Research

 Face-to-face Interactions and Local Informational Advantage

R&R at Journal of Financial Economics

This paper investigates the causal role of face-to-face communication in generating local informational advantage for mutual fund managers, by exploiting variation in social interactions driven by COVID-19 lockdowns. Using stay-at-home orders, SafeGraph footprint data, and the number of Covid cases to identify constraints on in-person interactions, I find that during lockdowns, mutual fund managers’ performance on local stocks declined relative to non-local stocks. This is driven by their deteriorated timing of trades, particularly on buy-orders of informationally sensitive stocks. The results cannot be explained by changes in firm fundamentals or fund managers’ alternative information sources during lockdowns.

 Collective Cognition of Mutual Fund Teams

This paper provides new evidence on the superior cognitive ability of mutual fund teams that mitigate the rank effect. I examine the post-trade returns of traded stocks to demonstrate that the rank effect results in value-destroying trades. By exploiting data on the managerial history of mutual fund managers, I find a smaller rank effect in team-managed funds relative to solo-managed funds after controlling for fund family, fund, and fund manager characteristics. The reduction is more pronounced for stocks that team members are more likely to discuss and in teams with cognitive style diversity, suggesting a beneficial role of joint decision-making in reducing reliance on heuristics in asset management. 

The Proliferation of Redundant Mutual Funds (with Kenneth R. Ahern, Lei Kong, and Xinyan Yan)

This paper uses a new methodology derived from ecology to quantify the diversity of mutual fund offerings. From 2010 to 2022, the diversification of holdings within the average fund increased, while the diversity of holdings across mutual funds significantly decreased. Thus, while the number of mutual funds rose over time, the effective number of unique funds fell. At the same time as funds' portfolios became more similar, we find that their advertised investment strategies became more diverse. We rationalize these results in a model of product differentiation in which funds have an incentive to increase the perception of their uniqueness to attract consumers, while reducing their actual uniqueness to reduce costs.