David Schumacher

Associate Professor, Finance Area
Director, Desmarais Global Finance Research Center
Desautels Faculty of Management
McGill University

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

E-Mail: david.schumacher@mcgill.ca
Welcome to my website!
You will find here information on my research activities.
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Curriculum Vitae    


Research Interests

Asset Management, Portfolio Choice, International Finance & Markets.    


  • 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 31(5), 2018, 1654-1706.
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.
  • Information Barriers in Global Markets: Evidence from International Subcontracting Relationships    
    (joint with M. Massa). Journal of Financial and Quantitative Analysis 55(6), 2020, 2037-2072.
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 4­14 basis points 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.
  • Who Is Afraid of BlackRock?    
    (joint with M. Massa and Y. Wang). Review of Financial Studies 34(4), 2021, 1987-2044.
Abstract: We exploit the merger between BlackRock and Barclays Global Investors to study how changes in expected ownership concentration affect the investment behavior of funds and the cross-section of stocks worldwide. We find that funds with open-end structures and a large exposure to commonly-held stocks begin avoiding these stocks following the merger announcement. This leads to a permanent change in the composition of institutional ownership and a negative price and liquidity impact. We confirm these results in a large sample of global asset management mergers. Our findings suggest that market participants act strategically in response to changes in expected financial fragility.
  • Mutual Fund Proliferation and Entry Deterrence    
    (joint with S. Betermier and A. Shahrad). Review of Asset Pricing Studies 13(4), 2023, 784-829.
Abstract: Why do so few mutual fund families launch so many funds and styles around the world? We argue that launching numerous funds on an increasingly granular style grid allows incumbent families to congest the product space and deter market entry. Key to this argument is the persistently low dimensionality of the mutual fund product space, a fact we establish by analyzing the names of over 40,000 equity funds sold in 91 countries between 1931 and 2015. Over time, the strategy of filling up the style grid has led to the dominance of few families offering large, granular, and similar fund menus.
  • Returns to Scale from Labor Specialization: Evidence from Global Asset Management    
    (joint with M. Luo and A. Manconi). Review of Asset Corporate Finance Studies 13(2), 2024, 384-427.
Abstract: We study human capital synergies in asset management mergers that stem from the improved ability to assign fund managers to more specialized tasks in larger firms. More specialized task assignment allows rotated managers to focus on their investment expertise and leads to incremental $54 million of value added per deal per year on average. The effects are concentrated in mergers that lead to a large increase in firm size and in funds whose management appears less specialized prior to the merger. Our results provide direct evidence on the role of firms in the assignment of tasks to fund managers.

This paper received media coverage from 929.
  • Repurchases for Price Impact: Evidence from Fragile Stocks    
    (joint with M. Massa and Y. Wang).Journal of Financial and Quantitative Analysis, accepted for publication.
Abstract: We highlight an important but overlooked characteristic of financial fragility: "fragile" stocks command higher liquidity. This reduces their sensitivity to corporate actions with price impact and affects the firms' incentives to engage in such actions. We show that fragile firms have lower share repurchases, issue more equity, and invest more. We establish causality by relating changes in corporate actions to exogenous changes in fragility induced by mergers of asset managers. Our results suggest that financial fragility has direct but unexpected real implications for corporate actions.

This paper received media coverage from The Harvard Law School Forum on Corporate Governance.

Working Papers

  • Call Me Maybe? Bondholder Relationships and Corporate Call Policy    
    (joint with P. Beaumont and G. Weitzner).
Abstract: When a firm refinances a bond by calling it, existing bondholders are forced to sell their bonds back to the firm at a below-market price. Do these bondholders replace the bond that was just called by buying the newly issued one? This paper shows that calls have a large impact on firms' bondholder relationships. After a call, existing bondholders are far less likely to participate in the firm’s subsequent bond issuances. Funds that are most valuable to firms (i.e., top bondholders or large funds) are more likely to exit, consistent with them exerting market power. In turn, firms are more likely to delay calling their bonds when they have more attractive investors in their bondholder base. Finally, we show that firms' borrowing costs are affected by their reputation for call delays. Our results show how call policies affect firm/bondholder relationships and highlight the role of both firm and investor reputation in financial markets.
  • Why is there so much side-by-side management in the ETF industry?    
    (joint with M. Luo).
Abstract: As of 2018, around 60% of ETF managers manage mutual funds in a "side-by-side" arrangement, most of which are active mutual funds. Mutual fund managers with institutional clients and exposed to strong ETF competition are most likely to adopt such dual roles. Side-by-side initiations lead to discretionary institutional mutual fund outflows and contemporaneous ETF inflows. These results are primarily driven by institutional "relationship" clients. Side-by-side ETFs charge an expense premium, suggesting that mutual fund firms exploit manager-client loyalty to mitigate the impact of rising ETF competition and to support the firms' transition to a new product portfolio with ETFs.
  • Liquidity Picking and Fund Performance    
    (joint with F. Jiao and S. Sarkissian).
Abstract: Using global mutual fund and ADR data, we test if funds strategically trade cross-listed firms’ equity in the most liquid location – the United States or the stock’s domestic market. Funds conducting such security liquidity picking (SLP) outperform. This result is robust to various return and holdings-based performance tests, is driven by superior stock-picking ability even of non-cross-listed stocks rather than transaction costs minimization, and is stronger for high active share funds. Consistent liquidity picking mitigates funds’ capacity constraints creating $11.6 million in value-added per year. Our tests directly support the theories of informed trading in a multi-market setting.
  • 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.