Heterogeneity in Target-Date Funds: Optimal Risk Taking or Risk Matching?

The recent growth in the market for target-date funds (TDFs) allows us to study how mutual fund families structure new investment products. Given the widespread, legislation-induced use of TDFs as default investments in defined contribution retirement plans, this market holds special policy significance. We document pronounced heterogeneity in TDF returns between 1994 and 2009. We find strong evidence that return heterogeneity reflects optimal risk taking by families new to the market, with few assets to lose. We find little evidence that 401(k) plan sponsors match the risk profile of the TDFs in their plans to the risks of their companies.

How Much Does Size Erode Mutual Fund Performance? A Regression Discontinuity Approach

Although mutual funds exhibit little ability to persistently outperform their peers, money flows into funds with the highest past returns. Berk and Green (2004) rationalize these patterns by arguing that more-skilled managers manage more assets but, because of diseconomies of scale, generate the same expected returns as less-skilled managers. To identify the causal impact of fund size on performance, we exploit the fact that small differences in mutual fund returns can cause discrete changes in Morningstar ratings that, in turn, generate discrete differences in mutual fund size. Our regression discontinuity estimates yield little evidence that fund size erodes fund returns.

Do Ads Influence Editors? Advertising and Bias in the Financial Media

We use mutual fund recommendations to test whether editorial content is independent from advertisers’ influence in the financial media. We find that major personal finance magazines (Money, Kiplinger’s Personal Finance, and SmartMoney) are more likely to recommend funds from families that have advertised within their pages in the past, controlling for fund characteristics like expenses, past returns and the overall levels of advertising. We find little evidence of a similar relationship for mentions in the New York Times or Wall Street Journal. Positive media mentions in both newspapers and magazines are associated with significant future inflows into the fund while advertising expenditures are not. Therefore, if we interpret our coefficients causally, a large share of the benefit of advertising in our sample of personal finance magazines comes via the apparent content bias. The welfare implications of this apparent bias are unclear, however, since our tests suggest that bias does not directly lead publications to recommend funds with significantly lower future returns than they might have recommended in the absence of any bias. In selecting funds to recommend, magazines overweight past returns relative to expenses, and as a group their recommendations do not outperform even an equal- weighted average of their peers. Nevertheless, this approach leaves magazines with large numbers of funds with high past returns from which to select, and so bias towards advertisers can be accommodated without significantly reducing readers’ future returns. Interestingly, the recommendations of Consumer Reports, which does not accept advertising, have future returns comparable to or below those of the publications which accept do advertising.mutual fund recommendations

How Do Retirees Value Life Annuities? Evidence from Public Employees

Economists have long been puzzled by the low demand for life annuities. To shed new light on this puzzle, we study payout choices in the Oregon Public Employees Retirement System, where each retiree must choose between a lump sum and a life annuity. Notably, the average life annuity we study is better than actuarially fair when compared to the lump sum and 85% of retirees choose the life annuity. Whether and how retirees respond to variation in the value of life annuity payments depends crucially on the source of variation. We find strong evidence that demand responds to variation in retiree characteristics. In contrast, we find little evidence that demand responds to plausibly exogenous variation in annuity pricing, which is economically meaningful but less salient. Finally, we find robust evidence that demand for the lump sum increases with recent equity market returns and other salient measures of investor sentiment.

Mutual Fund Performance and the Incentive to Generate Alpha

Financial economists have long been puzzled by investor demand for actively managed funds that generate, on average, negative after-fee, risk-adjusted returns. To shed new light on this puzzle, we exploit the fact that funds in different market segments compete for different types of retail investors. Within the segment of funds marketed directly to retail investors, we find that flows chase risk-adjusted returns, and that funds respond by investing more in active management. Importantly, within this direct-sold segment, we find little evidence that actively managed funds underperform index funds. In contrast, within the segment of funds sold through brokers, which we demonstrate face a weaker incentive to generate alpha, we find that actively managed funds significantly underperform index funds. We conclude that the well-known underperformance of the average actively managed fund in the full sample is driven by the large fraction of funds with weak incentives to identify and motivate skilled managers.

