WORKING PAPERS

Is “Not Guilty” the Same as “Innocent”? Evidence from SEC Financial Fraud Investigations  (NEW!)

with Eugene Soltes

Updated June 2019

When firms are under investigation by the SEC for financial fraud, some disclose the investigation but others remain silent. Disclosure appears punished in markets, with worse stock returns for the firm and a higher chance of the CEO being fired, even for firms that ultimately face no enforcement action.

Media Coverage: Institutional Investor, Washington PostNew York Times

On the Tax Efficiency of Startup Firms

with Eric Allen, Jeffrey Allen, and Sharat Raghavan

Updated: March 2018           Internet Appendix

Revise and Resubmit, The Accounting Review

Most startup firms who receive VC funding organize as C-corporations rather than LLCs. We show that this decision is puzzling, because it costs these firms large amounts in additional taxes (around 4.9% of equity) without providing obvious offsetting benefits.

Reconsidering Returns
with  Samuel Hartzmark

Updated: August 2018 

 

Information on actual returns is surprisingly difficult for most investors to obtain, and many indices like the S&P 500 don't adjust for dividend payments. This leads to a number of mistakes by journalists, mutual fund investors and in market returns, as the index performance is erroneously treated as if it were an actual return.

Best Paper, Utah Winter Finance Conference 2019, Hillcrest Behavioral Finance Award 2018 (First Place)

Media Coverage: ForbesChicago Booth Review, Alpha Architect

Managerial Control of Business Press Coverage

with Eugene Soltes

Updated: September 2012       

We examine how much managers can increase media coverage of their firms. Releasing during the day increases coverage, but the major determinants of coverage are outside managerial control.

PUBLICATIONS

[13.] The Dividend Disconnect 
2019, with  Samuel Hartzmark  

Journal of Finance  (Lead Article)

Investors trade as if price changes and dividends are in separate mental accounts, and do not fully appreciate that dividends come at the expense of price decreases. 

Winner, Charles Brandes Prize 2017 (First Place), HillCrest Behavioral Finance Award 2017  (Distinguished Paper), Roger F. Murray Prize 2017 (Third Place)

Media Coverage: BloombergCNBC (Article and Video Interview), Forbes, Irish Times, Yahoo! FinanceHacker News, RedditInvestopedia, Alpha Architect, ETF.com

[12.] What a Difference a (Birth) Month Makes: The Relative Age Effect and Fund Manager Performance

2019, with John Bai, Linlin Ma and Kevin Mullally 

Journal of Financial Economics      [Cite] 

Mutual fund managers who were the oldest in their kindergarten class tend to outperform those who were the youngest. We link this to the greater level of confidence these "relatively old" managers display.

Media Coverage: Wall Street Journal , Harvard Law School Forum on Corporate Governance

[11.] Recurring Firm Events and Predictable Returns: The Within-Firm Time-Series    

2018, with Samuel Hartzmark

Annual Review of Financial Economics, Invited submission.      [Cite] 

We review the literature on returns surrounding repeated firm events like earnings, dividends, and seasonality. These events are generally associated with abnormally positive returns, and present an important asset pricing puzzle.

[10.] Rolling Mental Accounts     

2018, with Cary Frydman and Samuel Hartzmark

Review of Financial Studies      [Cite]       YouTube Summary

Investors who sell one asset and quickly buy another trade as if the new asset is a continuation of the old mental account. 

Media Coverage: Capital Ideas, Intelligent Option Investor

[9.] Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns

2017, with Tom ChangSamuel Hartzmark, and Eugene Soltes 

Review of Financial Studies      [Cite]   Internet Appendix 

If companies have earnings that are historically higher in one quarter of the year, they have high returns when those earnings are likely to be announced. We link this to the tendency of investors to overweight recent information in low earnings, leading to pessimistic forecasts.

