Three essays in financial economics

In the first essay, ("Abnormal Volume in Large Trades and the Cross-Section of Expected Stock Returns"), I employ a new variable, abnormal volume in large trades, to study information risk. I provide new evidence to support the asymmetric information hypothesis that stocks with greater information risk are expected to have higher returns. In the second essay, ("Retail Investor Industry Herding", joint work with Russell Jame), we examine the industry wide investment decisions of individuals (retail investors). We find that retail investor herd into industries, and that industry herding can forecast 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. In the third essay, ("Mutual Fund Industry Selection and Persistence", joint work with Jeff Busse), we analyze mutual fund industry selectivity---the performance of a fund's industry allocation relative to the market. We find that industry selection accounts for a quarter of fund performance based on two-digit SIC codes, with the remaining attributable to the performance of individual stocks relative to their own industries. We find that industry-selection skill drives persistence in relative performance, particularly over longer investment horizons. Unlike individual-stock-selection ability, industry selectivity is not eroded by increasing fund assets.