Research

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.

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.

Marketplace Lending in the Wake of Disaster 

(with Daniel Bradley and Sarath Valsalan)

Financial Management, accepted

Abstract: Using natural disasters as exogenous shocks to marketplace lending in the U.S., we document a local increase in marketplace loan demand post-disaster, which is 26% higher in low compared to high deposit areas. Interest rates and delinquencies from loans approved during this demand shock are similar to pre-event levels. Marketplace loans allocated prior to a disaster are more likely to default, but loans granted a hardship delay of payment accommodation exhibit approximately a 50% reduction in default probability, providing relief to borrowers and lower costs to investors. Overall, while regulators are concerned that marketplace lending may be predatory, our findings point to positive benefits of these platforms.

Speculation at Home: Sports Betting Legalization and Local Equity Bias 

(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 wagerers are most successful. Correspondingly, retail investors increase trading in local lottery stocks after sports betting legalization, and mutual fund managers increase (decrease) their local bias if their office is in a state with many (few) lottery stocks. The behavior of individual and institutional traders suggests that speculative activities can complement each other, particularly when local conditions foster such tendencies.

Within-Firm Partisanship and Innovation 

(with Ran Duchin and 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.

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.