The Stench of Failure: How Perception Affects House Prices (NEW!)
with Kristle Cortés, Mandeep Singh, and Philip Strahan
Updated December 2022
When a house is auctioned for sale (a common occurrence in Australia), it eventually sells for a lower price following a failed auction. We link this to a combination of stigma among potential buyers (the vague sense that there "must be something wrong with the house") and seller discouragement.
Media Coverage: Sydney Morning Herald
The Cryptocurrency Participation Puzzle (NEW!)
with Ran Duchin, Jun Tu, and Xi Wang
Updated December 2022 Internet Appendix .
Using Bayesian portfolio theory, we show that it is surprisingly hard to justify zero portfolio weights in cryptocurrency. Put differently, one can either think that cryptocurrency is a bubble going to zero, or one can have a weight of zero, but it is difficult to do both.
Predictable Price Pressure
with Samuel Hartzmark
Updated May 2021
When investors predictably reinvest dividend payments into the market, this increases value-weighted market returns over short horizons, even though all the information about dividends is known in advance.
FESE De la Vega Prize 2022, Treynor Prize, 2021
Media Coverage: Bloomberg, Australian Financial Review, Alpha Architect
Car Seats as Contraception
with Jordan Nickerson
Updated July 2020
Laws requiring that children ride in car safety seats lead to significant reductions in third child birth rates, because many cars cannot fit three safety seats in the back. We estimate that these laws prevented 145,000 births since 1980, and that for every child's life saved in a crash by such laws, 141 children are never born.
Media Coverage: Zvi Mowshowitz, NPR Freakonomics Podcast, The Economist, Marginal Revolution, Washington Examiner, The Telegraph, US Congress Joint Economic Committee, Ross Douthat, Hacker News, National Review Online, Reason, MercatorNet, Catholic News Agency, Matt Yglesias,
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.
[17.] Measuring and Improving Stakeholder Welfare is Easier Said Than Done
2022, with Umit Gurun and Jordan Nickerson
Journal of Financial and Quantitative Analysis (Forthcoming)
(formerly titled "The Perils of Private Provision of Public Goods")
When Starbucks changed its policies to allow anyone to use the bathroom without making a purchase, this resulted in a 7.3% decline in visits relative to nearby coffee shops, with the effect being 84% larger for stores located near homeless shelters
Media Coverage: Yahoo Finance (Video), Forbes, Daily Mail, CBS News (Video), CBS Marketwatch, Fox Business, Chicago Tribune, Business Insider, NASDAQ, Retail Wire, Daily Wire, WGN Radio Chicago, Wall Street Reporter, City Data, Newsfeeds, American Thinker, Newsbeezer, Herald Journalism, Zenith News, True Pundit, Ace of Spades, Hot Air, Safegraph, IJR, Bar Stool Sports, Luciance, Red State, Sky Statement, WhatNews2Day, Vaaju, Voice of the Highway, Hienalouca, Buzzdea, Restaurant Dive, My High Plains, Long Room, Inside Sources
[16.] On the Tax Efficiency of Startup Firms
2022, with Eric Allen, Jeffrey Allen, and Sharat Raghavan Internet Appendix
Review of Accounting Studies [Cite]
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.
[15.] Reconsidering Returns
2022, with Samuel Hartzmark
Review of Financial Studies [Cite]
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.
Q Group Prize 2020 (First Prize), Best Paper, Utah Winter Finance Conference 2019, Hillcrest Behavioral Finance Award 2018 (First Place)
Media Coverage: Forbes, Chicago Booth Review, Alpha Architect
[14.] Is “Not Guilty” the Same as “Innocent”? Evidence from SEC Financial Fraud Investigations
2021, with Eugene Soltes
Journal of Empirical Legal Studies [Cite]
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 Post, New York Times
[13.] The Dividend Disconnect
2019, with Samuel Hartzmark
Journal of Finance (Lead Article) [Cite]
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, a mistake we call the "free dividends fallacy".
Winner, Fama/DFA Prize for Best Paper on Capital Markets in the Journal of Finance 2019 (First Place), Charles Brandes Prize 2017 (First Place), HillCrest Behavioral Finance Award 2017 (Distinguished Paper), Roger F. Murray Prize 2017 (Third Place)
Media Coverage: Bloomberg, CNBC (Article and Video Interview), Forbes, Irish Times, Yahoo! Finance, Hacker News, Reddit, Investopedia, 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 Chang, Samuel 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 Markets, Bloomberg View, Harvard Law School Forum on Corporate Governance and Financial Regulation, Alpha 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 Times, CNN, Psychology 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 Journal, Financial Times, Australian 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.