Ann Hartle, Michel de Montaigne: Accidental Philosopher

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Transform-limited single photons from a single quantum dot

A semiconductor quantum dot mimics a two-level atom. Performance as a single photon source is limited by decoherence and dephasing of the optical transition. Even with high quality material at low temperature, the optical linewidths are a factor of two larger than the transform-limit. A major contributor to the inhomogeneous linewdith is the nuclear spin noise. We show here that the nuclear spin noise depends on optical excitation, increasing (decreasing) with increasing resonant laser power for the neutral (charged) exciton. Based on this observation, we discover regimes where we demonstrate transform-limited linewidths on both neutral and charged excitons even when the measurement is performed very slowly

Auto-Enrollment Retirement Plans for the People: Choices and Outcomes in OregonSaves

Oregon recently launched an automatic-enrollment retirement savings program for private sector workers who lack access to other workplace retirement plans. We analyze participation choices, account balances, and inflow/outflow data using administrative records between August 2018 and April 2020. Within the small to mid-sized firms served by OregonSaves, estimated average after-tax earnings are low ($2,365 per month) and turnover rates are high (38.2$51.1 million in total assets. The average balance is $754, but there is considerable dispersion, with younger workers accumulating the fewest assets due to higher rates of job turnover. Overall, we conclude that OregonSaves has meaningfully increased employee savings by reducing search costs. The 34.3% of workers with positive account balances in April 2020 is comparable to the marginal increase in participation at larger firms in the private sector. Nevertheless, there are significant constraints to the savings that auto-enrollment savings plans can achieve when provided to workers in industries and firms with low wages, volatile wages, and high turnover. Our evidence suggests that employees who are opting out of OregonSaves are often doing so for rational reasons

Effects of sex chromosome dosage on corpus callosum morphology in supernumerary sex chromosome aneuploidies.

BackgroundSupernumerary sex chromosome aneuploidies (sSCA) are characterized by the presence of one or more additional sex chromosomes in an individual's karyotype; they affect around 1 in 400 individuals. Although there is high variability, each sSCA subtype has a characteristic set of cognitive and physical phenotypes. Here, we investigated the differences in the morphometry of the human corpus callosum (CC) between sex-matched controls 46,XY (N =99), 46,XX (N =93), and six unique sSCA karyotypes: 47,XYY (N =29), 47,XXY (N =58), 48,XXYY (N =20), 47,XXX (N =30), 48,XXXY (N =5), and 49,XXXXY (N =6).MethodsWe investigated CC morphometry using local and global area, local curvature of the CC boundary, and between-landmark distance analysis (BLDA). We hypothesized that CC morphometry would vary differentially along a proposed spectrum of Y:X chromosome ratio with supernumerary Y karyotypes having the largest CC areas and supernumerary X karyotypes having significantly smaller CC areas. To investigate this, we defined an sSCA spectrum based on a descending Y:X karyotype ratio: 47,XYY, 46,XY, 48,XXYY, 47,XXY, 48,XXXY, 49,XXXXY, 46,XX, 47,XXX. We similarly explored the effects of both X and Y chromosome numbers within sex. Results of shape-based metrics were analyzed using permutation tests consisting of 5,000 iterations.ResultsSeveral subregional areas, local curvature, and BLDs differed between groups. Moderate associations were found between area and curvature in relation to the spectrum and X and Y chromosome counts. BLD was strongly associated with X chromosome count in both male and female groups.ConclusionsOur results suggest that X- and Y-linked genes have differential effects on CC morphometry. To our knowledge, this is the first study to compare CC morphometry across these extremely rare groups

Broker Incentives and Mutual Fund Market Segmentation

We study the impact of investor heterogeneity on mutual fund market segmentation. To motivate our empirical analysis, we make two assumptions. First, some investors inherently value broker services. Second, because brokers are only compensated when they sell mutual funds, they have little incentive to recommend funds available at lower cost elsewhere. The need for mutual fund families to internalize broker incentives leads us to predict that the market for mutual funds will be highly segmented, with families targeting either do-it-yourself investors or investors who value broker services, but not both. Using novel distribution channel data, we find strong empirical support for this prediction; only 3.3% of families serve both market segments. We also predict and find strong evidence that mutual funds targeting performance-sensitive, do-it-yourself investors will invest more in portfolio management. Our findings have important implications for the expected relation between mutual fund fees and returns, tests of fund manager ability, and the puzzle of active management. Furthermore, they suggest that changing the way investors compensate brokers will change the nature of competition in the mutual fund industry.