Fiduciary Duty and Financial Adviser Misconduct(Job Market Paper)

• Abstract: The question of whether fiduciary duties should be imposed on broker-dealers is an ongoing policy debate. This study leverages variation in state-level regulations on broker-dealers before 2016 and the 2016 fiduciary rule issued by the Department of Labor to examine how fiduciary duties influence broker-dealers’ misconduct. The findings reveal that imposing fiduciary duties leads to a substantial reduction in misconduct by broker-dealers. Specifically, after the release of the 2016 rule, relative to neighboring counties that impose the fiduciary duty prior to the 2016 rule, counties that did not impose fiduciary duty previously see a 20% reduction in the percentage of broker-dealers committing misconduct and a 40% reduction in the average per broker-dealer misconduct incident count. The estimated financial impact translates into a reduction in misconduct-related losses of approximately $300,000 per county per year. The effectiveness of this policy is more pronounced in areas with high financial literacy, local cultures prone to misconduct, and weak labor market discipline, suggesting that fiduciary rule can be both complements and substitutes to other disciplining mechanisms. Further analysis provides evidence that fiduciary duties enhance the performance of financial products, specifically municipal bond-based mutual funds. I interpret these findings as evidence that more stringent fiduciary standards imposed on broker-dealers can help mitigate conflicts of interest, thereby improving the quality of financial services provided to investors.

• Presented at: Modern Risk Society Online Seminar, Financial Management Association Annual Meeting 2024(scheduled)

• Award: Consumer Protection Research Grant from School of Law, University of Oregon ($23,000)

Asset Prices and Ordinary Consumption 

With John Chalmers and Aditya Kaul

• Abstract: The relation between stock market returns and household consumption growth is the essence of the
  classic consumption-based asset pricing models. In this study, we use weekly consumption data from NielsenIQ Consumer panel data to investigate whether stock returns and volatility predict households’ ordinary consumption. Our preliminary findings indicate that weekly stock market returns are positively associated with households’ ordinary consumption, while weekly stock market volatility shows a negative relationship. Further analysis reveals that these results are largely driven by negative returns and high volatility and are robust to controls for factors such as unemployment data.

• Presented at: BI Norwegian Bus School seminar∗, Bocconi University Seminar∗, UVA McIntyre School of Commerce∗

Private Equity and Financial Adviser Misconduct

With Albert Sheen and Youchang Wu