1. “Conflicting Family Values in Mutual Fund Families”, with Utpal Bhattacharya and Veronika K. Pool, Journal of Finance, 2013.
We analyze the investment behavior of affiliated funds of mutual funds (AFoMFs), which are mutual funds that can only invest in other funds in the family, and are offered by most large families. Though never mentioned in any prospectus, we discover that AFoMFs provide an insurance pool against temporary liquidity shocks to other funds in the family. We show that, though the family benefits because funds can avoid fire sales, the cost of this insurance is borne by the investors in the AFoMFs. The paper thus uncovers some of the hidden complexities of fiduciary responsibility in mutual fund families.
2. “Do Portfolio Manager Contracts Contract Portfolio Management?”, with Charles Trzcinka and Shyam Venkatesan, Journal of Finance, 2019.
Most mutual fund managers have performance‐based contracts. Our theory predicts that mutual fund managers with asymmetric contracts and mid‐year performance close to their announced benchmark increase their portfolio risk in the second part of the year. As predicted by our theory, performance deviation from the benchmark decreases risk‐shifting only for managers with performance contracts. Deviation from the benchmark dominates incentives from the flow‐performance relation, suggesting that risk‐shifting is motivated more by management contracts than by a tournament to capture flows.
3. “On the information content of credit ratings and market-based measures of default risk”, with Oleg Gredil and Nishad Kapadia, Journal of Financial Economics, 2022.
We find that ratings respond more to long- rather than short-term changes in estimates of default risk. Ratings are not redundant in predicting defaults across horizons even if market-based measures are available. Market-based measures respond to both cash-flow and discount-rate news, while ratings respond primarily to cash-flow news. Cash-flow news is more informative of future defaults. Ratings are more informative in expansions and for speculative grade firms. Ratings see through transitory shocks to credit risk, while market-based measures do not. Rating agencies respond to transitory shocks using watches rather than ratings.
4. “Why do funds make more when they trade more?”, with Jonghyuk Kim and Shyam Venkatesan, Quarterly Journal of Finance, 2023.
We introduce a conditional measure of skill, the correlation between a fund’s trades and future “news” about the stocks traded. Using this measure, we show that the average manager in a cross-section of U.S. equity mutual funds has stock-picking skill. This skill is mainly driven by the manager’s ability to predict a firm’s cash-flow news. Importantly, this skill has short-term persistence, which is not explained by the momentum effect, and is positively related to traditional measures of performance. Consistent with the premise of Berk and Green (2004), fund flows are increasing with respect to managerial skill after controlling for fund performance.
"Contract Evaluation Horizon and Fund Performance", with Jayoung Nam, Veronika Pool, and Feng Zhang, 2025
Presentation: Boston Fed*, University of Arkansas*, UT Dallas*, Chinese University of Hong Kong at Shenzhen*, UNSW*, University of Sydney*, 2024 UBC Summer Finance Conference*, 2024 Lone Star Finance Symposium, 2024 FMA Annual Meeting, 2024 CAFM, 2024 SFS Cavalcade Asia-Pacific, 2025 AFFECT at AFA 2025*, 2025 Northern Finance Association, 17th Annual Hedge Fund Research Conference in Paris (Scheduled), and 2026 Midwest Finance Association Annual Meeting (Scheduled)
Best paper award at the 19th Annual Conference on Asia-Pacific Financial Markets (CAFM)
Mutual funds face the risk of withdrawals if they perform poorly in the short term, which encourages manager myopia. We show that fund families can insulate managers from this funding pressure via compensation tied to long-term fund performance. Managers with long-horizon contracts are more likely to undertake long-term investments and outperform their constrained peers. Since long-horizon pay does not shut off the funding pressure, it simply insulates the manager from it, not all families can offer these contracts. Long-horizon contracts are more prevalent in families that cater to patient investors and have more resources to buffer liquidity shocks.
2. “The Risk of Outsourcing: How External Advisors Influence Mutual Fund Performance”, with Saurin Patel and Shyam Venkatesan, 2025
Revise & Resubmit at JFQA
Presentation: 2023 MFA Annual Meeting, OFR (US Treasury), Federal Reserve Board, Ivey School of Business (University of Western Ontario)*, Baylor University, 2022 Australasian Finance and Banking Conference*, and 2025 Northern Finance Association
In a growing trend, mutual fund families are outsourcing the task of portfolio management to external advisors. The high-powered incentive contract offered to external advisors, presumably an optimal outcome, implicitly creates convexity in their payoff. We provide causal evidence that this convexity makes the conditional portfolio choice of outsourced mutual funds twice as risky as in-house funds, which leads to their underperformance. However, fund families can curb the excessive risk-shifting by (i) hiring multiple external advisors simultaneously (co-management), (ii) hiring geographically proximate external advisors (co-location), and (iii) invoking the reputation of the external advisor(s) while marketing the fund (co-branding).
