Research

Demand for Information and Stock Returns: Evidence from EDGAR.

This paper empirically shows that information acquisition affects stock returns by reducing firm-level information asymmetry. When firms disclose material information that was known by insiders, demand for information reduces the asymmetric information faced by uninformed investors and lowers the stock returns persistently. The effect is much stronger for both unexpectedly good and bad news than for anticipated news, consistent with the information asymmetry reduction channel. Moreover, demand for information has stronger effects when investors are geographically close to firm headquarters or have prior experience in collecting firm-specific information, suggesting that the cost of information processing affects information asymmetry. Furthermore, I explore an exogenous variation in information acquisition using the Northeast Blackout of 2003 as a natural experiment, and identify its causal effect on information asymmetry in a difference-in-differences setting.

Portfolio Pumping in Mutual Fund Families.

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.

Barking Up The Wrong Tree: Return-chasing in Mutual Funds.

This paper examines how investors allocate their savings at the micro-level. Using a hand-collected dataset consisting of firm-level investment decisions of employees in 401(k) plans, we characterize the return-chasing behavior of the median investor and demonstrate a lack of financial literacy among investors in the retirement market. Specifically, we show that only 17% of the population with a high level of financial sophistication hold 61% of the wealth and invest based on the CAPM alpha, whereas 83% of the population chase unadjusted returns and leave substantial money on the table.

Momentum, Echo and Predictability: Evidence from the London Stock Exchange (1820-1930).

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.

Work in Progress

  1. Trading and Momentum (with Ron Kaniel, Gideon Saar, Sheridan Titman)
  2. Smart Money or Dumb Money: Evidence from Inflow/Outflow Sensitivity

Conference Discussion

  1. Fund Size and Managers’ Risk-Shifting: Evidence from Fund Mergers
    By McLemore, Jiang, and Wang, at SFA 2019(Orlando).

References

Ron Kaniel
Jay S. and Jeanne P. Benet Professor of Finance
Simon School of Business
University of Rochester
Email: ron.kaniel@simon.rochester.edu

Alan Moreira
Assistant Professor of Finance
Simon School of Business
University of Rochester
Email: alan.moreira@simon.rochester.edu

Jerold B. Warner
Fred H. Gowen Professor of Finance
Simon School of Business
University of Rochester
Email: jerry.warner@simon.rochester.edu

Giulio Trigilia
Assistant Professor of Finance
Simon School of Business
University of Rochester
Email: giulio.trigilia@simon.rochester.edu

Contact