Research Papers
The Differential Effects of the 13f Disclosure Rule on Institutional Investors (Solo-authored dissertation)
The 13f rule, which requires institutions to disclose mainly stock investments on a quarterly basis, has generated significant discussion recently. While some believe that institutions face significant disclosure costs such as copycatting and frontrunning activities by outside investors, others believe that such costs are minimal due to the 13f reporting delay. In my dissertation, I specifically ask whether copycatting activities enabled by 13f disclosure pose a cost to institutions. My study sheds light on how the 13f rule has affected investors differently to help inform the ongoing debate in the government on whether to expand disclosure.
Net Income Measurement, Investor Inattention, and Firm Decisions, with Natee Amornsiripanitch, Zeqiong Huang, and Jinjie Lin
February 2022 Utah Winter Accounting Conference and May 2022 Accounting Design Project
A recent accounting rule (ASU 2016-01) requires public companies to recognize in their net income changes in unrealized gains and losses on equity securities. Using a model with inattentive investors, we predict that the rule change will cause stock prices to react more to changes in unrealized gains and losses, and that managers will reduce investments in stocks. We use insurance company data (the industry most impacted by the rule change) to test these predictions. Prices of insurer stocks with low analyst coverage react more to changes in unrealized gains and losses, highlighting the role of investor inattention. Using a difference-in-differences approach, we find that by 2020, publicly traded insurers cut investments in stocks by $23 billion.
Earnings Management of Growth Firms, with Sung Kwon and Jennifer Yin
Prior research has found that accruals-based earnings management declined after the Sarbanes-Oxley Act (SOX) in 2002, while real earnings management actually increased, suggesting that firms switched from accrual-based to real earnings management after the passage of SOX. In this paper, we examine whether the change in earnings management behavior differs for high growth versus low growth firms. For example, high growth firms may continue to invest in discretionary expenditures such as R&D in order to sustain growth. In fact, we find that high growth firms appear to increase such expenditures after SOX, and that they continue to exhibit higher levels of accruals earnings management after SOX.
The Ins and Outs of Index Tracking, with James J. Rowley (Journal of Portfolio Management, 2015)
Research has highlighted the benefits of indexing as an investment strategy. Like any investment strategy, an indexing strategy must be implemented in the face of real-life issues such as portfolio management decisions, fund operations, and costs. As a result, even the best-run index funds do not track their benchmark indices perfectly, whether measured by excess return or tracking error. However, not all of these issues affect excess return and tracking error equally. This article measures the effect of several input variables, including expense ratio, active share, and fair-value pricing, on each of the two output variables: excess return and tracking error.
User's Guide to Master Limited Partnerships (solo-authored, Vanguard, 2014)
Master limited partnerships (MLPs) are hybrid entities that issue publicly traded equity interests and operate largely in the energy sector. The number of MLPs more than tripled to 110 and their market capitalization grew tenfold to $414 billion over a decade period. While investors may be interested in MLPs due to the potential for enhancing yield and return, they should carefully consider both the investment and practical implications associated with investing in MLPs. I construct a longer historical return series than is typically shown by the industry, and I show that MLPs were significantly hurt by the collapse in oil prices in the 1980s. I also show that investing in MLPs directly involves some tax complications due to Schedule K-1 tax forms associated with partnerships, and investing in MLPs indirectly via pooled vehicles can result in significantly lower performance relative to the underlying MLP index.