Utilizing new SEC data enabling us to compute mutual funds’ derivative positions performance, this paper studies how derivatives impact fund performance. In contrast to prior research concluding derivatives are used for hedging, we find that most active equity derivative using funds use them to amplify market exposure in conjunction with reducing fund equity exposure to market risk. Despite seemingly small weights, derivatives have a significant impact on funds’ leverage and contribute largely to fund returns and cross-sectional differences in returns. Funds extensively using derivatives underperform, yet receive more flows. In response to the COVID-19 pandemic outbreak, funds regularly utilizing derivatives trade more heavily on short derivative positions. The pattern is more prevalent among managers for which the risk of recession is likely more salient. There is no change in extensive margin of derivative use. Hedging funds, which are the minority, outperform significantly during the outbreak. Amplifying funds suffer a double whammy. While they do shift strategies, they are slow to react and experience similarly large losses to nonusers in the outbreak phase. By the time they shift, the market has already started to rebound, and they lose on their short positions. Funds are slow to unwind shorts during the recovery. Shifts in derivative return distributions during the COVID-19 crisis are mostly driven by swaps, which have been ignored by previous studies.

This paper empirically shows that information acquisition affects stock returns by reducing firm-level information asymmetry. When firms disclose material information known by insiders, information acquisition reduces asymmetric information and lowers stock returns. The effect is stronger for both unexpectedly good and bad news than anticipated news and when investors have a lower cost of information processing. Using the Northeast Blackout of 2003 as a natural experiment, I explore an exogenous shock in information acquisition and show causally that information acquisition reduces information asymmetry in a difference-in-differences setting.

I document portfolio pumping at the fund family level, a strategy that non-star fund managers buy stocks held by star funds in the family to inflate their performance at quarter end. Star funds with high family pumping activities show strong evidence of inflated performance only after 2002, when the Securities and Exchange Commission increased regulation on portfolio pumping at the fund level. Stocks pumped by the strategy show strong reversals at the last trading day of the quarter. Non-star fund managers pumping for star funds receive substantially higher inflows in the future, which cannot be explained by fund characteristics.

This paper examines investors’ retirement savings allocation using a hand-collected dataset on firm-level employees’ holdings in 401(k) plans. We document the median investor’s return-chasing behavior, the heterogeneous investing styles across wealth levels, and the lack of financial literacy among participants. 83% of the employees hold only 39% of total wealth and chase risk-unadjusted returns when investing in mutual funds and choosing between company stock and funds, leaving substantial money on the table. In contrast, the remaining 17% of employees with a high level of financial sophistication select mutual funds by the CAPM model and exhibit contrarian investing between stock and funds.

We study momentum and its predictability within equities listed at the London Stock Exchange (1820-1930). At the time, this was the largest and most liquid stock market and it was thinly regulated, making for a good laboratory to perform out-of-sample tests. Cross-sectionally, we find that the size and market factors are highly profitable, while long-term reversals are not. Momentum is the most profitable and volatile factor. Its returns resemble an echo: they are high in long-term formation portfolios, and vanish in short-term ones. We uncover momentum in dividends as well. When controlling for dividend momentum, price momentum loses significance and profitability. In the time-series, despite the presence of a few momentum crashes, dynamically hedged portfolios do not improve the performance of static momentum. We conclude that momentum returns are not predictable in our sample, which casts some doubt on the success of dynamic hedging strategies.