Job Market Paper:

  1. Incentive Misalignment and Market Efficiency: Evidence from Portfolio Manager Ownership in the Mutual Fund Industry

    This paper examines the impact of agency-issue-induced incentive misalignment on the relation between risk (e.g., beta, idiosyncratic volatility or distress risk) and abnormal return in the stock market. Using hand-collected data on portfolio manager ownership of U.S. active mutual funds, I construct a stock-level measure of exposure to incentives-induced trading and show that this measure is associated with the abnormally low returns of high-risk stocks. Across a comprehensive set of strategies that buy high-risk stocks and sell low-risk stocks, negative alphas concentrate only among stocks subject to high incentives-induced trading. This pattern is neither driven by other firm characteristics nor explained by fund performance, and the effect does not extend to other groups of anomaly strategies. The findings are consistent with the conjecture that incentives-induced trading entails excessive risk taking that distorts market efficiency.
    • Presentations: University of Missouri 2024.

Working Papers:

  1. Flow Hedging and Mutual Fund Performance

    This paper studies hedging behavior of active mutual funds against flow volatility and its implications for fund performance. Recent evidence suggests that shocks to the common component of fund flows are a priced risk factor in expected stock returns. I find that nearly half of U.S. active equity funds tilt their portfolios toward stocks with higher exposure to common flows, suggesting that many funds do not hedge against flow risk. A model in which informed managers receive more precise private signals about common flows provides an explanation for this behavior. Using managers' portfolio tilt as a proxy for ability, I confirm the model's main prediction that funds having higher exposure to common flows generate better risk-adjusted performance. These funds also attract higher future flows.
    • Presentations: AFA Poster Session 2024, EFA 2024, SWFA 2024, FMA 2023, NFA Ph.D. Session 2023, SFA 2023.

  2. Out-of-Sample Performance of Factor Return Predictors

    In a factor timing context, recent studies have emphasized on developing techniques that reduce the factor dimension and demonstrated return predictability using only a few predictors with specific choice of estimation design. This focus inadvertently neglects the crucial issue of model instability that has been shown to plague the forecasting literature. Using almost a hundred equity factors and a broader set of predictor variables, I find that the forecasting performance of recent factor timing techniques is indeed sensitive to the choice of empirical design. Applying a variety of shrinkage methods on predictors and focusing on forecasting individual factors to better capture the dynamics between factor returns and predictive signals, I document robust evidence of out-of-sample predictability and more stable investment performance for factor timing strategies. The optimal timing portfolio has a 30% higher Sharpe ratio and generates more than twice the economic gains relative to the factor dimension-reduction approach.
    • Presentations: SWFA 2024, University of Missouri 2023.

  3. The Up Side of Being Down: Depression and Crowdsourced Forecasts
    with Sima Jannati and Sarah Khalaf

    We examine the impact of non-severe depression on crowdsourced financial judgments using earnings forecasts from Estimize. Our findings reveal that an increase in the proportion of the U.S. population with depression is associated with improved forecast accuracy among users. This effect remains consistent across different measures and is distinct from the influence of temporary seasonal depression or other sentiment measures on decision-making. We identify two mechanisms, namely slow information processing and reduced optimism, that contribute to explaining our results. Overall, our research establishes a link between depression and crowdsourced financial evaluations.
    • Presentations: SWFA 2021†, World Finance Conference 2021†, University of Missouri 2020.
    • Media Coverage: St. Louis Business Journal (October 2022)

    4. Note: † indicates presentation by co-author.

Works in Progress:

  1. Do Financial Innovations Expand the Investment Opportunity Set? Evidence from Active ETFs

Pre-Ph.D. Publication:

  1. Nguyen, Du and Minh Pham, 2018, Search-based Sentiment and Stock Market Reactions: An Empirical Evidence in Vietnam, Journal of Asian Finance, Economics, and Business 5(4), 45-56.