Working Papers

Who Stays, Who Switches: Tax Frictions and the Shift from Mutual Funds (Job Market Paper) [SSRN Link]

(Job Market Paper)

This paper shows that unrealized capital gains generate both persistence and fragility in mutual funds. Using newly compiled fund-level data on unrealized gains from SEC filings, I document how investors decide to stay in a mutual fund or switch to lower-fee, tax-efficient vehicles such as separately managed accounts and exchange-traded funds. Unrealized gains create persistence by locking investors into funds despite higher fees and tax disadvantages, as switching triggers immediate capital gains taxes. I show unrealized gains reduce outflows and enable managers to charge higher fees. However, unrealized gains also create fragility through capital gains distributions: when some investors redeem shares, and the fund liquidates appreciated securities, these realized gains are passed through as taxable income to remaining investors. This creates strategic complementarities where one investor's redemption and switching decision affects others' incentives to stay or switch. I rationalize these dynamics through a bank-run model with heterogeneous unrealized gains and endogenous distributions that generates multiple equilibria under identical fundamentals that creates financial fragility.

Economic Impact of Water Scarcity (with Oliver Giesecke and Dhruv Singal) 

What is the impact of water scarcity? The World Resources Institute projects that 44 countries experience high or extremely high water distress in 2040. We assess the economic impact of droughts on land valuations. This Ricardian approach is commonly used in the literature to assess the impact of climate change. Specifically, we focus on farmland valuations in California---one of the most productive farmlands in the world. The semi-arid climate makes its valuation particularly sensitive to the amount of surface and groundwater available for irrigation. The detailed administrative transaction data from the counties' assessors offices allows us to estimate repeat-sales indices as opposed to a hedonic model which make our results less likely to be affected by omitted-variable bias. We find that parcels with better access to freshwater see a 17.7%-25.9%  larger appreciation in land values per acre over the time period from 2011 to 2020 depending on the exact specification; we find no statistical significant differential price change between 2000-2011. The differential change in land values points towards large economic effects of water scarcity with beliefs about future climatic conditions being updated due to two severe episodes of drought and signals of legislative willingness to curb groundwater overdraft.