Matching Items (6)
- All Subjects: Finance
- All Subjects: endowed social status
- All Subjects: family wealth
- Genre: Academic theses
- Creators: Boguth, Oliver
In the first chapter, I develop a representative agent model in which the purchase of consumption goods must be planned in advance. Volatility in the agent's portfolio increases the risk that a purchase cannot be implemented. This implementation risk causes the agent to make conservative consumption plans. In the model, this leads to persistent and negatively skewed consumption growth and a slow reaction of consumption to wealth shocks. The model proposes a novel explanation for the negative relation between volatility and expected utility. In equilibrium, prices of risky assets must compensate for the utility loss. Hence, the model suggests a new mechanism for generating the equity risk premium. Importantly, because implementation risk does not rely on the co-movement of asset prices with marginal utility, the resulting equity premium does not require concavity of the intratemporal utility function.
In the second chapter, I challenge the view that equity market timing always benefits
shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, I show that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. My theory can be used to infer firms' maximization objectives from their observed market timing strategies. I argue that the popularity of stock buybacks, the low frequency of seasoned equity offerings, and the observed post-event stock returns are consistent with managers maximizing current shareholder value.
I study the performance of hedge fund managers, using quarterly stock holdings from 1995 to 2010. I use the holdings-based measure built on Ferson and Mo (2012) to decompose a manager's overall performance into stock selection and three components of timing ability: market return, volatility, and liquidity. At the aggregate level, I find that hedge fund managers have stock picking skills but no timing skills, and overall I do not find strong evidence to support their superiority. I show that the lack of abilities is driven by the large fluctuations of timing performance with market conditions. I find that conditioning information, equity capital constraints, and priority in stocks to liquidate can partly explain the weak evidence. At the individual fund level, bootstrap analysis results suggest that even top managers' abilities cannot be separated from luck. Also, I find that hedge fund managers exhibit short-horizon persistence in selectivity skill.
This dissertation consists of two essays. The essay “Is Capital Reallocation Really Procyclical?” studies the cyclicality of corporate asset reallocation and its implication for aggregate productivity efficiency. Empirically, aggregate reallocation is procyclical. This is puzzling given the documented evidence that the benefits of reallocation are countercyclical. I show that this procyclicality is driven entirely by the reallocation of bundled capital (e.g., business divisions), which is highly correlated with market valuations and is unrelated to measures of productivity dispersion. In contrast, reallocation of unbundled capital (e.g., specific machinery or equipment) is countercyclical and highly correlated with dispersion in productivity growth. To gauge the aggregate productivity impact of bundled transactions, I propose a heterogeneous agentmodel of investment featuring two distinct used-capital markets as well as a sentiment component. In equilibrium, unbundled capital is reallocated for productivity gains, whereas bundled capital is also reallocated for real, or perceived, synergies in the equity market. While equity overvaluation negatively affects aggregate productivity by encouraging excessive trading of capital, its adverse impact is largely offset by its positive externality on asset liquidity in the unbundled capital market. The second essay “The Profitability of Liquidity Provision” studies the profitability of liquidity provision in the US equity market. By tracking the cumulative inventory position of all passive liquidity providers and matching each aggregate position with its offsetting trade, I construct a measure of profits to liquidity provision (realized profitability) and assess how profitability varies with the average time to offset. Using a sample of all common stocks from 2017 to 2020, I show that there is substantial variation in the horizon at which trades are turned around even for the same stock. As a
mark-to-market profit, the conventional realized spread—measured with a prespecified horizon—can deviate significantly from the realized profits to liquidity provision both in the cross-section and in the time series. I further show that, consistent with the risk-return tradeoff faced by liquidity providers as a whole, realized profitability is low for trades that are quickly turned around and high for trades that take longer to reverse.
The first chapter uses data on birthplaces of 2,065 Chief Executive Officers (CEO) and a county-level measure of cultural individualism based on the westward expansion in American history to establish a positive relation between CEO cultural individ- ualism and corporate innovation. Difference-in-differences estimations around CEO turnovers support the causality. Individualistic CEOs increase innovation by creating an innovative corporate culture, providing more flexibility to employees, and tolerance for failure.The second chapter develops a model to study the corporate board structure and communication. Outside directors are related to potential competitors. As a result, they can bring valuable advice and cause information leakage. The firm needs to decide whether to have outside directors on the board. In the presence of the outside director, the other directors need to determine whether to communicate.
By matching a CEO's place of residence in his or her formative years with U.S. Census survey data, I obtain an estimate of the CEO's family wealth and study the link between the CEO's endowed social status and firm performance. I find that, on average, CEOs born into poor families outperform those born into wealthy families, as measured by a variety of proxies for firm performance. There is no evidence of higher risk-taking by the CEOs from low social status backgrounds. Further, CEOs from less privileged families perform better in firms with high R&D spending but they underperform CEOs from wealthy families when firms operate in a more uncertain environment. Taken together, my results show that endowed family wealth of a CEO is useful in identifying his or her managerial ability.
I propose new measures of investor attention for Mutual Funds. Using the Security and Exchange Commissions’ Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system’s server log files, this study is the first to explore investor attention to specific mutual funds. I find that changes, or spikes, in mutual fund investor attention are associated with funds’ introduction of a new share class, decreases in expense ratio, past performance and volatility. On average, spikes to investor attention predict net inflows into mutual funds which outpace the overall growth of the mutual fund sector. Attention via this EDGAR channel is more important when investors are researching more opaque funds. Moreover, there is a positive relationship between mutual fund investor attention and fund returns. Yet, there is evidence that investors appear to be responding to the acquisition of stale information with flows. I additionally utilize Google Trends data for individual fund tickers and investigate its effects in Mutual Fund Market. I find that Investor Attention to individual mutual funds is concentrated within Equity funds, Index funds, and Institutional funds. Individual fund attention is strongly negatively associated with expense ratios, 12B-1 Fees, and 'broker sold' funds, suggesting that funds with higher fees get less attention than low cost index funds. I find limited support for the controversial convexity in the flow to performance sensitivity in the Mutual Fund market, but only in funds with high levels of individual attention.