Our paper investigates extended abnormal returns for S&P 500 index changes in a comprehensive 1979-2015 sample. The literature’s depiction of longer window returns lacked both appropriate nuance and cross-sectional analysis. Solid evidence for reversion appears in the 2000s. It suggests that stocks no longer experience permanent shifts in investor demand when they are added to or removed from the S&P 500.
“Fixed Come Hell or High Water? Selection and Prepayment of Fixed-Rate Mortgages Outside the United
States.” (with Toby Daglish), Real Estate Economics, 2012, 40(4): 709-743.
We examine the decision to prepay a fixed-rate mortgage in the United Kingdom, Canada, Ireland, Australia and New Zealand. These countries are characterized by having substantial fees which are associated with breaking a fixed-rate mortgage. We develop a model which allows for fluctuations both in banks wholesale rates and credit spreads. We find that households can achieve economically significant benefits both from following an optimal prepayment strategy contingent on the break fee used by their bank and also by selection of fixed interest rate term and (where available) break fee structure.
Using novel data establishing hedge fund families, we show that changes in overlapping connected positions predict abnormal returns in U.S. stocks. A long-short portfolio of unanimous family entries and exits in overlapping positions earns an annualized alpha of 7.32%. Panel regressions and double-sorts provide evidence for a mispricing-based explanation as results are consistent with fund families facing binding short sale constraints to coordinated exits. The returns are larger for high information asymmetry stocks and not driven by geography or investment strategy, suggesting hedge fund families coordinate on information to reduce price inefficiencies.
- Mentions: “Family Resemblance”, Novus 2019. https://www.novus.com/blog/family-resemblance
- Presented at Victoria University of Wellington and University of Hawai`i at Manoa.
"Trade Competition and Product Quality: Evidence from Amazon Reviews." (with Chady Gemayel)
Using an instrumental variable approach, we find that domestic firms invest in their reputational capital in response to increases in international competition. Specifically, American firms increase the quality of their products after positive Chinese import competition shocks. We identify that this is an active decision by identifying product-level changes, finding significant reductions in the rate of product failures for domestic firms. Firms build reputational capital by increasing product quality, allowing them to differentiate their products from those of their competitors. We find that less diversified firms have a greater incentive to differentiate their products, as product portfolio size attenuates our results.
``The Content of Climate Change Disclosures and Market Values.'' (with Christian Blanco)
Over 500 global institutional investors with a combined $96 trillion in assets are concerned with the potential business impacts of climate change. Are market valuations associated with climate change disclosure topics? We explore this question using over 6,300 climate change disclosures for 1,482 global firms from 2010-2016. We identify four climate change topics using the Latent Dirichlet Allocation, a Bayesian text analysis approach that identifies latent themes. We find that responses that center on carbon taxes and extreme weather events are, on average, associated with 14.9-18.8% lower market values compared to disclosures that focus on risk management and energy efficiency. This suggests that firms that focus their disclosures on tools to manage and mitigate climate change-related risks are valued higher. In contrast, firms with disclosures that center on the physical and regulatory risks of climate change are valued lower. This significant association suggests that the CDP (formerly the Carbon Disclosure Project) can be one of many effective platforms for aggregating corporate climate change information that is financially meaningful.
- INFORMS 2020
I investigate how political spending by corporations responds to regulatory concerns and if it is associated with improved firm value. Using the 2010 Deepwater Horizon disaster as an exogenous shock to the difficulty of obtaining offshore oil drilling permits, I show that offshore oil firms spent more money hiring lobbyists in order to influence the permitting process. In contrast, the evidence of a response through campaign contributions is weak. The lobbying spending was associated with both a higher probability of permit approval and faster time to approval. Permit approvals had a five-day cumulative abnormal return of 0.69% after the disaster. In particular, offshore firms hired more lobbyists with prior-employment connections to Congressmen or Federal agencies with oil industry oversight. My results show that corporate governance issues may be second-order in this setting and that lobbying may have a real impact on regulator decisions and a positive effect on firm value.
- Presented at UCLA, University of Alberta, Florida International University, McGill University, Queensland University of Technology, Victoria University of Wellington, and University of Hawai`i at Manoa.
"Director Networks, Mobility and Governance: Evidence from Corporate Bankruptcies." (with Shenje Hshieh and Jiasun Li)
We exploit a quasi-natural experiment to investigate how directors’ reliance on professional connections in their search for new directorships impacts board composition and corporate governance policies. For directors who have not held board positions or
employment at bankruptcy-filing firms, we find that those who nevertheless have current or past connections to other directors with explicit work histories at bankruptcy-filing firms experience a decline in mobility around the time of filing: directors with these connections have a 5 percent lower chance of finding new board positions within a year. Additionally, we find these suspended director network ties make board recruitment of new directors more difficult. As a result, average board size decreases and average director tenure increases. Lastly, we provide evidence that director mobility can interfere with corporate governance, as firms with less mobile directors show improvements in shareholder rights.
- Invited presentations at the 2018 Sun Yat-Sen University Finance International Conference, 2018 FMA Annual Meeting, 2018 SFS Cavalcade Asia-Pacific, and 2019 DC Juniors Conference.