show that there is indeed variation in this relationship: in some periods, investors are more sensitive to fund performance than in other periods, and the difference is statistically and economically significant. Second, I show that a large part of the variation in the performance-flow relationship is predictable based on public information. Third, and most important, I predict that fund managers will respond to the variation in the performance-flow sensitivity: specifically, we should observe greater effort by fund managers at times when the sensitivity is high, precisely because the payoff to effort is higher at these times. Using several proxies for manager effort, I confirm this prediction in the data. The results are robust to alternative explanations and an out-of-sample test.

Works in Progress

Ten Stylized Facts about the Securitization Market.

Industry Expertise of Mutual Fund Managers.