Read Between the Filings: Estimating Daily Mutual Fund Holdings and Liquidity Provision (2018)
I estimate mutual fund holdings in between mandated quarterly filings using the daily prices and returns from the stocks that appear in the filings. I model a dynamic portfolio that closely replicates the mutual fund's daily returns and exploit the fact that trades occurs in discrete quantities. This approach yields a finite set of possible daily trade sequences. I use the genetic algorithm to select the daily trade pattern that is most consistent with the fund's observable daily returns. I validate the method on a sample of institutional trades from Ancerno and find an error reduction in the estimate of dollar-weighted portfolio allocation of 73% versus the standard assumption of end-of-quarter trading. This yields an improved estimate of daily trades which is more accurate in classifying the fund's tendency to supply liquidity through contrarian trading. I then estimate daily mutual fund trades based on S12 quarterly holdings and daily returns data. Using the estimated daily trades, I find that liquidity provision predicts future fund performance. Since precise timing is necessary for liquidity provision, this finding does not hold when trades are measured quarterly.
The Democratization of Investment Research (with T. Clifton Green, Russell Jame, and Stanimir Markov) (2018)
We find evidence that crowdsourced investment research facilitates informed trading by retail investors and enhances market liquidity. Specifically, retail order imbalances are correlated with the tone of Seeking Alpha research article, and the ability of retail order imbalances to predict returns is significantly larger on research article days. Firms with exogenous reductions in crowdsourced research coverage experience significant increases in price impact and bid-ask spreads, and the effect is stronger for high retail ownership firms. Our findings suggest that technological innovations have helped democratize access to investment research with important implications for firm liquidity.