Abstract The corporate bond fund industry is characterized by a high concentration of capital, with a substantial portion of assets managed by large funds. We examine the relation between large-fund trading exposure and corporate bond volatility across market conditions. Using a comprehensive sample of U.S. bond funds and corporate bonds, we show that bond return volatility decreases (increases) with trading fund size when market liquidity is high (low). Exploring the underlying mechanisms, we find that large funds are more likely to reach for yield by holding illiquid bonds. Further analysis suggests that while large funds supply liquidity during normal times, their liquidity-supplying activity weakens during market stress. Finally, large funds tend to sell illiquid bonds when facing investor outflows during illiquid markets. Overall, our findings reveal an important yet subtle relation between fund size and bond market fragility, akin to a “dam effect.” JEL Classification: G10, G12, G23
Abstract A polygenic score (PGS) capturing genetic predisposition toward neuroticism predicts heterogeneity in risk aversion, return beliefs, and stock market participation. This approach addresses key methodological and interpretive concerns associated with phenotypic measures of neuroticism. Risk aversion and return beliefs are important, but incomplete, channels linking the neuroticism PGS to stock market participation. The neuroticism PGS also predicts heterogeneity in demographic and behavioral characteristics previously shown to influence financial choices. These characteristics serve as key channels through which the genetic propensity for neuroticism shapes financial choices.
Abstract We develop a conditional shrinkage method for portfolio selection. Our approach builds on a decomposition of the mean-variance portfolio into the 1/N portfolio and an alpha component that offers large efficiency gains but is exposed to substantial estimation risk. We show that a linear shrinkage covariance matrix determines the portfolio’s relative exposure to these components, and our framework allows the shrinkage intensity to depend on a state variable that predicts their relative performance. We implement the method using investor sentiment and find that the estimated relation predominantly leads to greater shrinkage toward 1/N when sentiment is low, improving mean-variance efficiency while maintaining low turnover. JEL Classification: G11, G12.
Abstract This paper highlights racial and ethnic preferences in corporate director elections. Using a comprehensive dataset of mutual fund voting records, we discover that mutual fund managers are more likely to vote for director nominees who share their racial or ethnic identity. Funds managed by White-dominated teams exhibit the strongest same-race preferences, particularly those in fund families with scarce minority representation. Same-race voting preferences have detrimental implications for the career outcomes of minority director candidates, and are associated with worse fund performance primarily when fund managers operate under weaker accountability. We investigate various potential mechanisms—including statistical discrimination, value maximization, conflicts of interest, social networks, and taste-based biases—and find that the evidence aligns most closely with a taste-based explanation for same-race preferential voting. JEL Classification: G23, G34, G41, J71
