Research

The Portfolio-Driven Disposition Effect (with Li An, Joseph Engelberg, Baolian Wang, and Jared Williams)

• Journal of Finance, Volume 79, Issue 5, October 2024, Pages 3459–3495

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.

Marketplace lending in the wake of disaster (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.

Local Equity Bias and the Legalization of U.S. Sports Betting (with Shaddy Douidar, Christos Pantzalis, and Jung Chul Park)

Abstract: We investigate local stock trading behavior around the staggered legalization of sports betting across 34 U.S. states and D.C. After betting is legalized, local equity bias exhibits a relative increase in states with more lottery stocks, fewer sportsbooks, and where bettors are most successful. Results remain robust when matched with states where betting is illegal and when excluding states with extreme stock market participation. These findings imply that sports betting complements risky equity investment preferences. Consistent with this view, we show that after sports betting becomes legal, retail investors increase the trading activity of local lottery stocks.

The Effects of Non-proportional Fees: Evidence From Poshmark (with Annika Abell and Spencer Barnes)

Abstract: Fee framing changes the context of fee presentation without materially 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 that fee framing has on deal completion. Switching from a fixed dollar to percentage fee structure decreases the number of days an item spends in inventory by approximately one month. Understanding potential behavioral biases that may drive these results gives managers the tools to increase sales, a requirement for collecting third-party seller fees.

Disastrous Selling Decisions: The Disposition Effect and Natural Disasters

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.

Within-Firm Partisanship and Innovation (with Anthony Rice)

Abstract: Matching inventors to their voter records, we analyze how individual partisanship within firms influences inventor productivity and turnover. Across 3,367 public and 91,960 private U.S. firms, we find no productivity benefits from partisan diversity. Inventors apply for and are granted more patents when they are more politically similar to their coworkers. Moreover, politically-diverse teams of inventors do not produce patents of superior quality. Regarding inventor turnover, inventors who are less politically aligned with their coworkers are more likely to leave their firm. Together, the evidence suggests that partisan diversity within firms may lead to increased turnover and lower productivity.