Ruan, Hongxun
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Publication Essays On Mutual Funds(2018-01-01) Ruan, HongxunIn the first chapter, ``Social Capital and Innovation: Evidence from Connected Holdings'', I investigates how social capital affects innovation. I measure a firm's social capital with connected holdings, which is the fraction of equity of a particular firm held by mutual funds whose managers are connected to the firm's board members through educational networks. I use plausibly exogenous variation in the size of board members' networks as an instrument for connected holdings. I find higher connected holdings lead to larger number of patents granted, more patent citations, and higher firm value created by patents. Connected holdings foster innovation by helping to reduce short-term capital market pressures and to increase management job security. The second chapter, ``Marketing Mutual Funds'', co-authored with Nikolai Roussanov and Yanhao Wei, we investigate marketing and distribution expenses' impact on the allocation of capital to funds and on returns earned by mutual fund investors. We develop and estimate a structural model of costly investor search and fund competition with learning about fund skill and endogenous marketing expenditures. We find that marketing is nearly as important as performance and fees for determining fund size. Restricting the amount that funds can spend on marketing substantially improves investor welfare, as more capital is invested with passive index funds and price competition decreases fees on actively managed funds. Average alpha increases as active fund size is reduced, and the relationship between fund size and fund manager skill net of fees is closer to that implied by a frictionless model. Decreasing investor search costs would also imply a reduction in marketing expenses and management fees as well as a shift towards passive investing.