Despite significant increases in fund portfolio data coverage in commercial databases, the non-randomness and heterogeneity of voluntary portfolio reporting remains a source of bias. I provide stylized facts on the fund portfolio missingness in these databases, propose a simple decomposition approach of portfolio data absence along reporting participation, frequency, and consistency, and find that these dimensions are governed by distinct underlying mechanisms. Using exhaustive confidential regulatory data, I then revisit established results in prominent areas of the fund literature by conducting empirical analyses on fund manager skill, socially responsible investing, and fund liquidity management. The findings indicate that omitting missing portfolios and non-reporting funds can lead to significantly different conclusions from those obtained when all data is considered. Merging regulatory and commercial databases provide only marginal increases in the sample size since 2010, and conventional imputation methods fall short in dealing with these gaps. I test the performance of simplified imputation approaches based on the algorithm of Bongaerts et al. (2024) that can be run using limited computational resources, and find that they can significantly outperform forward imputation. Future research could use such methods to improve the robustness of empirical findings to the missing data bias.

Hedge funds and financial intermediaries are interconnected through prime brokerage relationships. Prime brokers are large, systemically important financial intermediaries, and aggregate shocks to them have been shown to be a systematic risk factor. The assets held by hedge funds are naturally exposed to various risk factors, including intermediary risk. We show that the average hedge fund's exposure to systematic financial intermediary risk exceeds the total intermediary risk of its holdings. This heightened exposure is asymmetric, driven solely by negative shocks to financial intermediaries. In contrast, mutual funds and other risk factors show no similar effect. Examining idiosyncratic risk, we show that large adverse shocks to an individual prime broker only impact the performance of hedge funds using that broker exclusively, highlighting diversifiability of idiosyncratic shocks. Our findings underscore the unique risks of hedge funds due to their prime brokerage dependencies.

Short sellers are widely known to be informed, which would typically suggest that they

demand liquidity. We obtain comprehensive transaction-level data to decompose daily

short volume into liquidity-demanding and liquidity-supplying components. Contrary

to conventional wisdom, we show that the most informed short sellers are actually

liquidity suppliers, not liquidity demanders. They are particularly informative about

future returns on news days and trade on prominent cross-sectional return anomalies.

Our analysis suggests that market making and opportunistic risk-bearing are unlikely

to explain these findings. Instead, our results align with recent market microstructure

theory, pointing to the strategic liquidity provision by informed traders.

We study the information acquisition behavior of mutual funds and the performance of both their long and short positions. We show that managers learn more about their shorts than their longs because the benefit of acquiring information about shorts is larger. Mutual funds' shorts also generate better returns than their longs, but, at least with respect to shorts, performance and information acquisition are inversely related. Though surprising at first glance, this follows from standard theory and we show that managers acquire less information about certain high performing short positions; the clear winners.

In this paper, we study the role of subjective risk premia in explaining subjective expected return time variation and disagreement using the long-term Capital Market Assumptions of major asset managers and investment consultants from 1987 to 2022. We find that market risk premia explain most of the expected return time variation, with the rest explained by alphas. The risk premia effect is almost entirely driven by time variation in risk quantities as opposed to risk price. Nevertheless, risk price explains about half of the transitory effect of risk premia on expected returns. Market risk premia also explain most of the expected return disagreement, but in this case alphas have a quantitatively significant effect, and risk price and risk quantities are roughly equally responsible for the risk premia effect. Our results provide benchmark moments that asset pricing models should match to be consistent with institutional investors' beliefs.

We study the equity, Treasury bond, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and known to be countercyclical (i.e., high in recessions and low in expansions). Despite their significant countercyclical time-series variation, several subjective equity premia vary more in the cross-section than in the time series. We tie this heterogeneity in subjective equity premia to heterogeneous expectations about long-term valuations. Overall, the results support asset pricing models that generate countercyclical risk premia and heterogeneous expectations.

MiFID II requires EU-based asset managers to separate payments for research from execution costs in trading commissions. Under this unbundling rule, asset managers must either charge research costs explicitly to investors or absorb these costs internally. We model the impact of unbundling on asset managers and investors and find that this new regulation provides global asset managers with a “pecuniary incentive” to use non-EU client commissions to subsidize the cost of European research. Consistent with this hypothesis, we find empirical evidence that the unbundling rule for mutual funds operating in Europe is accompanied by an increase in bundled commissions generated by their US counterparts. Specifically, US funds with an EU twin (an EU-based fund with the same management team and investment style) exhibit higher bundled commissions following the unbundling regulation. Correspondingly, EU twins benefit from this cross-subsidization by increasing value-added while maintaining similar management fees and trading activity. Our findings suggest that agency costs are not mitigated but merely shifted from a more regulated to a less regulated market. We conclude that, in global financial markets, only internationally coordinated regulatory actions are effective.

I study a model of activist short-termism, where the activist can sell his stake in the target before the impact of his intervention is realized. Changes in liquidity or policies that make activists' exit harder can increase firm value if there is only moral hazard (where activist's intervention creates more value if he exerts effort) or only adverse selection (where some interventions destroy value while others create value). However, these changes destroy total firm value when both moral hazard and adverse selection are present. Policies that reward long-termism can destroy total firm value, but with a lower likelihood. The reason behind these implications is that when the moral hazard problem is binding, a higher number of value-destroying activists results in a higher probability of effort by the value-creating activists, and as a result of this higher effort, average firm value strictly increases.