David Schumacher

Assistant Professor, Finance Area
Desautels Faculty of Management
McGill University

1001 Sherbrooke Street West
Montreal, QC H3A 1G5, Canada

E-Mail: david.schumacher@mcgill.ca
Phone: (+1) 514-398-4778
Welcome to my website!
You will find here information on my research activities.
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Curriculum Vitae    


Research Interests

International Finance, Asset Management, Financial Institutions, Asset Pricing, Portfolio Choice.    


  • Outsourcing in the International Mutual Fund Industry: An Equilibrium View    
    (joint with O. Chuprinin and M. Massa). Journal of Finance 70(5), 2015, 2275-2308.
Abstract: We study outsourcing relationships among international asset management firms. We find that in companies that manage both outsourced and inhouse funds, inhouse funds outperform outsourced funds by 0.85% annually (57% of the expense ratio). We attribute this result to preferential treatment of inhouse funds via the preferential allocation of IPOs, trading opportunities and cross-trades, especially at times when inhouse funds face steep outflows and require liquidity. We explain preferential treatment with agency problems: it increases with the subcontractor's market power and the difficulty of monitoring the subcontractor and decreases with the subcontractor's amount of parallel inhouse activity.
  • Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice    
    Review of Financial Studies, forthcoming.
Abstract: In their foreign portfolio allocations, international mutual funds overweight industries that are comparatively large in their domestic stock market. Aggregate excess foreign industry allocations are sizeable, on average amounting to over 100% for the largest domestic industries. While this foreign industry bias partly reflects familiarity-based motives, a large body of evidence on investment and performance patterns is on the whole remarkably consistent with a specialized learning motive contributing to the bias. This suggests that differences in industry structures across domestic stock markets proxy for international information asymmetries.

Working Papers

  • Information Barriers in Global Markets: Evidence from International Subcontracting Relationships    
    (joint with M. Massa). Journal of Financial and Quantitative Analysis, conditionally accepted.
Abstract: We study the link between information barriers in global markets and the organizational form of asset management. Fund families outsource funds in which they are at an informational disadvantage to generate performance. Using a structural model of self-selection, we endogenize the outsourcing decision and estimate positive gains from outsourcing of around 4-14 bps per month, thereby reconciling underperformance of outsourced funds with performance maximization by fund families. The gains from outsourcing provide a novel proxy for the information barriers that segment global financial markets. The more segmented the underlying markets where the funds invest, the larger the gains from outsourcing.
  • The Value of Human Capital Synergies in M&A: Evidence from Global Asset Management    
    (joint with M. Luo and A. Manconi).
Abstract: We use mergers in the global asset management industry to examine the relationship between firm size and fund performance and to study the value of human capital synergies. We document significant changes in managerial turnover, portfolio differentiation, and fund performance in the post-merger period, especially after mergers that increase the size and complementarity of human capital. The re-allocation of human capital following a merger is associated with a better matching of human to investment capital and creates $4.2 million additional value per year per fund. Improvements in internal labor markets appear to be a central benefit of asset management mergers.

This paper received media coverage from 929.
  • Who is afraid of BlackRock?    
    (joint with M. Massa and Y. Wang).
Abstract: We use the merger of BlackRock with Barclays Global Investors (BGI) as an event to study how changes in ownership concentration affect the investment behavior of financial institutions and the cross-section of stocks worldwide. We find that other institutional investors re-balance away from stocks that experience a large increase in ownership concentration due to the pre-merger portfolio overlap between BlackRock and BGI. Over the same period, institutional ownership migrates towards comparable stocks not held by BGI funds prior to the merger. The re-allocation of institutional ownership has price impact. Stocks that experience large increases in ownership concentration due to the merger experience negative returns that do not fully revert. These stocks also become permanently less liquid and less volatile. We confirm these effects in a large sample of asset management mergers over a ten year period. The results suggest that investors take the risk of future financial fragility into account and that they preposition themselves in order to minimize their exposure to potential future fire sales and liquidity crises.

This paper received media coverage from The Economist, Spiegel, Ignites, Fund Fire, CIO, Top1000funds.com, The Business Times Singapore, 929, Handelsblatt, and Manager Magazin. My co-author Massimo Massa was interviewed on the paper by CNBC.
  • Contagion and Decoupling in Intermediated Financial Markets    
Abstract: I analyze the interplay between fundamental and intermediation risk in a multi-asset dynamic general equilibrium model with heterogeneous agents. Agents differ in their level of direct access to investment opportunities. Intermediation relationships are formed to overcome limited market access. Intermediation risk is captured via frictions in the relationships between agents that introduce fragility into asset prices. Asset prices are fragile when they have a concentrated investor base making them dependent on the fortunes of a few investors. In contrast, a non-concentrated investor base makes asset prices resilient with respect to intermediation risk. But not all assets with a concentrated investor base are fragile. I identify fundamental characteristics that induce resilience in assets with a common concentrated investor base. These characteristics lead to portfolio rebalancing within the common investor base that makes some assets resilient and renders others fragile in the presence of intermediation risk. Likewise, in a multi-asset framework, assets that are resilient due to a broad investor base are not completely immune to the fragility experienced by other assets. In a dynamic context, fragile assets tend to experience contagion whereas resilient assets tend to decouple whenever the intermediation frictions are severe. I argue that an understanding of the dynamic behavior of asset prices requires an understanding of fundamental and intermediation risk as well as the interaction between the two.