Winner, Best Paper Award, California Corporate Finance Conference 2015

Winner, Hillcrest Behavioral Finance Award (1st place), 2015

Media Coverage: Bloomberg MarketsBloomberg View, Harvard Law School Forum on Corporate Governance and Financial RegulationAlpha Architect, Capital Ideas 
 

[8.] Looking for Someone to Blame: Delegation, Cognitive Dissonance and the Disposition Effect

2016, with Tom Chang and Mark Westerfield

Journal of Finance    [Cite]

Investors in most assets are more likely to sell gains than losses, but mutual fund investors do the opposite. Using experimental data, we argue that this is because selling losers means admitting to the mistake of the initial investment, but with delegated assets investors can blame the fund manager instead.

Media Coverage: Financial TimesCNNPsychology Today, Value Walk, Motley Fool

 

[7.] What Are We Meeting For? The Consequences of Private Meetings with Investors

2015, With Eugene Soltes

Journal of Law and Economics     [Cite]

 

Using data from an NYSE firm, we find that investors who meet privately with company management have better performance in their trades. Interestingly, hedge funds seem to benefit from these meetings much more than mutual funds or pension funds.

Winner, Best Paper Award, Financial Research Association Conference, 2012.

Media Coverage: Wall Street JournalFinancial TimesAustralian Financial Review, Harvard Law School Forum on Corporate Governance and Financial Regulation, InstitutionalInvestor.com 

[6.] Juicing the Dividend Yield: Mutual Funds and the Demand for Dividends

2015, with Lawrence Harris and Samuel Hartzmark

Journal of Financial Economics, Lead Article      [Cite]

A significant fraction of mutual funds artificially increase their dividend yield by trading in and out of dividend-paying stocks to collect more dividends. This behavior is not well explained by standard theories of why investors may desire dividends. 

Winner (2nd Place), Fama/DFA Prize for Best Paper on Capital Markets and Asset Pricing in the Journal of Financial Economics
Media Coverage: Wall Street Journal,
  Value Walk,  ETF.com,   Capital Ideas, BAM

                                     

[5.] Winners in the Spotlight: Media Coverage of Fund Holdings as a Driver of Flows

2014, with Eugene Soltes and Denis Sosyura

Journal of Financial Economics      [Cite]

We show that investors allocate flows to mutual funds based on the past returns of fund holdings, but only for stocks recently covered in major newspapers. Evidence suggests that this behavior is more linked to increased attention rather than increased information.

Media Coverage: ETF.com, MutualFunds.com 

 

[4.] The Dividend Month Premium

2013, with Samuel Hartzmark,

Journal of Financial Economics       [Cite]

We document an asset-pricing anomaly whereby companies have positive abnormal returns in months when they are expected to issue a dividend. We relate this to price pressure from dividend-seeking investors.

Winner, Best Paper Award, California Corporate Finance Conference 2011

Media Coverage:  Harvard Business Review (Daily Stat Blog)Alpha Architect

 

[3.] Selective Publicity and Stock Prices

2012, Internet Appendix          

Journal of Finance      [Cite]

Investor relations firms ‘spin’ their clients’ media coverage by getting more coverage of good news than bad news. This pushes up stock prices in the short term.

Media Coverage: CFA Digest, LiveMint.com

                                     

 

[2.] Efficiency and the Disposition Effect in NFL Prediction Markets

2012, with Samuel Hartzmark,

Quarterly Journal of Finance      [Cite]

We find evidence of the disposition effect (the tendency to sell winners and hold on to losers) in a betting market on NFL games. Finding the disposition effect in a gambling market raises questions about what its underlying cause is.

Media Coverage:  Alpha Architect

                                     

 

[1.] A Multinomial Approximation for American Option Prices in a Lévy Process Model

2006, with Ross Maller and Alexander Szimayer

Mathematical Finance     [Cite]

We develop a multinomial options pricing model that can price American options when the stock price follows an exponential Lévy process. The method works analogously to the binomial method, with the extra states allowing for price processes that include jumps.