Three Essays on Asset Management and Financial Institutions
Type of DegreePhD Dissertation
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In Chapter 1, we investigate the role of mutual fund flows in incorporating market sentiment into asset prices. We show that retail investors adjust their investments among mutual fund categories in response to changes in market sentiment. Consistent with sentiment-induced price pressure through fund flows, we further find that firms favored by mutual funds, such as large-cap, dividend payers, and firms with high institutional ownership are most sensitive to market sentiment. We construct a pricing factor representing sentiment risk and find that the sentiment factor is significant in standard asset pricing models and robust to various sorting procedures. In Chapter 2, we investigate the role of in-house meetings with corporate insiders in shaping institutional investors’ portfolios. Using taxi trips that occur between NYC mutual funds and NYC public firms as a proxy for in-house meetings, we find that mutual funds with more local taxi trips tend to exhibit greater local bias and that these funds outperform their non-NYC peers on their investment in NYC equities. These effects are larger for small, undiversified, and old funds that are better at monitoring local information. We further explore the information content of taxi trips by focusing on earnings announcement. Our findings suggest that taxi trips are more likely to occur in the second week before announcement dates and that the number of taxi trips that a firm received is negatively associated with earnings surprises. In Chapter 3, we investigate how banks respond to natural disasters and whether they could benefit from these events. Natural disasters are not rare and costless events. Indeed, the evidence indicates there has been an acceleration in the number of disasters and the associated costs over the past century. Such disasters can cause severe property damages in the communities affected. Typically, insurance policies and government disaster relief fail to cover the full amount of damages. In this case, banks/branches can play an important supporting role in providing additional funding for the necessary reconstruction that takes place after disasters. In our paper, we demonstrate that following natural disasters, the affected branches raise both deposit and loan rates, but the latter more than the former so that the banks’ net interest margin increases. This, in turn, leads to an increase in return on assets for such banks. At the same time, the impact of natural disasters on banks causes such banks to increase the use of brokered deposits to help fund the increased demand for loans by individuals and firms in affected communities. This suggests that overall the impact of natural disasters is beneficial to banks located in the disaster-prone areas.
- Ph.D. Dissertation_Shen Zhang_20190717.pdf