| This dissertation investigates the investment decisions of individual and institutional investors. In the first essay, ("Organizational Structure and Fund Performance: Pension Funds vs. Mutual Funds"), I examine how differences in organizational structure influence the investment choices and performance of pension funds and mutual funds. I present evidence which suggests that the additional layers of delegation found in the pension fund industry generate agency costs that hinder pension fund performance. In the second essay, ("Understanding the S&P 500 Composition Effect: Evidence from Transaction Data", joint work with Clifton Green) we shed new light on the S&P 500 composition effect by examining the investment decisions of index funds and individual investors around S&P 500 composition changes. Our central finding is that many index funds are willing to accept tracking error in exchange for better execution prices. In the third essay, ("Retail Investor Industry Herding", joint work with Qing Tong), we examine the industry wide investment decisions of individuals (retail investors). We find that retail investors herd into industries, and that industry herding can forecasts industry returns. The industries most heavily bought by retail investors significantly underperform the industries most heavily sold by retail investors over the subsequent 3 to 12 months. Taken together, our results suggest that retail investors categorize stocks by industry, and that industry-wide sentiment contributes significantly to the poor performance of retail investors. |
