Research

Research Areas: Asset Pricing, Behavioral Finance and Economics, Investments, FinTech, Household Finance

Working Papers

This Time is Different: Investing in the Age of Robinhood (Job Market Paper)

Solo-authored

This paper studies the investing behavior and asset pricing implications of the new class of retail traders exemplified by the relatively young, small, and inexperienced individual investors on the Robinhood platform. I first document an absence of investing in lottery-type stocks, value stocks, and small-cap stocks, in contrast to prior literature, and show that these differences can be attributed to the introduction of fractional share trading and the influence of extrapolative beliefs. I then identify three key drivers of Robinhood investment: a novel "buy-the-dip" effect, event-based trading in response to earnings announcements and analyst recommendation revisions, and trading connected to popularity and sentiment on the WallStreetBets platform. I develop a model to shed light on the buy-the-dip phenomenon and introduce a novel financial dictionary based on WallStreetBets sentiment. Finally, I analyze performance and show that Robinhood investment predicts returns up to a one month horizon.

SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4112307

Awards: Best Paper Award in FinTech (SWFA 2023), Best Paper Award Semifinalist (FMA 2022), AQR-AMI Fellowship Award Finalist (2023)

Conferences (past and upcoming): Inter-Finance PhD Seminar (November 2021), Paris Dauphine Finance PhD Workshop (June 2022), Trans-Atlantic Doctoral Conference (June 2022), Israel Behavioral Finance Conference (June 2022), World Finance Conference (August 2022), LBS PhD Alumni Workshop (August 2022), Helsinki Finance Summit on Investor Behavior Conference (August 2022), FMA Annual Meeting (October 2022), Australasian Finance and Banking Conference (AFBC) (December 2022), Southwestern Finance Association (SWFA) (March 2023), Yale Finance Breakfast Seminar (May 2023), Behavioural Finance Group (BFG) meeting at LSE (May 2023), Junior Academic Research Seminars (JARS) in Finance (May 2023), HEC Finance PhD Workshop (September 2023), Chicago Booth Asset Pricing Conference (September 2024)

Where Are the Sophisticated Investors? Evidence from Separate Accounts

Solo-authored

This paper examines the top drivers of investor flows into US Separate Account Composites, whose investors purportedly represent some of the most sophisticated and affluent investors in the world. I find that for actively managed US Separate Account Composites, Morningstar rating is the most significant predictor of flows and supersedes more financially sophisticated metrics such as the CAPM model alpha, Fama-French 3 Factor model alpha, Fama-French-Carhart 4 Factor model alpha and other measures of risk-adjusted return. Surprisingly, the aforementioned results appear to hold for passively managed US Mutual Funds as well. With regards to performance, I find that while on average Separate Accounts outperformed the market and achieved positive alpha over the first 1991-2011 period, they failed to do so over the more recent 2012-2020 period, underscoring that these exclusive investment vehicles may not deliver consistent outperformance.

Slides: https://www.aeaweb.org/conference/2021/preliminary/powerpoint/iGY2BzH6

Conferences (past and upcoming): American Finance Association PhD Poster Session (January 2021), European Financial Management Association (July 2022), World Finance Conference (August 2022), Southwestern Finance Association (SWFA) (March 2023), Trans-Atlantic Doctoral Conference (TADC) (May 2023)

Meritocracy and Asset Prices

Co-authors: Suleyman Basak (London Business School), Darcy Pu (Peking University)

Meritocracy characterizes a political system wherein economic goods are allocated based on an individual's ability and effort, rather than social class. This paper constructs a measure of meritocracy, examines meritocracy's impact on asset prices, income inequality, and effort empirically, and proposes a theoretical model that is consistent with these findings. Our empirical analysis demonstrates that higher levels of meritocracy are associated with a higher risk-free interest rate, lower stock price, and lower stock risk premium and volatility. We also find that meritocracy plays a significant role in the real economy, with higher meritocracy related to higher levels of individual and aggregate effort and greater income inequality over the past 50 years. To shed light on these findings, we develop a dynamic model of financial markets that incorporates meritocracy in the economy. Our model provides support for our empirical results, uncovers the underlying mechanisms at play, and makes novel predictions on how heterogeneity in agent ability and social class moderates the relationship between meritocracy and inequality.

SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4591131

Awards: Wheeler Institute for Business and Development $10,000 Research Grant

Conferences (past and upcoming): Southwestern Finance Association (SWFA) (March 2023), Yale Finance Breakfast Seminar (March 2023), Inter-Finance PhD Seminar (April 2023), Trans-Atlantic Doctoral Conference (TADC) (May 2023), Swiss Winter Workshop on Macroeconomics and Finance (March 2024), Esade Spring Workshop (June 2024), China International Conference in Finance (CICF) (July 2024), China Economics Summer Institute (August 2024), ASU-UoA Junior Conference (September 2024)

TALI: A Simple Measure of the Accounting Language Informativeness

Co-authors: Daniel Rabetti (National University of Singapore (NUS))

Capturing the informativeness of accounting language is challenging because of a series of confounding factors, and text-based measures are often either dictionary dependent or too difficult to replicate. In this paper, we propose a measure to capture the accounting language informativeness (TALI) - computed as the percentage of non-stopping words in text - that is simple to employ, robust to confounding factors, and easy to replicate. Following a series of validation tests, results suggest several advantages. First, it can be used across segments of accounting language and speech interactions. Second, it is robust to exogenous confounders. Third, it is independent of market-based variables, and therefore not limited by data availability. Having validated the measure, we apply it in novel applications and find that (i) conference calls in the earnings management region are less informative than calls following positive or negative earnings surprises; (ii) large house analysts elicit more informative responses from small firms than large firms; (iii) spontaneous earnings call interruptions are highly informative; and (iv) increased disclosure requirements as a result of Rule 15c2-11 improved conference call informativeness of the non-regulated OTC firms but actually had a negative effect on conference call informativeness for the impacted pink sheet firms.