Research
Research Interests
- Investments
- Machine Learning in Finance
- Mergers and Acquisitions
- Regulatory Enforcement
Presentations
Working Papers
- Homeownership as Life Cycle Goodmine: Evidence from Macrohistory, with Shize Li and Jialu Shen
- The Role of Growth Strategies in Acquisitions, with Fred Bereskin, Micah Officer, and Jing Wang
- Machine Learning Classification and Portfolio Allocation: Evidence of the Premium on Information Quantity, with Kuntara Pukthuanthon
- Does the SEC’s Enforcement Vary Depending on Boards’ Gender Composition?, with Fred Bereskin, Xiaohu Guo, and Miriam Schwartz-Ziv
- Patrolling the Securities Laws: Towards the SEC’s Investigation of Founder-CEO Firms, with Inder K. Khurana and Ruixiang Wang
- Are Short Sellers the Vanguards of the SEC Investigations?, with Xiaohu Guo, Inder K. Khurana, and Ruixiang Wang
Abstract: Should a household buy a home? Using data from 16 developed countries spanning 1870 to 2020, this study provides a resounding affirmative answer. Contrary to popular expert advice, homeownership enhances life cycle wealth by up to 9% and welfare by up to 23%, compared to all-equity investment strategy. Homeownership reduces wealth portfolio risk and improves wealth equality, though it comes at the cost of lower working-life wealth and curtailed financial asset holdings. Gains are heterogeneous: Low-income (high-income) households gain more in wealth (welfare), and home purchase during periods of moderately low interest rates and high housing prices maximizes these benefits.
Abstract: Using labor skill demand disclosed in job postings as a proxy for firms’ growth strategies, we find that similar growth strategies increase the likelihood of two firms merging. In particular, a firm is more likely to become a target as its labor skill demand becomes more similar to that of its potential acquirer. Similar growth strategies ameliorate post-merger integration challenges in facilitating merger deals. Following the merger, the combined firm continues hiring the same skills, consistent with the growth strategy persisting. These types of mergers experience more synergies and superior operating performance.
Awards: Crowell Prize (Third Prize: $2000), Crowell Prize Competition, PanAgora Asset Management, 2021
Abstract: We minimize information shortage using cross-entropy in machine learning classification to predict stock returns. The resulting long-short portfolios achieve annual Sharpe ratios of 1.67 (value-weighted) and 3.35 (equal-weighted), with annual alphas of 29–48%. These results persist after controlling machine learning regressions and remain robust for large-cap stocks. Analyzing subjective information shortage, measured as the information entropy of predicted probabilities, we find a general negative relationship with returns. However, the effect is heterogeneous: Large outperformers benefit from subjective information shortage, while small underperformers suffer from it. Subjective information shortage commands a risk premium and reflects economic uncertainties.
Awards: Best Paper Award ($300), Boca Corporate Finance and Governance Conference, 2022
Abstract: The SEC has limited resources that it can dedicate to investigating firms. Which type of firm is the SEC more likely to suspect of potential wrongdoing? We show that firms receiving a “red flag” for misconduct (e.g. comment letters, restatements, whistleblower reports) are less likely to experience an SEC investigation if they have a large fraction of women directors. These firm are also less likely to experience enforcement by the SEC. We address endogeneity by showing that these results are particularly pronounced when the US government changes to a Democratic administration (which we show is more focused on board gender diversity) from a Republican administration. Results are particularly large among smaller firms for which public information is more limited, and thus, the potential for bias is larger. Our findings imply that regulators’ decisions on whether to open an investigation, and the outcomes of these investigations, are influenced by regulators’ biases and beliefs on how each gender (of directors) carries out its role.
Awards: Best Paper Award Semifinalist, FMA Annual Meeting, 2023
Abstract: Using hand-collected data on founder CEOs and SEC investigations obtained via the Freedom of Information Act, we find that founder-CEO firms are 29% more likely to face SEC investigations, yet these investigations rarely lead to accounting and auditing release enforcement actions. CEO attributes—power, risk-taking, and visibility—drive this heightened scrutiny, reflecting the SEC’s use of academically motivated variables and fraud-deterrent strategies. These findings align with the SEC’s focus on CEO accountability and highlight the role of CEO characteristics in shaping regulatory oversight.
Abstract: This paper examines the influence of short sellers on the SEC's decision to initiate investigations. Our findings indicate that higher short interest leads to an increased likelihood of SEC investigations. The SEC’s reliance on short interest stems from short sellers’ role as information intermediaries and varies with the agency’s fraud detection ability, firm-level information uncertainty, and the confirmation effect on management admit events. Such dependence also extends to the SEC’s comment letter issuance, highlighting short sellers’ broader regulatory influence. Our results are robust to an instrumental variable regression and Oster’s tests for omitted variables.
Work in Progress
- 150 Years of Return Predictability Around the World: A Holistic View Across Assets
Abstract: Campbell and Shiller (1988b, a) show that $$ d_t-p_t \approx const. + \mathbb{E}\left[\sum_{j=1}^\infty \rho^{j-1}(r_{t+j}-\Delta_{t+j})\right].$$ Therefore, if payout growth is not predictable, the payout-price ratio decides returns and the returns must be predictable. Using 150-year data from 16 developed countries across bond, equity, and housing markets, I study this implication using the payout-price ratios, i.e., coupon price, dividend price, and rent price. None of the 48 country-asset combinations shows consistent in-sample and out-of-sample performance with positive utility gain for the mean-variance investor. However, 14 (5) countries have predictable payout growth in the equity (housing) markets. Cochrane (2008, 2011, 2020) argues that the dividend predictability and the return predictability form a joint hypothesis, and the denial of time series predictability does not hold if we reject the hypothesis that the dividend growth is predictable. Contrary to Cochrane’s finding, the VAR simulation using data from all the countries in the past 150 years does not reject the null that the dividend growth is predictable and thus the joint hypothesis test provides weak support to return predictability.
Dormant Work
- Firm Social Network and SEC Enforcement, with Fred Bereskin and Adam Yore
Abstract: We construct firm-level social network using partnership relations. Systematically important firms, i.e., firms that are highly connected and of greater centrality, face more SEC scrutiny across different enforcement actions, including AAER actions and SEC investigations. Our findings remain robust when applying stacked difference-in-differences (DiD) analyses that leverage exogenous firm-level reductions in network sizes within the corresponding Louvain communities, driven by mergers and acquisitions. They also hold under stacked DiD specifications using the introduction of combined tax reporting as an exogenous shock to the number of firm partnerships (Bodnaruk, 2013).
◊ Marks presentation by a coauthor.