Essays in Asset Pricing

This dissertation includes three essays in asset pricing. The first two essays explain the role of investor trust on mutual fund investor behavior and private fund capital raising, respectively. The third essay proposes a valuation model for bitcoin options.

In the first essay, I investigate the impact of investment adviser disciplinary actions on mutual fund performance and investor redemption behavior. After a regulatory disciplinary action initiation, funds experience a transitory performance loss in the next month. In contrast, I observe persistent fund outflows starting two months after the regulatory action disclosure and persisting for over one year. My evidence suggests that investors reduce investments in affected funds mainly because they lose trust in fund integrity rather than because they observe fund performance deterioration.

In the second essay, I examine the role of investor trust in the capital raising process of private funds by analyzing the impact of third-party service providers and investment adviser disciplinary actions in the US. Using private fund’s initial filings, I document that fund managers that use third party marketers raise less capital and have reduced shares of sophisticated investors even though these marketers can bring more investors. This finding indicates that investors do not trust third party marketers and prefer fund managers to be directly involved in the capital raising process. On the other hand, service providers such as auditors and bookkeepers that help regulate private funds’ financials and increase investor trust are associated with more capital raised and investor ownership. Furthermore, I observe persistent decline in total assets managed, number of investors and sophisticated investor ownership following a criminal action, suggesting that investors place a significant value on trust and more likely to respond specific disciplinary actions by withdrawing their assets.

In the final essay, I propose an equilibrium valuation model for bitcoin options traded on the Chicago Mercantile Exchange. Numerical analysis shows that, among other things, all risks lead to a positive premium in option prices relative to the benchmark Black-Scholes model, and the diffusive and/or jump risks of money supply accounts for a large portion of the bitcoin return volatility.