Working Papers

Fragile Liquidity: Analysis of the Mutual Fund Liquidity Risk Management Rule

• 2021 WFA PhD Candidate Award for Outstanding Research

• 2020 SWFA (presented), 2021 WFA (presented), 2021 SFA (presented)

Abstract: I study unintended consequences of the Liquidity Risk Management Rule adopted by the SEC in 2016. The rule imposes an upper bound for illiquid assets and a lower bound for liquid assets in mutual fund portfolios. In response to the regulation, corporate bond mutual funds shift their portfolios toward liquid corporate bonds. The ownership shift to liquid corporate bonds decreases the performance of funds and increases the comovement among the underlying liquid assets. Higher comovement among liquid corporate bonds increases the volatility in liquid corporate bond funds. However, I find little evidence of stabilized fund flows. Overall, reducing fragility in mutual funds using portfolio constraints has unintended consequences.

Natural Disasters and Municipal Bonds

(with Jun Kyung Auh, Jaewon Choi, and Tatyana Deryugina)

• 2022 University of Oklahoma Energy and Climate Finance Research Conference (presented), FIRS 2022 (presented), CEMA 2022 (presented)

• Invited for Dual Submission to the Review of Financial Studies

Abstract: Climate change is increasing the frequency of extreme weather events and natural disasters, which could in turn make municipal bonds -- a $4 trillion market in the US -- a riskier asset class. We study the effect of natural disasters on municipal bond returns, exploiting the repeat sales approach to overcome the challenge that municipal bonds trade extremely infrequently. Natural disasters have substantial price and volatility effects: the average return of uninsured bonds issued by disaster-affected counties falls by --0.31%, starting in the month of the disaster, translating into investor losses of over $10 billion across all counties in our sample.  The negative price effect is more than twice as large for revenue bonds and in most cases non-existent for general-obligation bonds, suggesting that revenue diversification plays a key role in bond price stability. Finally, we show that bond insurance, disaster severity, federal disaster aid, and local financial conditions each play an important role in whether price effects materialize and how large they are. 

Work in Progress

Benchmark Selection in Separately Managed Accounts

(with Clemens Sialm)

Portfolio Diversification of Public Pension Funds