We examine how investor demand for leverage shapes asset management fees. We show that in the sample of U.S. equity mutual funds: (1) fees increase in fund market beta precisely for beta larger than one; (2) this relation becomes stronger and high-beta funds experience larger inflows when leverage constraints tighten; and (3) low net alphas are especially common among high-beta funds. These results are consistent with a model in which asset managers compete for leverage-constrained investors with heterogeneous risk aversion. The asymmetric relation between betas and fees also extends to the HML and SMB factors.
- Ph.D. in Business Economics, Harvard University
- Master and Bachelor degrees in Finance, Tsinghua University
Mingzhu TAI joined HKU after receiving her Ph.D in Business Economics from Harvard University in 2017. Before that she received her Master and Bachelor degrees in Finance from Tsinghua University.
Mingzhu’s research interests mainly include consumer and household finance, financial intermediation and general corporate finance. She is currently working to understand the relationship between banks, real estate markets, financial regulations, and credit activities by consumers and businesses.
- Consumer and household finance
- Financial intermediation
- Corporate finance
- Behavioral finance
- “How Did Depositors Respond to COVID-19?”, with Ross Levine, Chen Lin, and Wensi Xie, The Review of Financial Studies, 2021, 34(11), 5438-5473.
- “Paying for Beta: Leverage Demand and Asset Management Fees”, with Steffen Hitzemann and Stanislav Sokolinski, Journal of Financial Economics, 2022, 145(1), 105-128.
- “Lending Next to the Courthouse: Exposure to Adverse Events and Mortgage Lending Decisions”, with Da (Derek) Huo, Bo Sun, and Yuhai Xuan, Journal of Financial and Quantitative Analysis, forthcoming.
Take the recent study by Chen Lin and Mingzhu Tai from the HKU Business School, conducted with collaborators from the University of California, Berkeley and the Chinese University of Hong Kong. Their paper addressed a fundamental worry for almost everyone during the pandemic: Money. Specifically, they examined how people in the U.S. saved money in response to COVID-19.
Why did banks experience massive deposit inflows during the pandemic? We discover that deposit interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at branches—even branches of the same bank—in counties with lower infection rates. Credit drawdowns, national policies, such as the Payment Protection Program, and a flight-to-safety do not account for these cross-branch changes in deposit rates. Evidence suggests that higher local COVID-19 infection rates are associated with households’ greater anxiety about future job and income losses, anxiety that induces households to reduce spending and increase deposits.