I am an assistant professor of finance at Northeastern University's D'Amore-McKim School of Business. If you need to reach me, please email me at da dot huang at northeastern dot edu.
This paper shows that the rise of passive investing makes the active mutual fund industry more skilled. Greater passive investing makes it easier for active funds to outperform the benchmark and accelerates the exit of underperforming funds. In response, skilled managers take less risk to outperform more consistently. Since unskilled active managers introduce noise into stock prices, accelerating their exit improves market efficiency. These findings reconcile the rise of passive investing, closet indexing, and fund homogenization, which may imply a lack of skill, with the literature documenting the presence of skills in the active mutual fund industry.
Presentations: University of Utah, Northeastern University.
We study how property tax limitations affect the covariance risk of property taxes, the tendency for tax increases to coincide with economic downturns. Using a simulation that incorporates assessment, rate, and levy limitations with other tax system features, we show that all limitations increase covariance risk. We estimate its impact on mortgage distress with parcel-level data in a state-border discontinuity design. At the same level of taxation, a one-standard-deviation increase in limitation-policy-induced covariance risk raises distress probability by 30%, with stronger effects for financially vulnerable and minority households. These results highlight unintended consequences of tax limitations and motivate policy solutions.
Presentations: National Tax Association 2022, Villanova University, Michigan Tax Invitational 2022, the Lincoln Institute Urban Economics and Public Finance Conference, Syracuse-Chicago Webinar Series on Property Tax Administration and Design 2023, Urban Economics Association North American Meeting 2023, International Institute of Public Finance 2023, the Hoover Institute, Northeastern University, ZEW Public Finance Conference 2024, University of Tübingen.
Do firm managers listen more to some shareholders than others? We show that directors facing the same level of dissent are twice as likely to leave the board when the dissent originates from active fund shareholders rather than passive ones. This phenomenon is driven by the stronger disciplinary threat posed by active funds rather than by any informational advantage. As a result, despite the large holdings of the "Big Three" passive asset managers, we find that their votes carry the same weight as those of an average active fund. Our findings highlight that shareholder democracy depends not only on the vote tally, but also on who casts the votes.
Presentations: Northeastern University, RCFS Winter Finance Conference 2025, Drexel Corporate Governance Conference 2025, SFS Cavalcade North America 2025, Northern Finance Association 2025. Media Mentions:ECGI
This paper examines the coevolution of cryptocurrency technology, prices, and developer activity. Using high-frequency GitHub data, we construct novel measures of technology flaws (bug reports) and technology development (code commits) for major coins. We find that the emergence of a new technology flaw predicts a 7-basis-point decline in next-day returns with no subsequent reversal, indicating immediate and persistent pricing effects. Conversely, a 1% drop in coin valuation reduces technology development effort by 0.14%, suggesting feedback from markets to innovation. Together, these results reveal that technology is a fundamental driver of cryptocurrency valuation and that prices and technological progress are linked through a two-way feedback mechanism.
Presentations: University of Utah, Future of Financial Information Conference 2025.
Active exchange-traded funds (AETFs) have grown rapidly despite the decline of poor-performing active mutual funds (AMFs). AETFs' growth, however, is not due to superior performance. In fact, AETFs have significantly worse performance than AMFs. Rather, AETFs are taking advantage of retail investors' attention-driven trading behavior. Similar to equity investors, AETF investors chase extreme short-term returns, both positive and negative, while long-term flows have no response to underperformance. Managers respond to these payoffs by taking high risks to generate extreme returns. Overall, our results show how active management has responded to the decline of their traditional distribution channel.
Presentations: Northeastern University, ICI Summer Research Workshop 2025, Financial Management Association 2025. Media Mentions:Northeastern Global News
We study how tax revenue risk affects municipal borrowing costs. We define tax risk as the covariance between revenues and macroeconomic states, which increases when shortfalls coincide with downturns. Municipalities with higher tax risk pay systematically higher yields: a one-standard-deviation increase in tax risk raises offering yields by 3 basis points and secondary-market yields by 7 basis points. Results are robust to a border-discontinuity design and are strongest where repayment capacity from other sources is limited. Income-based tax portfolios generate more risk than sales-based systems. Higher tax risk increases municipal borrowing costs, leading to sustained spending cuts in public investments.
Presentations: Urban Economics Association North American Meeting 2025, Northeastern University.
This paper shows that exchange-traded funds (ETFs) "sample" their indexes, systematically underweighting or omitting illiquid index stocks. As a result, arbitrage activity between the ETF and its index has heterogeneous effects on underlying asset markets. Using an instrumental variables approach, we find that the trading activity of ETFs reduces liquidity and price efficiency and increases volatility and co-movement for liquid stocks, but has no effect on illiquid stocks. Our results demonstrate that the effects of passive investing on asset markets depend on how passive funds replicate their target index.
Presentations: IEX Academic Conference 2019, University of Utah, Financial Management Association 2021, European Finance Association 2021, American Finance Association 2022.
[1] Non-Standard Errors
Crowd-sourced project led by Albert Menkveld with #fincap, Journal of Finance. Vol 79, Issue 3 (June 2024), pp. 2339-2390.
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.
Does high-frequency trade increase or decrease volatility in financial markets during crises? We introduce a novel intraday volatility measure for ETFs, and find that during the Covid-19 crisis period, the withdrawal of high-frequency trade from large stock ETFs increases intraday ETF volatility net of the fundamental shock from Covid itself by over 30%. The speed of arbitrage activities slows down during the Covid-19 period as high-frequency traders reduce the intensity of their trading. While high frequency traders may serve as de facto market makers during normal times, they withdraw from the market during a crisis, precisely when they are needed most.
