Publications
[1] Mutual Fund Performance and Flows During the COVID-19 Crisis, with Lubos Pastor, August 2020.
Review of Asset Pricing Studies, 10, 791-833 (special issue on COVID-19).
Internet Appendix to accompany the paper
Easy-to-read summaries at VoxEU (July 30, 2020), Harvard Law School Forum on Corporate Governance (July 29, 2020), Chicago Booth Review (October 2, 2020), UK CFA Society (January 5, 2021).
Recipient of the BlackRock Research Award for the best paper in capital markets at the 2020 Australasian Finance and Banking Conference.
Featured in Covid Economics 38, 1-36 (July 16, 2020), Becker Friedman Institute's Key Economic Facts About COVID-19: Fact 1, Fact 2, (July 13, 2020), Marketwatch (July 20, 2020), Wealth Professional (July 27, 2020), Investors Chronicle (July 28, 2020), Money Marketing (October 7, 2020), Morningstar (November 2, 2020), Chicago Booth Review (February 23, 2021).
We present a comprehensive analysis of the performance and flows of U.S. actively managed equity mutual funds during the 2020 COVID-19 crisis. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows surpass pre-crisis trends, but not dramatically. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.
Working Papers
[2] Costs of Political Polarization: Evidence from Mutual Fund Managers during Covid-19, April 2022.
Internet Appendix to accompany the paper
Recipient of the Stigler Center PhD Dissertation Award for dissertations about political economy
Political orientation is more consequential for the asset management industry than previously believed. During the Covid-19 crisis, partisan mutual fund teams – whether Democratic or Republican – have lower fund returns and lower fund flows, compared to non-partisan teams. Higher non-partisan returns come from aggressive risk-taking during the stock market crash and diverse pre-existing portfolio positions. Non-partisans appear to individually add value to their team through greater cognitive and ideological flexibility. Higher non-partisan flows result from partisan investor clienteles. Institutional investors use negative screens to rule out fund managers with misaligned political values. As a result, politically misaligned funds – with Republican managers and Democratic-leaning clienteles – experience abnormal outflows. Non-partisan funds receive more net flows overall by mitigating this political misalignment effect.
[3] Partisanship and Portfolio Choice: Evidence from Mutual Funds, with Will Cassidy, December 2021
Recipient of the Best Paper in Behavioral Finance Award at the 12th Financial Markets Corporate Governance Conference
Political beliefs matter for the behavior of institutional investors. Contrary to conventional wisdom, we show that whether a mutual fund team is Republican or Democratic has a first-order effect on the fund’s portfolio choice. Before and after the 2016 Presidential election, Republican teams actively purchase more equity, especially in high beta industries. Around the 2020 election, Democratic teams do the same. The flip in trading behavior rules out conventional risk aversion- based explanations for the role of partisanship. Instead, political beliefs appear to drive this trading, with managers appearing more optimistic when their political party wins the presidency. These effects are also present in 2012 but have grown over time.
[4] Convenience Yields of Collectibles, with Elroy Dimson and Kuntara Pukthuanthong, October 2021
We propose a novel method to estimate convenience yields of collectibles based on factor mimicking portfolios. Using up to 110 years of collectibles returns for 13 distinct asset classes, we apply machine learning techniques to address challenges from non-synchronous trading. We use these estimates to study how convenience yields affect equilibrium pricing. Convenience yield estimates for 24 of our 30 collectibles return series are positive, with an annualized mean (median) of 2.64% (2.53%). Despite various forms of underestimation, these results provide evidence that assets with positive emotional returns have lower equilibrium financial returns. This finding has important implications for ESG investing.
[5] Collectibles Tokenization and Optimal Security Design, March 2020
Recipient of the Best Paper Award at the 3rd UWA Blockchain, Cryptocurrency, and FinTech Conference
I develop a model of collectibles tokenization to understand whether recent tokenization efforts create or destroy value. While issuing divisible security tokens against illiquid collectibles lowers transaction costs and facilitates greater portfolio diversification, security design complications arise because ownership rights and viewing rights are necessarily separated. Current efforts squander the viewing rights, likely making tokenization welfare-reducing, thereby explaining limited adoption. Instead, renting the viewing rights would make tokenization welfare-improving. While collectibles rental markets are immature, I show empirically that only modest rental yields are needed to make tokenization welfare-improving, which suggests this security design shortcoming can be resolved.
[6] How Large are Excess Fees on US Mutual Funds?, February 2020
Recipient of the Liew Fama-Miller Fellowship for the best 3rd year finance student paper
Two-thirds of recent 401(k) litigation claimed the employer was liable for “excessive fees,” but neither academics nor practitioners have a method for judging a fee to be excessive. To solve this problem, I develop a Bayesian “excess fee” measure of a fund’s performance-adjusted cost in excess of a fund-specific replication portfolio of passive Vanguard index funds. All CRSP US mutual funds carry annual excess fees of $26.2 billion (30.4% of total fund fees), with equity funds accounting for $31.3 billion in excess fees (54.9% of equity fund fees). On the supply-side, excess fees are predominantly driven by the pass-through of marketing fees. On the demand-side, investors appear to pay these excess fees because of search costs.
Selected Works in Progress
[7] Soft vs. Hard Sustainability: Measurement & Investor Preferences, with Fulin Li and Simon Oh