Working papers

  • "Switching bank: Bank-customer relationships and retail investors' choice of mutual funds" w/ Bjarne Florentsen (CBS), Peter Raahauge (CBS) and Jesper Rangvid (CBS). May 2017. See coverage in Danish media: Berlingske.
    What determines mutual fund flows of retail investors? Fund performance or fees? Or do certain types of investors buy certain types of funds? We argue that a main determinant is one not having received sufficient attention in the literature: The establishment of a relation between customers and banks. We analyse very comprehensive register-based data on Danish individual investors’ holdings of mutual funds and their bank connections. We show that when investors switch bank, even for exogenous reasons, such as when their bank ceased existence following the 2008 financial crisis, investors subsequently switch mutual fund family, increasing allocations to funds connected with their new bank and reducing allocations to funds connected with their old bank. The bank the investor has switched to collects revenues from the additional assets under management in its connected mutual funds. The investor loses on the mutual fund reshuffling, as the investor bears transaction costs along the way, but improvements in fund rankings and fees are negligible. Thus, support for an alternative explanation, that investors react to fund performance, is dwarfed by support for the hypothesis that the banking-customer relation is the main determinant of mutual fund flows.
  • "Turning Local: Home-bias dynamics of relocating foreigner" w/ Bjarne Florentsen (CBS), Peter Raahauge (CBS) and Jesper Rangvid (CBS). August 2017. See coverage in Danish media: BerlingskeBørsenPengenyt.
    Using a comprehensive dataset including the total adult population of a county (Denmark), in aggregate approximately 4.3 million individuals per year, we study private investors' preferences for domestic stocks. We compare the equity home bias of foreigners recently relocated to Denmark to the equity home bias of other investors. We find that home bias of recently relocated foreigners is lower than home bias of other investors. Our main result is that when relocated foreigners' duration of stay increases, their home bias also increases. After 7-8 years, home bias of relocated foreigners does not differ from home bias of other investors. We discuss implications for explanations of the home-bias puzzle.

  • "Hurting without Hitting: The Economic Cost of Political Tension" w/ Yinghua He (Rice University) and Yonglei Wang (Huazhong Univ. of Science and Technology). August 2017. Online appendix available here.
    Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan’s sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests, we show that this economic penalty is targeted at pro-independence firms that are economically exposed to mainland China via either investments or exports.

Selected publications