Research

Published and Accepted Papers

THE VALUE OF OFFSHORE SECRETS – EVIDENCE FROM THE PANAMA PAPERS

with Hannes Wagner and Stefan Zeume
at The Review of Financial Studies (2019, 32(11): 4117-4155)
  •  Lead article and runner up for Michael J. Brennan Best Paper Award

We exploit one of the largest data leaks to date to study whether and how firms use secret offshore vehicles. From the leaked data, we identify 338 listed firms as users of secret offshore vehicles and document that these vehicles are used to finance corruption,  avoid taxes, and expropriate shareholders. Overall, the leak erased $174 billion in market capitalization among implicated firms. Following the increased transparency brought about by the leak, implicated firms experience lower sales from perceptively corrupt countries and avoid less tax. We estimate conservatively that
one in seven firms have offshore secrets.

INTERNATIONAL ASSET PRICING WITH STRATEGIC BUSINESS GROUPS

with Massimo Massa and Hong Zhang
at The Journal of financial economics (2022, 145(2): 339-361)

Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core “central firms.” This strategic behavior induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel dataset of worldwide ownership for 2002-2012, we find that central firms are better protected in bad times and that they earn relatively lower expected returns. Moreover, a centrality factor augments traditional models in explaining the cross-section of international stock returns.

Working Papers

UNDERSTANDING THE ASSET GROWTH ANOMALY

Components of balance sheet asset growth which are related to earnings management contributed to the asset growth anomaly in the past. These components of balance sheet asset growth are no longer related to returns since 2002 and this has contributed to the disappearance of the asset growth anomaly. I provide evidence that the Sarbanes-Oxley Act reduced earnings management and improved the integrity of accounting information: earnings manipulation has decreased, earnings predictability has increased, and analyst forecast errors have decreased. Further, the cross-sectional relationship between the accrual accounts used to manage earnings and analyst optimism has reduced. The evidence suggests that the asset growth anomaly was driven by mispricing in the past and that this mispricing has decreased. More broadly, these findings point towards changes in the regulatory environment as a novel driver of equity market anomalies.

Retail Option Trading and Market Quality: Evidence
from High-Frequency Data [New Draft Coming Soon]

with Yang (Gloria) Yu and JINYUAN ZHANG

Eastern-FA 2023, FMCG 2023, PBFEAM 2023, SMU Brown Bag (scheduled)

Retail option trading has become an important feature of modern financial markets. Since option contracts are in zero net supply, net imbalances are delta hedged by financial intermediaries. We leverage a unique dataset that allows us to categorize option trading by trader type to show that option delta hedge re-balancing trades driven by uninformed retail traders affect market quality. This effect is seen in multiple measures of liquidity measured using high-frequency data.

Partisan values and Financial Misconduct

with ANTHONY B. RICE

ASU brown bag, CityU Brown Bag

We study the relationship between partisan values and financial adviser misconduct. Using
self-declared party affiliations from voter records as our proxy for individual values, we find that Republican advisers are 11% more likely to commit financial misconduct than other advisers at the same branch during the same year. We find that this relation is not driven by matching with customers, changes in regulatory oversight, peer effects, or other time-varying omitted variables. We also find that in-group biases related to political affiliation can increase financial misconduct within firms, decrease misconduct-related turnover, and result in the reemployment of advisers with prior misconduct. Our findings indicate that individual values are an important driver of misconduct and that partisan in-group favoritism can result in labor-market disparities among professionals in the same field.

Work in Progress

Equilibrium Computation with Heterogeneous Firms: An Alternative Approach

Machine learning the cross-section of option returns

(with Bowen Du, Xiao Qiao, Siyi Wang and Qi Wu)

Merger Financing and the Information Content of Option-Implied Moments

(with Cal Muckley and Conall O’ Sullivan)