Pauline M. Shum Nolan

Wallstreetbets (WSB) is the perfect echo chamber to study retail investor behaviour and markets. We introduce a direct measure of individual stock attention and the concept of forum-wide attention herding. We fine-tune a large language model to classify investor sentiment. We find that WSB sentiment is inversely related to the VIX. In general, more individual stock attention leads to more stock purchases, and sentiment is a contrarian predictor of future returns. However, when attention herds on a stock with high user engagement, trades peak but there is no reversal in returns. Finally, our monthly attention herding portfolio generates sizable alphas.

We study whether subadvising abroad provides an information advantage that improves the performance of international equity mutual funds. We find that it does not. In fact, internationally outsourced funds underperform on a risk-adjusted basis by up to 162 bps annually. The underperformance is concentrated in funds managed by single subadvisors, who are less likely to be terminated after poor performance compared to funds with multiple subadvisors. We dissect fund performance by the location of its subadvisors and find that international subadvisors underperform primarily in their local holdings. Finally, we show that the industry is nonetheless on a path toward equilibrium. (JEL G11, G12, G14, G15, G23).

We show that highly liquid Exchange‐Traded Funds (ETFs), especially those that are more liquid than their underlying basket of securities (i.e., positive relative liquidity), are particularly attractive to investors. Using three definitions of liquidity, we find that relative liquidity predicts net fund flows, as well as inflows and outflows positively and significantly. We further document a liquidity clientele among institutional investors: (i) relative liquidity is significantly more important for short‐ than for long‐term investors; and (ii) relative liquidity is inversely related to investors’ average holding duration in the ETFs. These two findings provide evidence that relative liquidity encourages short‐term demand.

Regulators and market participants are concerned about leveraged exchange-traded funds (ETFs)’ role in driving up end-of-day volatility through hedging activities near the market’s close. Leveraged ETF providers counter that the funds are too small to make a meaningful impact on volatility. For the period surrounding the financial crisis, 2006–11, we show that end-of-day volatility was positively and statistically significantly correlated with the ratio of potential rebalancing trades to total trading volume. The impacts were not all economically significant, but largest during the most volatile days. Given the predictable pattern of leveraged ETF hedging demands, implications for predatory trading are explored.

Leveraged and inverse ETFs (hereafter leveraged ETFs) have received much press coverage of late due to issues with their performance. Managers and the media have focused investors’ attention on the impact of compounding, when the funds are held for more than one day. The aim of this paper is to lay out a framework for assessing the performance of leveraged ETFs.

Exchange-traded funds (ETFs) are unique pooled investments. They are traded on a stock exchange, and their shares can be created and redeemed accordingly to demand. Unlike mutual funds, ETFs appeal to both retail and institutional investors. In this article, we examine the drivers of ETF asset growth. In particular, we compare the growth path of ETFs that track an identical underlying index. Our results suggest that individual ETF asset growth is driven not only by asset returns but also by a host of financial/technical and investor attention variables. Importantly, the extent of the influence of specific drivers is conditional on an ETF’s growth stage and clientele. We also explore measurable factors that may influence investor attention.