Revise & Resubmit, Review of Financial Studies
This study empirically evaluates the relationship between health state-contingent assets and their ability to facilitate greater survival rates. Using transaction-level data from the life settlement market in a quasi-experimental setting, this study finds that wealth in particularly poor states of health leads to a significant increase in survival rates. This relationship is stronger for people in fragile health and those living furthest from hospitals. Improved survival rates are independent from the severity of the disease diagnoses and the social-economic status of the policyholders. These findings provide novel evidence in support of financial solutions aimed at the rising cost of healthcare.
(Circulated under NBER Working Paper No. 26113)
We document the role that inside investment plays in managerial compensation and hedge fund performance. Merging against a comprehensive dataset of US hedge funds, we find that funds with greater inside investment outperform on a factor-adjusted basis. We emphasize the role of capacity constraints in explaining this result: insider funds are smaller, are less likely to accept inflows in response to positive returns, and are more likely to be closed to outside investors. These results suggest that managers earn outsize rents by operating trading strategies further from their capacity constraints when managing their own money.
We study the real effects of environmental activist investing. Using plant-level data in a quasi-experimental setting, we find that firms targeted by environmental activist investors reduce their toxic releases, greenhouse-gas emissions, and cancer-causing pollution through preventative efforts. Improvements in air quality within a one-mile of targeted plants suggest potentially important externalities to local economies. We provide evidence supporting the external validity of environmental activism while also ruling out reporting biases, forms of selection, and other alternative hypotheses. Overall, our study suggests that engagements are an effective tool for long-term shareholders to address climate change risks.
The Impossibility of Communication Between Investors
All investors face the same decision problem: either invest for themselves or delegate their portfolio problem to an outside investor. Typically, asset managers can communicate their superior knowledge to attract capital. However, such communication comes with the risk of revealing the particulars of their valuable information without a commitment from potential investors. I explore this fundamental investment-delegate problem through developing an entropy-based model of communication, where investors endogenously determine to be a principal or an agent in a highly generalizable setting.