SAURIN PATEL

MYPIC

Assistant Professor (Finance)
Ivey Business School
Western University

CV
Official Homepage
Google Scholar Homepage
SSRN Homepage

AREAS OF INTEREST

Empirical Asset Pricing
Investments
Mutual Funds
Behavioral Finance

CONTACT

1255 Western Road
Office 3336
London, Ontario
Canada N6G 0N1

DM

PUBLICATIONS:

  1. Portfolio Pumping and Managerial Structure, with Sergei Sarkissian

    Using U.S. equity mutual fund data, we show that portfolio pumping - an illegal trading activity that artificially inflates year-end and quarter-end portfolio returns - is more pronounced among single-managed than team-managed funds. The return inflation by team-managed funds is 45% lower than by single-managed funds at year-ends. Also, portfolio pumping decreases as team size increases. These results are mainly driven by peer effects among teams and, in some cases, amplified by less convex flows - performance relation in team-managed funds. Our findings are robust to differences in fund governance, manager career concerns, local networks, fund-family policies, and intensity of the SEC enforcement.

    • Review of Financial Studies, Forthcoming.

  2. What drives Active Share? Active Stock Selection or Active Stock Weights, with Aymen Karoui

    Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio benchmark and correlates positively (88%) with Active Share. ASW captures portfolio weight deviations from market capitalization weights and correlates negatively (-55%). Furthermore, we find some evidence that ASE positively predicts performance, while ASW negatively predicts performance. Our results suggest that the benefits of Active Share stem from the selection decision rather than the weighting decision.

    • Journal of Investment Management, Forthcoming.

  3. Portfolio Turnover Activity and Mutual Fund Performance, with Aymen Karoui and Claudia Champagne

    We propose a new measure of portfolio activity, the Modified Turnover, which represents the portion of the portfolio that the manager changes from one quarter to the next. Compared with the traditional turnover, our Modified Turnover measure relies on portfolio holdings and takes into account the effects of offsetting trades and fund flows on portfolio turnover. We find evidence that high Modified Turnover predicts lower performance. The comparison between the highest and lowest quintiles sorted based on Modified Turnover reveals a difference of -2.41% in the annual risk-adjusted return. Furthermore, high Modified Turnover predicts lower net flows. We also find that Modified Turnover relates positively to other activeness measures while volatility, flows, size, number of stocks, and the expense ratio are significant determinants of Modified Turnover. Overall, our results suggest that frequent churning of a portfolio is value-destroying for investors and signals a manager's lack of skill.

    • Managerial Finance, 2018, March 44(3): 326 - 356.

    • Winner of the "2018 Outstanding Paper Award" in Managerial Finance for the most exceptional piece of work published in the journal in 2018.

  4. Going to Haven? Corporate Social Responsibility and Tax Avoidance, with Burcin Col

    This study examines the endogenous relation between corporate social responsibility (CSR) and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms' CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations (CFC) look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities.

    • Journal of Business Ethics, 2019, February 154(4): 1033 - 1050.

  5. To Group Or Not To Group? Evidence from Mutual Funds, with Sergei Sarkissian

    Despite the overwhelming trend in mutual funds toward team management, empirical studies find no performance benefits for this phenomenon. We show it is caused by large discrepancies in reported managerial structures in Center for Research in Security Prices and Morningstar Principia data sets versus U.S. Securities and Exchange Commission records, resulting in up to 50-basis-points underestimation of the team impact on fund returns. Using more accurate Morningstar Direct data, we find that team-managed funds outperform single-managed funds across various performance metrics. The relation between team size and fund performance is nonlinear. Also, team-managed funds take on no more risk than single-managed funds. Overall, team management benefits fund industry performance.

    • Journal of Financial and Quantitative Analysis, 2017, October 52(5): 1989 - 2021.


WORKING PAPERS:

  1. Managerial Structure and Performance Induced Trading, with Anastassia Fedyk and Sergei Sarkissian

    We propose a new channel through which teamwork improves mutual fund activity: by offsetting individual manager overconfidence, teams mitigate excessive performance-induced trading (PIT). The predictions of our theoretical model are confirmed in the data. Team-managed funds trade less after good performance than single-managed funds and this differential increases with team size. Moreover, changes from single-to team-management correspond to lower PIT. Our results cannot be explained by alternative explanations, including manager experience, fund governance, gender, and fund flows. Overconfident trading by single-managed funds results in lower next-period returns compared to team-managed funds. Our findings indicate that team-management reduces uninformed overconfident trading.

