Jeffrey D. Kubik

Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization

We investigate the effect of scale on performance in the active money management industry. We first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performance benchmarks. We then explore a number of potential explanations for this relationship. This association is most pronounced among funds that have to invest in small and illiquid stocks, suggesting that these adverse scale effects are related to liquidity. Controlling for its size, a funds return does not deteriorate with the size of the family that it belongs to, indicating that scale need not be bad for performance depending on how the fund is organized. Finally, using data on whether funds are solo-managed or team-managed and the composition of fund investments, we explore the idea that scale erodes fund performance because of the interaction of liquidity and organizational diseconomies.

Disability insurance rejection rates and the labor supply of older workers

Disability Insurance (DI), which provides income support to disabled workers, has been criticized for inducing a large fall in the labor force participation rate of older workers. We study the effects of one policy response designed to address this moral hazard problem: raising the rate at which DI claims are denied. Initial DI applications are decided at the state level, and, in response to a funding crisis for the DI program in the late 1970s, the states raised their rejection rates for first time applicants by 30% on average. The extent of this rise, however, varied substantially across states. We use this variation to estimate a significant reduction in labor force non-participation among older workers in response to denial rate rises. A 10% increase in denial rates led to a 2.7% fall in non- participation among 45-64 year old males; between 1/2 and 2/3 of this effect is a true reduction in labor force leaving, with the remainder accounted for by the return to work of denied applicants. We find some support for the notion that increases in denial rates effectively target their incentive effects to more able individuals; the fall in labor force non-participation was much stronger among more able workers, according to an anthropometric measure of disability.

Incentives for the identification and treatment of children with disabilities: the supplemental security income program

Abstract This paper examines how Supplemental Security Income (SSI) benefit availability and generosity affect the probability that families identify health problems in their children and move onto the SSI rolls. First, I observe that a liberalization of SSI eligibility in 1990 was followed by a substantial re-evaluation of the health status of low-income children by their parents. Then, I find that increases in SSI benefits raise the likelihood that a family identifies a chronic impairment in their child. My results indicate that cash assistance targeted on children with disabilities promotes the detection and treatment of medical problems in low-income children.

The incidence of personal income taxation: evidence from the tax reform act of 1986

Abstract This paper studies the short-run incidence of personal income taxation in the US by examining how the wage structure shifted after the Tax Reform Act of 1986. I calculate the marginal tax rate for the median worker of each occupation during the 1980s to determine the professions whose workers were most affected by the tax change. When controlling for trends over time in the wage structure by occupation, I find that individuals in occupations that experienced large decreases in their median marginal tax rates received lower pre-tax wages after 1986 as the number of workers and the hours worked in those professions increased. The results suggest that consideration of the wage effects of tax reforms is important when using these reforms to identify behavioral parameters and evaluating their distributional consequences.

Do Security Analysts Discipline Credit Rating Agencies

Earlier work exploiting brokerage house mergers identified that security analyst coverage leads to more competitive and less optimistically biased earnings forecasts. Since the earnings forecasts for a firm’s equity enter directly into the credit ratings of a firm’s debt, we test the hypothesis that security analyst coverage also disciplines credit rating agencies. We indeed find that a drop in analyst coverage due to these mergers leads to greater optimism-bias in credit ratings, especially for firms with little bond analyst coverage to begin with and for firms that are close to default. This coverage-induced shock leads to less informative ratings about future defaults and downgrades, and more subsequent bond security mispricings. Even though analysts do not directly compete with credit rating agencies, analyst reports about a firm’s equity nonetheless discipline what credit rating agencies can say about the firm’s debt.

Lethal Elections: Gubernatorial Politics and the Timing of Executions*

We document the existence of a gubernatorial election cycle in state executions, which suggests that election‐year political considerations play a role in determining the timing of executions. Our analysis indicates that states are approximately 25 percent more likely to conduct executions in gubernatorial election years than in other years. We also find that elections have a larger effect on the probability that an African‐American defendant will be executed in a given year than on the probability that a white defendant will be executed and that the overall effect of elections is largest in the South.

Can Policy Changes Be Treated as Natural Experiments? Evidence from State Excise Taxes

An important issue in public policy analysis is the potential endogeneity of the policies under study. If policy changes constitute responses on the part of political decision-makers to changes in a variable of interest, then standard analyses that treat policy changes as natural experiments may yield biased estimates of the impact of the policy (Besley and Case 2000). We examine the extent to which such political endogeneity biases conventional fixed effects estimates of behavioral parameters by identifying the elasticities of demand for cigarettes and beer using the timing of state legislative elections as an instrument for changes in state excise taxes. In both cases, we find sizable differences between these estimated demand elasticities and the fixed effect estimates cited in Evans, Ringel, and Stech (1999). We conclude that the use of fixed effects estimators in environments where policy interventions are endogenously determined may lead to large biases in the estimated effects of the policies.

Ordering, revenue and anchoring in art auctions

We estimate the effect of ordering by value on revenues in sequential art auctions held by Sothebys and Christies. We exploit a pre determined rotation of which of these two houses holds their auction first during auction week in New York City. When the house that goes first has relatively expensive paintings compared to the other house, we find that the sale premium for the week is around 21% higher relative to the mean sale premium, and the fraction of paintings sold during the week is around 11% higher. We provide evidence that this is due to an anchoring effect.

When Real Estate is the Only Game in Town

Using data on household portfolios and mortgage originations, we find that households residing in a city with few publicly traded firms headquartered there are more likely to own an investment home nearby. Households in these areas are also less likely to own stocks. This only-game-in-town effect is more pronounced for households living in high credit quality areas, who can access financing to afford a second home. This effect also becomes pronounced for households living in low credit quality areas after 2002 when securitization made it easier for these households to buy second homes. Cities with few local stocks have in equilibrium higher price-to-rent ratios, making it more attractive to rent, and lower (primary residence) homeownership rates.The excesses of the historic US housing cycle of the 2000s were concentrated in the Metropolitan Statistical Areas (MSAs) of Arizona, California, Florida and Nevada. Even controlling for leading explanations of this housing cycle, these Sand State MSAs had more than double the mortgage originations, defaults and price fluctuations than other MSAs. We show that these excesses can be explained by Sand State MSAs having an abnormally low supply of publicly traded firms headquartered there relative to total income. Households in these MSAs are more likely to purchase investment homes nearby rather than stocks, amplifying the housing cycle there.

Health insurance coverage and the disability insurance application decision

According to the present disclosure, a first optical system includes a first light source and emits a first illumination light. A second optical system includes a second light source and emits a second illumination light. A controller controls turning-on/off of the first light source and the second light source. The first optical system and the second optical system are configured such that a first illumination standard is satisfied by the first illumination light and the second illumination light. The first optical system is configured such that a second illumination standard is satisfied by the first illumination light. The controller allows the turning-on of the first light source when the turning-on of the second light source is disabled, and prohibits the turning-on of the second light source when the turning-on of the first light source is disabled.