This note is part of Quality testing.

"This thesis consists of three essays in empirical asset pricing. In the first essay, I study momentum crashes in emerging equity markets. In particular, I investigate that the momentum crashes are related to volatility, unconditional of the market state. I use emerging stock markets as a laboratory because of their high volatility in both bear and bull markets. My main finding is that momentum crashes are not limited to bear markets, and in fact, one third are experienced in bull markets. These crashes do not fit into the optionality model of Daniel and Moskowitz (2016). Instead, I provide evidence that momentum crashes are linked to the market volatility. In volatile states, the optionality payoff of momentum increases and momentum skewness decreases. Furthermore, I show that the poor performance of momentum in EMs is due to the high volatility in these markets. In the second essay, I investigate whether excessive shortselling is the primary cause for momentum crashes. My hypothesis is that the excessive shortselling of the loser stocks pushes their price below their fundamental values. When the market rebounds, the reversal in the price of the losers leads to momentum crash. I collect the data on shortselling policies across countries, and test whether momentum crashes less in markets with shortselling ban, controlling for the market state and volatility. My results show that the crashes are less severe in markets with shortselling ban, suggesting that shortselling partially explains momentum crashes.In the third essay, I study the mutual fund industry in 77 countries and examine how the fund styles are developed on the aggregate level. I apply textual analysis to the fund names in order to classify funds. I find that the 20 most frequently used words appear in over 50% of all fund names and I define 10 categories (“styles”) based on those (and related) words. These 10 categories are sufficient to classify over 85% of all funds. I find that the menu of funds are remarkably universal. My main result shows how the menu of funds offered to investors in those 77 countries converges over time to a common (“global”) menu of funds. I trace this surprisingly simple and uniform process of global menu convergence to the actions of individual fund families who follow similar growth paths. My results shed new light on the aggregate process of financial innovation and the industrial organization of the asset management industry that appears to produce the same “wholesale” menu around the world"--

The three essays of my dissertation are in the asset pricing area. The first essay is on the topic of how the popularity of ETFs affects active mutual funds. The second essay is about individuals' risk preferences and how early childhood experience can shape one's risk preference. The third essay is on whether active managers' education can affect their skills. Recently, the media frequently quotes active managers who claim that ETFs impede their ability of generating prots. They argue that ETFs are draining liquidity from the market and making it harder for them to generate alphas. However, a recent paper by Ben-David et al.(2018) argues that ETFs generate new inefficiencies into the underlying stocks in ETFs. Thus the popularity of ETFs should provide more opportunities for active managers to generate alpha. My first essay find that the popularity of ETFs prompts active mutual fund managers to conduct more informed trades that generate alphas. Specifically, the trades of skilled active managers better predict the future performance of stocks after the passive ownership in those stocks increase. This paper directly addresses the question of whether ETF ownership affects market efficiency by considering new inefficiencies caused by passive ETFs and whether those inefficiencies create arbitrage opportunities for active mutual funds. The second essay (co-authored) studies how our early childhood interactions with parents shape our risk preferences. Specifically, recent literature argues that only the more recent macro-economic experiences matters in shaping our risk-taking behaviors (Malmendier and Nagel, 2011), which indicates that one's earlier childhood experience is not important. Using an IV setting, we find that parents' risk-taking positively affects children's risk-taking. More importantly, exploiting a finding that parents spend more quality time with their first child, we find that this effect we identified comes mainly from one's childhood interaction with her parents, confirming a nurturing channel. This parental effect doesn't fade away with time/when children move away from parents. The third essay looks at how a mutual fund manager's early personal experience, education, affects her skills to generate performance. By showing active mutual fund managers perform better in industries that are related to their education major, this paper provides evidence that active managers have skills in those industries that they have expertise in. The first essay focuses on the institutional investors; the second essay focuses on individual investors and their early experience; while the third essay links the first two by looking at one's early experience and how it affects institutional investors such as active fund managers.