    • 2020 American Finance Association (AFA) Meetings, San Diego; 2019 Recent Advances in Mutual and Hedge Fund Research, Berlin; 2019 China International Conference in Finance (CICF), Guangzhou; University of Hong Kong; 2019 CQA Investment Conference, Las Vegas; 2018 Luxemburg Asset Management Conference, Luxemburg; Santa Clara University

  2. Are Credit Markets Tone Deaf? Evidence from Credit Default Swaps, with Hitesh Doshi, Matt Sooy and Srikant Ramani

    We examine credit market responses to the linguistic tone of disclosures made in 10-Q/K fillings, controlling for the information content conveyed in the reports. Examining windows around quarterly filings, we find that uncertain tone levels are associated with changes in credit default swap (CDS) spreads and are incremental to price changes implied via equity market responses to the same information. We also observe that the magnitude of the relationship varies according to contract attributes specific to debt, with price responses monotonically increasing as CDS contracts approach maturity and as they approach default. Our results are robust to other sources of risk such as earnings surprises and management guidance, and to alternative proxies of uncertainty and other linguistic dimensions. Our finding is consistent with market participants linking uncertainty in disclosure language to firms' default risk, implying that the tone of accounting disclosures provides valuable incremental information to the CDS markets.

    • 2019 American Accounting Association (AAA) Meetings, San Francisco; 2019 Canadian Academic Accounting (CAA) Conference, Ottawa; 2018 Midwest Finance Association (MFA) Conference, San Antonio;

  3. The Role of Mutual Funds in Corporate Social Responsibility, with Frank Li and Srikant Ramani

    This paper examines the role of mutual funds in corporate social responsibility (CSR). Using a fund level holdings-based CSR score, we find that a mutual fund's CSR score is positively related to a firm's future CSR standings. This relationship is not just driven by high-CSR funds selecting high-CSR firms (initial selection effect), but also by improving their CSR standings afterwards (subsequent improvement effect). The effects of mutual funds on firm CSR are more pronounced for firms with higher mutual fund ownership and stronger corporate governance. Furthermore, we find that high-CSR funds are more likely to vote in favor of implementing CSR proposals, and that firms owned by high-CSR funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that the social commitment of mutual funds is an important determinant of a firm's social performance.

    • 2017 Northern Finance Association (NFA) Meetings, Halifax;

  4. Economic Optimism, Information Uncertainty and Future Investment Decisions: Evidence from the Mutual Fund Industry

    This paper examines whether investors' optimism about the future economic growth affects their future investment decisions. Drawing from the insights of the theoretical literature on investment behavior, we argue that investors base their future investment decisions not only on asset-specific information and existing macroeconomic environment, but also on their beliefs about future economic growth. Consistent with this premise, we find that investors' investment decisions, measured by mutual fund flows, are positively influenced by their economic optimism, even after controlling for various fund characteristics and macroeconomic conditions. Moreover, this effect is more pronounced for funds with greater fund-specific information uncertainty, i.e. funds that are small, belong to smaller fund families, or have highly volatile past performance. Our results suggest that investors not only consider forward-looking economic optimism in their investment decisions, but also put greater weight on it when fund-specific information seems uninformative and less valuable.

    • 2012 ZEW Conference, Mannheim; 2012 FMA Doctoral Consortium, Atlanta; 2012 FMA European Doctoral Consortium, Istanbul; 2011 Northern Finance Association (NFA) AFA Meeting, Vancouver; University of Quebec at Montreal (UQAM)

WORK IN PROGRESS:

  1. Amplifying the Benefits of Gender Diversity in Majority Male Settings: Evidence from Mutual Fund Industry, with Alison Konrad, Kenneth Goh and Natasha Ouslis

RECENT MEDIA COVERAGE:

INTERVIEWS/OPINIONS:

FUNDING GRANTS:

  1. Social Social and Humanities Research Council (SSHRC) Insight Grant, with Alison Konrad and Kenneth Goh, 2018

    • Title: Amplifying the Benefits of Gender Diversity in Majority Male Settings (R3513A17)

    • Amount: $82,900

    • Grant Period: 2018-2021

  2. Social Social and Humanities Research Council (SSHRC) Insight Grant, with Sergei Sarkissian, 2014

    • Title: The Impact of Organizational Structure on Fund Performance (R5180A02)

    • Amount: $280,000

    • Grant Period: 2014-2020

ACADEMIC AWARDS & HONORS:

  • Outstanding Paper Award, Managerial Finance, 2018

  • Excellence in Teaching Award, McGill University, 2010

  • Gold Medal for Outstanding Graduate Student, Faculty of Arts, M.S. University, 2005

  • Gold Medal for Academic Excellence, Department of Economics, M.S. University, 2005

GRADUATE FELLOWSHIPS:

  • National Bank Financial Group PhD Fellowship, 2011-2012

  • Walter John Stenason PhD Fellowship, 2010-2011

  • FQRSC Doctoral Program Fellowship, 2008-2011

  • Principal's Graduate Fellowship, McGill University, 2008-2009