“Investment and Asset Pricing with ESG Disagreement“, with Doron Avramov, Abraham Lioui, and Andrea Tarelli
“What Should Investors Care About? Mutual Fund Ratings by Analysts vs. Machine Learning Technique“, with Ruichang Lu and Xiaojun Zhang
“Tax Evasion and Market Efficiency: Evidence from the FATCA and Offshore Mutual Funds“, with Massimo Massa and Hong Zhang
“Machine Learning versus Economic Restrictions: Evidence from Stock Return Predictability”, with Doron Avramov and Lior Metzker
“Financial Globalization vs. Income Inequality: The Surprising Role of Delegated Portfolio Flows in Taming the Top 1%“, with Massimo Massa and Hong Zhang
“Private Company Valuations by Mutual Funds”, with Vikas Agarwal, Brad Barber, Allaudeen Hameed, and Ayako Yasuda
“Catering through Globalization: Cross-border Expansion and Misallocation in the Global Mutual Fund Industry“, with Massimo Massa and Hong Zhang
“Investor Heterogeneity and Liquidity”, with Kalok Chan and Allaudeen Hameed
“Short-Sale Constraints and the Pricing of Managerial Skills”, with Massimo Massa and Hong Zhang
Abstract: A basic intuition is that arbitrage is easier when markets are most liquid. Surprisingly, we find that momentum profits are markedly larger in liquid market states. This finding is not explained by variation in liquidity risk, time-varying exposure to risk factors, or changes in macroeconomic condition, cross-sectional return dispersion, and investor sentiment. The predictive performance of aggregate market illiquidity for momentum profits uniformly exceeds that of market return and market volatility states. While momentum strategies have been unconditionally unprofitable in the United States, in Japan, and in the Eurozone countries in the last decade, they are substantial following liquid market states.
“Short-Term Reversals: The Effects of Past Returns and Institutional Exits”, with Allaudeen Hameed, Avanidhar Subrahmanyam, and Sheridan Titman, 2017, Journal of Financial and Quantitative Analysis 52, 143─173. [Published Version]
Abstract: Price declines over the previous quarter lead to stronger reversals across the subsequent 2 months. We explain this finding based on the dual notions that liquidity provision can influence reversals and that agents who act as de facto liquidity providers may be less active in past losers. Supporting these observations, we find that active institutions participate less in losing stocks and that the magnitude of monthly return reversals fluctuates with changes in the number of active institutional investors. Thus, we argue that fluctuations in liquidity provision with past return performance account for the link between return reversals and past returns.
Abstract: This paper implements momentum among a host of market anomalies. Our investment universe consists of the 15 top (long-leg) and 15 bottom (short-leg) anomaly portfolios. The proposed active strategy buys (sells short) a subset of the top (bottom) anomaly portfolios based on past one-month return. The evidence shows statistically strong and economically meaningful persistence in anomaly payoffs. Our strategy consistently outperforms a naive benchmark that equal weights anomalies and yields an abnormal monthly return ranging between 1.273% and 1.471%. The persistence is robust to the post-2000 period, and various other considerations, and is stronger following episodes of high investor sentiment.
“The Unexpected Activeness of Passive Investors: A Worldwide Analysis of ETFs”, with Massimo Massa and Hong Zhang, 2019, Review of Asset Pricing Studies 9, 296─355. [Published Version]
Abstract: The global ETF industry provides more complicated investment vehicles than low-cost index trackers. Instead, we find that the real investments of ETFs may deviate from their benchmarks to leverage informational advantages (which leads to a surprising stock-selection ability) and to help affiliated OEFs through cross-trading. These effects are more prevalent in ETFs domiciled in Europe. Moreover, ETF flows seem to respond to additional risk. These results have important normative implications for consumer protection and financial stability.
Abstract: We propose a new measure of fund investment skill, active fund overpricing (AFO), encapsulating the fund’s active share of investments, the direction of fund active bets with regard to mispriced stocks, and the dispersion of mispriced stocks in the fund’s investment opportunity set. We find that fund activeness is not sufficient for outperformance: high (low) AFO funds taking active bets on the wrong (right) side of stock mispricing achieve inferior (superior) fund performance. However, high AFO funds receive higher flows during periods of high investor sentiment, when the performance-flow relation becomes weaker.