The Portfolio-Driven Disposition Effect (with Li An, Joseph Engelberg, Baolian Wang, and Jared Williams)
Journal of Finance, forthcoming
Abstract: The disposition effect for a stock significantly weakens if the portfolio is at a gain, but is large when it is at a loss. We find this portfolio-driven disposition effect (PDDE) in four independent settings: US and Chinese archival data, as well as US and Chinese experiments. The PDDE is robust to a variety of controls in regression specifications and is not explained by extreme returns, portfolio rebalancing, tax considerations, or investor heterogeneity. Our evidence suggests investors form mental frames at the stock and portfolio level and these frames combine to generate the PDDE.
The Partisanship of Financial Regulators (with Joseph Engelberg, Asaf Manela, and Jared Williams)
Review of Financial Studies, Volume 36, Issue 11, November 2023, Pages 4373–4416
Abstract: We analyze the partisanship of Commissioners at the SEC and Governors at the Federal Reserve Board. Using recent advances in machine learning, we identify partisan phrases in Congress, such as “red tape” and “climate change,” and observe their usage among regulators. Although the Fed has remained relatively nonpartisan throughout our sample period (1930–2019), we find that partisanship among SEC Commissioners rose to an all-time high during the 2010-2019 period, driven by more-partisan Commissioners replacing less-partisan ones. Partisanship at the SEC appears in both the language of new SEC rules and the voting behavior of SEC Commissioners.
Abstract: Combining county-level natural disaster data with individual investor transactions, I document an increased disposition effect for investors impacted by a natural disaster. This effect is increasing in disaster severity and decreasing in time following the event, suggesting that extreme natural disasters can significantly influence investor behavior, especially in the short term. These findings are not explained by liquidity needs, tax incentives, or informed trading. The effect strengthens with local stocks and investors’ duration at their residence. Moreover, the increased disposition effect of disaster-affected investors is consistent with investors deriving utility from damages caused by environmental influences and realized gains/losses.
The Social Welfare of Marketplace Lending: Evidence from Natural Disasters (with Daniel Bradley and Sarath Valsalan)
Abstract: Using natural disasters as exogenous shocks to the peer-to-peer (P2P) loan market, we document a local increase in loan demand post-disaster, which is significantly elevated in low deposit areas. Interest rates and delinquencies from loans approved during this demand shock are similar to pre-event levels. Loans allocated prior to a disaster are more likely to default, but loans granted a hardship delay of payment accommodation exhibit a reduction in default probability, providing relief to borrowers and reduced costs to investors. Contrary to regulatory concerns that P2P lending is predatory, our results suggest they can provide positive social welfare benefits.
The Effects of Non-proportional Fees: Evidence From Poshmark (with Spencer Barnes)
Abstract: Fee framing changes the context of fee presentation without changing the fee itself. Using proprietary sales data from private online clothing sellers, we exploit random fee frame variation charged to sellers in a regression discontinuity design to estimate the causal effect fee framing has on seller outcomes. Switching from a fixed dollar to percentage fee structure decreases the number of days an item spends in inventory by approximately one month and increases return on investment more than twofold. Understanding potential behavioral biases that may drive these results gives managers the tools to increase sales, a requirement for collecting third-party seller fees.