Job Market Paper
"How Anti-ESG Pressure Affects Investment: Evidence from Retirement Savings"
Media Coverage: UCLA Anderson Review, Morningstar, Inc. Magazine
Award: UCLA Xavier Drèze Prize for Best Ph.D. Student Research Paper, FMA Semifinalist in Asset Pricing & Investments
Conferences: SFS Cavalcade, NBER-Pension Finance Conference, New York Fed and NYU Summer Climate Finance Conference Poster Session, UChicago Booth Stigler Center-CEPR Political Economy of Finance Conference 2024: Corporate Democracy, 16th Annual Alliance for Research on Corporate Sustainability (ARCS) Research Conference, Financial Market Solutions for Funding Green Transition and Climate Resilience—UCSC’s Center for Analytical Finance (CAFIN), the Center for Coastal Climate Resilience (CCCR) and UC Investments (invited), Wellington Finance Summit, SIF, Adam Smith Sustainability Conference, NFA, FMA, Pacific-Northwest Conference, CEAR-RSI Household Finance Conference, SFA, AFA AFFECT
* Scheduled
In this paper, I study how the political environment impacts the availability of ESG options to individuals. I establish a judicial channel: because the respect of fiduciary duty is adjudicated by politically-oriented judges, some retirement plans are reluctant to offer ESG options due to litigation risk. I document that there is a significant gap in ESG offerings in retirement plans between conservative and liberal judicial circuits, that is only partially explained by demographic characteristics, firm characteristics, and local political preferences. With a decrease in judicial discretion, which reduces the influence of judges' political orientations, retirement plans face more uniform treatment between judicial circuits. This closes a substantial share of the gap in the ESG market between jurisdictions, and employees in conservative areas increase their ESG investments more than employees in liberal areas. I find that this effect is mostly driven by green firms, small firms, and firms located in the liberal counties of conservative circuits. Also, adding ESG options to the menu leads employees to contribute more overall to their retirement plans.
Working Papers
"Strategic Blindness: Optimal Inattention and Momentum Profitability" (with Denis Mokanov and Gabriel Cuevas Rodriguez)
Conferences: Young Scholars Nordic Finance Workshop, FMA
We develop a model in which agents optimally choose their information acquisition rate. We show that our model provides an explanation for a number of empirical regularities documented in the literature: the unconditional profitability of momentum, the occurrence of momentum crashes, the enhanced profitability of volatility-managed momentum, and the attenuation of momentum. Next, we explore the implications of our model regarding the relative profitability of short-run and long-run momentum strategies, and show that the predictions of our model are supported by the data. Finally, we examine the implications of the model for sell-side analysts' earnings forecasts and find that earnings forecasts display conditional patterns consistent with the predictions of our model.
"Target-date Fund Fragility"
Target-date funds are designed for people who are considering long-term retirement investment plans and are mostly set up as default options. However, contrary to the "set it and forget it" approach, I document that there were significant TDF outflows during the COVID-19 period. My paper examines the strategic complementarity effect of target-date funds. I show that TDF investors had a larger flow response to performance compared to other available mutual fund options. To explore the mechanism, I discuss the behavioral obstacles of TDF investors: Young and unsophisticated investors contribute the most to the withdrawal of TDFs. While these individuals are typically perceived as inattentive and, therefore, a stable source of funds, they tend to use their retirement savings for emergency needs at the same time, which induces fragility during market turmoil. My research highlights the emerging risks associated with this novel financial vehicle for Defined Contribution default options.
Work in Progress
"Political Belief and Auto-enrollment Nudges" (with Shlomo Benartzi)
Auto-enrollment, a paternalistic approach to bolstering household retirement savings, has sparked considerable debate, particularly among individuals with libertarian perspectives. While encouraging savings, it could potentially elevate a firm’s financial obligations, compromise profits, and suppress employee wages. In this project, we study how political belief influences the auto-enrollment nudge effects by comparing how households with different party affiliations respond to auto-enrollment in the aspect of saving and portfolio selection. Furthermore, we explore the interaction between household political affiliations and those of managerial staff, examining how these dynamics influence both the implementation and reception of auto-enrollment policies within firms. This project shows how government intervention interacts with investors’ preferences and shapes the ultimate equilibrium effect.