Asset Complexity and the Return Gap

with Pengjie Gao, Peter Kelly, Cameron Peng and Ning Zhu

Review of Finance, Conditionally Accepted

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Abstract: Existing research finds that investors’ returns vary with their wealth and level of sophistication. We bring a new perspective from the supply side by showing that return heterogeneity can be magnified as assets offered by the market become more complex. Using detailed account-level data, we examine the trading of B funds—complex, structured products in the Chinese market. During a three-year market cycle, the return gap between the naive and sophisticated is an order-of-magnitude greater when trading B funds than when trading simple, non-structured funds. In an event study, we confirm that this disparity is driven by differences in investors’ understanding of product complexity.


Working Papers

Persuading Investors: A Video-Based Study

with Song Ma

[+Graphic Summary]

Abstract: Persuasive communication is a function of not only content but also delivery, e.g., facial expressions, tone of voices and diction. This paper examines the persuasiveness of delivery in start-up pitches. Using machine learning (ML) algorithms to process full pitch videos, we quantify persuasion in visual, vocal, and verbal dimensions. Positive (i.e., passionate, warm) pitches increase funding probability. Yet conditional on funding, high-positivity startups underperform. Women are more heavily judged on pitch delivery when evaluating single-gender teams, but are neglected when co-pitching with men in mixed-gender teams. Using an experiment, we show that persuasion delivery works mainly through leading investors form inaccurate beliefs.


Work in Progress

Self-Selected or Designated: Which SIC Code is True?

Inference with Cluster Imbalance: The Case of State Corporate Laws