My Research

Publications

“The Globalization of Angel Investments: Evidence Across Countries”
with Josh Lerner, Antoinette Schoar and Karen Wilson
Journal of Financial Economics (2018)

MEDIA: Angel Capital Association

This paper examines the role of investments by angel groups across a heterogeneous set of 21 countries with varying entrepreneurship ecosystems. Exploiting quasi-random assignment of deals around the groups’ funding thresholds, we find a positive impact of funding on firm growth, performance, survival, and follow-on fundraising, which is independent of the level of venture activity and entrepreneur-friendliness in the country. However, the maturity of startups that apply for funding (and are ultimately funded) inversely correlates with the entrepreneurship-friendliness of the country. This may reflect self-censoring by early-stage firms that do not expect to receive funding in these environments.

Working Papers

“The Impact of Commissions on the Mutual Fund Market: Evidence from a Natural Experiment”

I analyze the causal effect of reduction in commissions paid to financial advisers for distributing mutual fund shares. I exploit a policy experiment in Israel and a difference in-differences design by comparing outcomes for mutual funds that were subject to exogenous reductions in commissions. Commissions can produce two opposing effects: they can increase fund expense ratios leading to lower investor demand and they can motivate advisers to steer investors resulting in higher demand. The reduction in commissions leads to a reduction in fund expense ratios and an increase in net fund flows. Investors reallocate capital to mutual funds from other saving vehicles. An increase in net flows consists of a large increase in sales and a small increase in redemptions suggesting that high commissions prevent redemptions. Fund families open new funds and shift existing funds into investment categories with reduced commissions and high flows. My study concludes that the expense ratio effect of commissions produces a stronger impact on investor demand than their steering effect.

“Does Passive Investing Help Relax Short-Sale Constraints?”
with Darius Palia

MEDIA: ETF.com
PRESENTATIONS: NYU Stern, IDC Summer Finance Conference, Triple Crown Conference, The City University of Hong Kong International Finance Conference, University of Oklahoma

How does a shift to passive investing affect securities prices? We propose and analyze a security lending channel in which passive funds serve as significant providers of lendable shares to short-sellers. Using a comprehensive sample of U.S. stocks over 2007-2017, we show that stocks with high level of passive fund ownership exhibit larger short positions, lower lending fees and longer durations of security loans. The effect of passive investors on security lending outcomes is significantly larger than the effect of actively managed funds and other institutional asset managers. Consistent with the literature on short-sale constraints, we further find that constrained stocks with more passive fund ownership exhibit lower cross-autocorrelations with negative market returns, less skewness in stock returns, and a smaller value premium. To mitigate identification concerns, we confirm our main findings using two different Russell index reconstitution methodologies that generate quasi-random variation in passive fund ownership. Our study suggests that passive investors contribute to stock price efficiency by relaxing short-sale constraints.

“What Does Compensation of Portfolio Managers Tell Us About Mutual Fund Industry? Evidence from Israeli Tax Records”
with Galit Ben Naim

MEDIA: Bloomberg
PRESENTATIONS: AFA Annual Meeting 2018, Darden School of Business, Boston Fed, AQR Capital Management, Hebrew University

We study the determinants of compensation in the mutual fund industry using Israeli tax records. The portfolio manager compensation is influenced by fund flows driven by past raw returns. Managers are thus paid equally for fund superior performance and for the fund’s passive benchmark returns. We interpret these results though a model that combines trust-mediated money management in the spirit of Gennanioli, Shleifer and Vishny (2015) and imperfect labor market competition. In our model, compensation and fund size are jointly determined by expected raw returns and by the level of intermediary’s trustworthiness. Additional empirical evidence confirms the distinct model predictions.