with Matteo Crosignani, Marco Macchiavelli, and Andr´e F. Silva
Revise and Resubmit, Journal of Financial Economics
Abstract: To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting specific cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. As a result, domestic suppliers experience a $130 billion decline in market capitalization, along with reductions in profitability, employment, and bank lending. We also show how Chinese firms strategically respond to export controls. Overall, export controls impose significant costs on domestic firms producing the very technologies these policies intend to protect.
Media Coverage: The Liberty Street, Financial Times, New York Times, Bloomberg, CNN, Barron's, CSIS, CFR , Marginal Revolution
with Matteo Crosignani, and Marco Macchiavelli
Abstract: We study how geopolitical shocks affect the U.S. asset management industry, focusing on domestic equity mutual funds. As the U.S. government imposes export controls on some U.S. firms selling restricted technology to China, mutual funds exposed to such U.S. firms experience lower returns and higher volatility. Active funds mitigate the effect of geopolitical shocks relative to passive funds. Specifically, active funds sell stocks of U.S. firms exporting to China, which we call portfolio decoupling. Active funds exposed to the shock also buy lottery stocks and stocks with higher loadings on priced risk factors, likely to mitigate the drop in performance.
with Xing Huang, Ohad Kadan, and Jimmy Wu
Revise and Resubmit, The Review of Financial Studies
Abstract: We examine the role of race and ethnicity in the mutual fund context at two distinct levels. At the fund manager level, we document a co-racial tilt---funds managed by minority-dominant (White-dominant) teams allocate larger portfolio weights to minority-led (White-led) firms. This tilt is not associated with superior performance. It diminishes as fund managers gain experience, suggesting the presence of inaccurate statistical discrimination. At the investor level, we find that minority-led funds are penalized similarly to White-dominant funds for poor performance, but are not rewarded as much for superior performance. Overall, our results uncover race-related investment choices at both levels.
Solo-authored
Abstract: This paper documents that mutual fund managers who experience distress in one fund subsequently take on more risk in other funds they manage. Specifically, portfolio managers actively reallocate more stocks with higher systematic risk and lottery-like features in their linked funds. This increased risk-taking appears to be primarily motivated by managers' compensation contracts and is value-destroying for fund investors. The response to the distress shock is smaller for portfolio managers with long-term incentive compensation contracts, longer-tenured managers, and female managers. These results highlight fund spillover effects through common portfolio managers and agency conflicts in the mutual fund industry.
with Xuan Luo and Shumiao Ouyang
Abstract: This paper examines how individual investors respond to the market price fluctuations, using unique individual-level transaction data from a trading experiment and the same individuals' real trading history on the Alipay app. We find that, in response to exogenous price movements in the experiment, investors tend to be contrarian traders. Sophisticated investors tend to be more contrarian than the less sophisticated ones. We further document that investors' real trading styles can be highly predicted with their behaviors in the experiment. The results imply that investors use simple heuristics from the price movements when they make investment decisions in the real world.