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.
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.
Property tax limitations reduce the pro-cyclicality of property taxes, creating a distinct form of risk that we define as covariance risk. We find that a one standard deviation increase in covariance risk raises mortgage distress by 30%, with stronger effects for residents of majority-black neighborhoods, owners of over-assessed properties, high loan-to-value borrowers, and long-tenured homeowners. We identify these effects using parcel-level data, a state border discontinuity design, and a property tax simulator we develop that incorporates assessment, rate, and levy limitations. These findings underscore how tax policy affects risk and supports policies, such as targeted tax deferral programs, that could mitigate these risks.
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, the ZEW Public Finance Conference, University of Tübingen.
Are cryptocurrencies mere speculative bubbles, or do their returns reflect the quality of their underlying technology? To address this question, we examine crypto technological flaws leading to cybersecurity exposures. Technological flaws in the underlying technology of cryptos, their publicly visible source code on GitHub, are bugs documented by developers to be fixed later. We find that one flaw predicts a 7 basis point decrease in the coin's daily return. A portfolio that longs no-flaw coins and shorts high-flaw ones, which we term the “cybersecurity factor,” earns 30 basis points daily. Our results demonstrate that cryptocurrency returns reflect the quality of their underlying technology.
Presentations: University of Utah, Future of Financial Information Conference 2025.
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.
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.
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.
