Lucian A. Taylor
The Wharton School
University of Pennsylvania
2300 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6367
NBER Working Papers and Publications
|August 2017||Portfolio Liquidity and Diversification: Theory and Evidence|
with Lubos Pastor, Robert F. Stambaugh: w23670
A portfolio's liquidity depends not only on the liquidity of its holdings but also on its diversification. We propose simple, theoretically motivated measures of portfolio liquidity and diversification. We also develop an equilibrium model relating portfolio liquidity to fund size, expense ratio, and turnover. As the model predicts, mutual funds with less liquid portfolios have smaller size, higher expense ratios, and lower turnover. The model also yields additional predictions that we verify empirically: larger funds are cheaper, funds that trade less are larger and cheaper, and funds that are too big perform worse. We also find that mutual fund portfolios have become more liquid because both components of diversification, coverage and balance, have trended upward.
|November 2014||Do Funds Make More When They Trade More?|
with Lubos Pastor, Robert F. Stambaugh: w20700
We model optimal fund turnover in the presence of time-varying profit opportunities. Our model predicts a positive relation between an active fund’s turnover and its subsequent benchmark-adjusted return. We find such a relation for equity mutual funds. This time-series relation between turnover and performance is stronger than the cross-sectional relation, as the model predicts. Also as predicted, the turnover-performance relation is stronger for funds trading less-liquid stocks, such as small-cap funds. Turnover has a common component that is positively correlated with proxies for stock mispricing, consistent with funds exploiting time-varying opportunities. Turnover’s common component helps predict fund returns.
|February 2014||Scale and Skill in Active Management|
with Lubos Pastor, Robert F. Stambaugh: w19891
We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level: As the size of the active mutual fund industry increases, a fund's ability to outperform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, but estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund's lifetime. This result can also be explained by industry-level decreasing returns to scale.
Published: Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45. citation courtesy of
|December 2006||Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability|
with Lubos Pastor, Pietro Veronesi: w12792
We develop a model in which an entrepreneur learns about the average profitability of a private firm before deciding whether to take the firm public. In this decision, the entrepreneur trades off diversification benefits of going public against benefits of private control. The model predicts that firm profitability should decline after the IPO, on average, and that this decline should be larger for firms with more volatile profitability and firms with less uncertain average profitability. These predictions are supported empirically in a sample of 7,183 IPOs in the U.S. between 1975 and 2004.
Published: &Lubos Pástor & Lucian A. Taylor & Pietro Veronesi, 2009.
"Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability,"
Review of Financial Studies,
Oxford University Press for Society for Financial Studies, vol. 22(8), pages 3005-3046, August.
citation courtesy of