Taking the Road Less Traveled? Market Misreaction and Firm Innovation Directions

(with Zunda Winston Xu), June 2025

Semifinalist for FMA 2024 Best Paper Award (Asset Pricing & Investments)

Best Paper Award, USC Marshall PhD Conference in Finance

Presentations: SITE (2025), BEAM PhD (2025), SFS Cavalcade NA (2025), EFA (2025), MFA Regular Session (2025), AFA Regular Program (2025), FMA (2024), EGSC (2024), NFA PhD Session (2024), MFR Summer Session Poster (2024), ESSFM Evening Seminar (2024), USC Marshall PhD Conference (2024)

We propose that investors misreact differently to technological innovations based on novelty, and that these misreactions exert a real impact on firms' future innovations. First, using textual measures of novelty, we find that investors underreact to the issuance of path-breaking innovations but overreact to trend-following ones. Novel patent issuance predicts lower risk and positive forecast errors, consistent with a non-risk-based mispricing mechanism. A model where boundedly-rational investors are unsure about the true novelty of a patent at issuance, explains the empirical patterns well. Second, using exogenous distraction shocks, such as sensational news, we present causal evidence that, after disappointing returns to patent news, novel firms shift from creating and following up on novel innovations to copycatting. The findings highlight that investors' misreactions to patent novelty steer innovation away from higher-valued, groundbreaking research.

Associative Memory is Machine Learning

(with Leland Bybee), September 2023

We document a relationship between memory-based models of beliefs and a general class of kernel methods from the statistics and machine learning literature. Motivated by this relationship, we propose a new form of memory-based beliefs which aligns more closely with the state of the art in the machine learning literature. We explore this approach empirically by introducing a measure of “narrative memory”– similarity between states of the world based on similarity in narrative representations of those states. Using textual embeddings extracted from conference call transcripts, we show that our estimates of memory-based beliefs explain variation in errors in long-term growth forecasts of IBES analysts. We conclude by discussing implications of this relationship for the literature on memory-based models of beliefs.

The Risk and Return of Impact Investing Funds

(with Jessica Jeffers and Kelly Posenau), August 2024

Journal of Financial Economics 161: 103928 (November 2024). Replication Package, Online Appendix.

We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market β than comparable private market strategies. Accounting for β, impact funds underperform the public market, though not necessarily more so than comparable strategies. We consider alternative pricing models, accounting for sustainability and emerging markets risk. We show investors’ wealth portfolios and taste change the perceived financial merit of impact investing.

Context Dependence in Managerial Expectations

June 2024

Presentations: SFA (2025)

Financial Event Studies

(with Paul Goldsmith-Pinkham)

Presentations: NBER SI (2025), Southern Economic Association (2024)

What do Investors Overreact to? An Empirical Analysis of Long-Term Earnings Growth Forecast

November 2022