Job Market Paper

I describe a method for representing institutional investors’ portfolio holdings as a graph, in which funds connect to stocks through patterns of common ownership. I then demonstrate that changes to a firm’s position within this network are closely related to future stock market performance. Specifically, stocks moving toward the center of the holdings network outperform those drifting toward the periphery by approximately 4.1%, annually, adjusting for standard risk factors, consistent with a model in which short-sale constraints combined with increasing dispersion in investors’ beliefs signal potential overvaluation. After controlling for the “breadth of ownership” measure proposed by Chen, Hong, and Stein (2002)—a local indicator of a firm’s network importance—stocks with the largest decrease in holdings network centrality still underperform by 2.2% per year.

Third-Year Research Paper

In the United States, Section 13(d) of the Securities & Exchange Act of 1934 requires that an active investor holding greater than 5% of a firm’s stock report certain information to the public, including the size of the ownership stake and the purpose of the investment. Additionally, when information disclosed in the initial filing changes “materially”—for example, when the size of an ownership stake changes significantly—the filer must promptly post an amendment updating the original filing. Consequently, in the event that such an investor must liquidate a large position in a sequence of smaller sales, the public announcement triggered by the first sale leaves the investor’s subsequent transactions open to exploitation by predatory traders seeking to profit from knowledge of the seller’s intent to make additional future sales.

However, because the law allows up to ten days after the initial sale for the filing of a “prompt” amendment, a question arises as to whether 13D filers might take advantage of this flexibility in an effort to minimize the impact of disclosure on future transactions. As such, this setting provides an excellent opportunity to test the longstanding theoretical prediction that rational managers will choose to release bad news on high-distraction days, and to assess whether—as suggested by the behavioral finance literature—investors underreact to the public release of information during periods of relative inattention.

To this end, using a novel data set consisting of Schedule 13D filings and amendments over a seven year period from 2003 to 2010, I present evidence that managers of large investment portfolios exploit periods of perceived investor distraction to minimize the adverse impact of the disclosure of large sales on future transactions. Specifically, managers reporting substantial decreases in holdings favor Friday disclosure over disclosure on other weekdays, and prefer to release the news in the hours after markets close. Moreover, investors who go on to make future sales are significantly more likely to pursue an opportunistic filing strategy. Employing event study methodology, I test for underreaction to Friday filings, but find no support for investor inattention to Friday 13D disclosures. Investors seem to rapidly incorporate available information from regulatory disclosures into stock prices, correctly attributing heavy selling to liquidations and not informed trading.

Instructing our students and bringing insights and developments from our scholarly pursuits to the rest of society are critical responsibilities of the academic community, and my experiences in the Finance Ph.D. program have only served to strengthen my resolve to function as an educator as well as a researcher. Having worked as a teaching assistant for students in many walks of life—from Fully Employed M.B.A. students to members of Anderson’s Master of Financial Engineering program—and having handled courses with topics ranging from corporate finance to behavioral economics to the implementation of quantitative trading strategies, I have enjoyed an outstanding opportunity to hone my skill at the articulate exposition of complicated subject matter. In addition to my regular teaching duties, at the request of the Executive M.B.A. program office, I designed and filmed an instructional video of teaching assistant “best practices” to be employed in the training of future TAs. This video and the accompanying slides are now in use by several Anderson programs. Below is a complete list of my TA assignments during my time at UCLA Anderson. I am happy to share my teaching evaluations (only available for Executive M.B.A. classes) by email.