3. "Asset market liquidity, strategic complementarity, and bond fund flows", with Xiaolu Hu and Shyam Venkatesan, 2025, Under Review
Presentation: 2024 MFA Annual Meeting, 2024 Financial Management Association, 2023 Asia-Pacific Financial Markets Conference, 2023 Australasian Finance and Banking Conference*, 2023 Sydney Banking and Financial Stability Conference*, Office of Financial Research (OFR), Ivey School of Business (University of Western Ontario)*, and Bond University*
Extreme outflows from bond mutual funds raise concerns about market fragility. Therefore, it is important to ask why investor redemptions are heavily coordinated during fund underperformance. Two possible explanations are the illiquidity of the underlying bond market and investor self-selection. Using an exogenous shock that improves market liquidity---and reduces the incentive to front-run---we causally show that strategic complementarity among investors declines when liquidity improves. Fund managers respond by adjusting portfolio composition and reducing liquidity buffers. Overall, enhancing systematic liquidity plays a key role in reducing strategic redemption behavior among investors and strengthening financial stability.
4. "A New Approach to Measuring Investors’ Preference for Local Assets: Using Counterfactuals that Account for Endogenous Location Decisions ", with William Grieser, Zoran Ivković, and Morad Zekhnini, 2023
Presentation: 2023 FIRS Annual Meeting*
We examine local asset preferences in a framework that simultaneously accounts for endogenous location decisions of both investors and assets (e.g., firms). We create fund-level counterfactuals that account for non-random investor and asset locations, and compare actual fund-portfolio distances to these counterfactuals. We find overwhelming evidence that, on average, a local preference for assets does not exist and that empirical patterns of investor portfolio localization are largely driven by a relatively small set of remote firms that do not have a local investor presence. Furthermore, the relatively small set of funds that exhibit a statistically significant local preference relative to counterfactuals, are smaller and younger than the average fund, but they do not exhibit any differences in performance.
5. “Ubiquitous Co-movement”, with William Grieser and Morad Zekhnini, 2020
Revise & Resubmit
Presentation: 2020 AFA Annual Meeting
Rational and behavioral asset pricing theories offer conflicting interpretations of the covariance structure of asset returns. Return comovement beyond what prespecified empirical factor models can explain is often interpreted in favor of frictions or behavioral explanations. However, we show that randomly grouped assets exhibit "excess" comovement that is ubiquitous and indistinguishable from the comovement of economically motivated groupings advanced in the literature. Our finding is consistent with the presence of a latent factor that could be derived from multiple sources of systematic variation, including rational sources. We propose new statistical tests that account for latent factors when detecting excess comovement.
6. “Overconfidence in Money Management: Balancing the Benefits and Costs”, with Shyam Venkatesan, 2025
Revise & Resubmit at Journal of Economic Behavior and Organization
Individuals are overconfident, especially those in positions to influence outcomes. The impact of hiring an overconfident portfolio manager is studied here within the standard principal-agent framework. When compensation is endogenously determined, we find that investors can benefit from managerial overconfidence. Overconfidence induces a higher level of effort until the effects of restrictions on portfolio formation take over. Further, by increasing the incentive fee and sharing more risk the investor can curb excessive risk-taking. However, excessive overconfidence is detrimental to the investor. We empirically test and confirm the effects of portfolio constraints and incentive fee on manager’s self-attribution bias.
7. “Information Flows in Mutual Fund Families”
Using a dataset of managers in fund families that offer affiliated funds of mutual funds (AFoMFs), I explore information flows in mutual fund families. I first show that AFoMFs allocate more capital to socially connected funds in the family. I then provide evidence that this investment behavior is information-driven. AFoMF managers increase (decrease) connected fund holdings that subsequently provide positive (negative) abnormal returns, thereby utilizing social connections to extract private information. Finally, I show that, in return for information sharing, AFoMF managers provide liquidity subsidization to connected, distressed funds, suggesting that an implicit contract equilibrium may exist.
"*" denotes the presentation by coauthor.
1. Sticky flows from Defined Contribution pension plans with Veronika Pool and Shyam Venkatesan
2. Risk-shifting Behavior of Bond Funds with Shyam Venkatesan and Pab Jotikasthira
3. Similar Hedge Fund Lenders with Stathis Tompaidis and Salil Gadgil