Main Working Projects:

This paper extends the Berk and Green model to venture capital general partners (GPs) to examine how retail capital serves as a stepping stone for GPs with uncertain skill. The model demonstrates that retail capital creates a valuable option for GPs and their investors to learn about their true skill and potentially graduate to institutional capital, improving capital allocation efficiency and increasing welfare. We calibrate the model to quantify the economic value of retail investor access, analyze return persistence dynamics, and derive testable implications for the venture capital industry. Our findings provide valuable implications for recent policies opening venture capital to individual investors.


We extend the Berk and Green (2004) model to allow clients to derive utility from both performance-related (alpha) services and non-alpha services, such as financial planning. Clients gradually learn about the value of these non-alpha services through their interactions with financial advisors. We test our model predictions using a dataset that covers 3,000 financial advisors and their 500,000 clients' portfolios over 13 years. Consistent with our model, the total number of client investment plans, our empirical proxy for non-alpha services, is the primary driver of the revenues of broker-sold funds and advisors. Investment skills and performance do not significantly affect their revenues. In line with clients' gradual learning about the value of non-alpha services, larger advisors experience lower client exit rates and derive most of their revenues from long-term clients who steadily increase their investments and use more non-alpha services over time. Our findings help rationalize the prevalence of financial advisors with costly investment recommendations and the survival in equilibrium of underperforming broker-sold mutual funds. 

Best paper award at Financial Management & Accounting Research Conference (FMARC) 2024

On the program of AFA 2026 (scheduled), AEA 2026 (accepted), EFA 2025, CICF 2025


Publications and Papers under Revision:

Journal of Finance, forthcoming

Abstract: We study real options in the labor market for investment management talent and show their importance for understanding the delegated investment management market. We solve and calibrate a dynamic equilibrium model featuring investment opportunities with differing maturities that interact with managers' career concerns. Managers strategically choose the horizon of their investment opportunities, and thereby affect the speed by which their skill is revealed. Short-term investment strategies benefit fund managers (particularly new ones) by accelerating skill revelation, while the downside risk is managed by manager exit. In the steady state, a large number of new and unskilled managers exploit the value of this call option, driving down the short-term value added of each manager in equilibrium. A small number of experienced and skilled managers exploit scalable long-term investment opportunities, adding substantial value. We empirically confirm our theoretical predictions using US mutual fund data. Our findings also have important implications for other industries where strategic task choice interacts with skill revelation.

On the program of  AFA 2022, EFA 2022, CICF 2021, FMA 2021, North American Summer Meeting of the Econometric Society (NASMES) 2021


Abstract: We decompose mutual fund value added by the length of funds' holdings using transaction-level data.  We motivate our decomposition with a model featuring horizon-specific investment ideas, where short-term ideas are less scalable because the associated trades cannot be spread over time. Fund turnover correlates negatively with the horizon over which value is added and positively with price impact costs. As predicted, holdings of high-turnover funds add a substantial amount of value in the first two weeks, of which more than 80% is earned on FOMC and earnings announcement days. Holdings of low-turnover funds add value only over longer horizons.

On the program of  WFA 2020,  Finance Down Under 2020, FIRS 2021, CICF 2021


2nd round R&R Journal of Finance

Abstract: Despite positive and significant earnings announcement premia, we find that institutional investors reduce their exposure to stocks before earnings announcements. A novel result on the sensitivity of flows to individual stock returns provides a potential explanation. We show that extreme announcement returns for an individual holding lead to substantial outflows, controlling for overall performance, and they increase the probability of managers leaving the fund. Reducing the exposure to these stocks before the announcement mitigates the outflows. We build a model to describe and quantify this tradeoff. Overall, the paper identifies a new dimension of limits to arbitrage for institutions.

On the program of  AFA 2023, SFS Cavalcade 2023,  CICF 2021, CIFFP 2021


Other Working Papers:

This paper develops a dynamic model to explain the life cycle of active funds and the migration of flows within fund families. Exploiting investor over-optimism about new funds' alpha, fund families repeatedly launch new active strategies while simultaneously providing non-alpha (intangible) services. Over time, investors learn about both a fund's alpha and its non-alpha services. When alpha disappoints, high-quality non-alpha services temporarily retain investors before they eventually migrate to passive options within the same family. This mechanism explains three empirical regularities: (1) industry inflows concentrate in new active funds less than seven years old, (2) outflows predominantly come from older active funds, and (3) passive funds attract flows primarily from aging active funds in the same family. The model demonstrates that fund families over-establish new funds relative to the social optimum, and explains why active management persists despite well-documented underperformance.


Abstract: This paper decomposes active U.S. equity mutual funds' value added using 234 public asset pricing anomalies. We find that these funds on average lose substantial value through their high exposure to the short legs of accounting anomalies (e.g., investment and profitability). We identify funds' capital flows and price pressure of flow-induced trading as important drivers of this value loss. Partially due to the high correlation between the short legs of accounting anomalies and the long legs of anomalies based on market information (e.g., momentum and liquidity risk), mutual funds fail to keep a low exposure to the former when flow-induced price pressure increases their exposure to the latter. We confirm this channel using the 2002 Morningstar rating methodology reform as an exogenous shock.

On the program of  CICF 2021 , EFMA 2021, AFFI 2021 


Abstract: Recent empirical work documents large liquidity risk premiums in stock markets. We calculate the liquidity risk premiums demanded by large investors by solving a dynamic portfolio choice problem with stochastic price impact of trading, CRRA utility and a time-varying investment opportunity set. We find that, even with high trading-cost rates and substantial trading motives, the theoretically demanded liquidity risk premium is negligible, less than 3 basis points per year. Assuming forced selling during market downturn enlarges the liquidity risk premium to maximally 20 basis points per year, which is well below existing empirical estimates of the liquidity risk premium.

 On the program of  CICF 2019  


Abstract: This paper studies how hedge funds adjusted their holdings of liquid and illiquid stocks before, during and after the 2008 financial crisis. We find that hedge funds sold more liquid than illiquid stocks at the peak of the crisis, and they repurchased a large amount of liquid stocks during the upturn but continued to sell illiquid stocks. Consistently, the portfolio composition of hedge funds shows a “delayed flight to liquidity”: the proportion of liquid stock holdings decreased slightly at the peak of the crisis and then increased substantially to the highest level ever since 2007. This result confirms the prediction in Scholes (2000) that institutional investors should sell liquid stocks first during crisis and build a “liquidity cushion” for future liquidity needs later. For comparison, we show that pension funds, with almost no urgent liquidity needs, have a nearly constant portfolio composition of liquid versus illiquid stocks through the entire crisis.


Work in Progress: