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    

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Research Interests

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

  • Outsourcing in the International Mutual Fund Industry: An Equilibrium View    
    (joint with O. Chuprinin and M. Massa). The 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.
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Working Papers

  • 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.
  • Are Investors for Sale? Evidence from Financial Mergers    
    (joint with M. Luo and A. Manconi)
Abstract: We study consolidation in the global asset management industry. The merging companies benefit from the merger via two channels: access to new markets and to new investment expertise. While the performance of acquiror-affiliated funds deteriorates during the merger process (mainly driven by declining returns in the acquiror's main areas of expertise), the target funds' performance improves. Following the deal, acquiror and target companies shift the relative intensity of new fund launches towards new distribution markets, generating higher flows in new funds launched there. In addition, both acquiror- and target-affiliated funds converge in their portfolio compositions after gaining a common affiliation. Specifically, acquiror (target) funds begin investing in areas where the target (acquiror) used to invest prior to the merger, and generate outperformance in those newly-entered investments. Our results indicate that mergers allow acquirors to address their deteriorating performance because they allow acquirors to capture new flows both directly (via target distribution channels) and indirectly (via learning about new investment areas).

This paper received media coverage from 929.
  • Information Barriers in Global Markets: Evidence from International Subcontracting Relationships    
    (joint with M. Massa)
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 9-14 bps per month despite the ex-post underperformance of outsourced funds vis-à-vis in-house funds. 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.
  • Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice    
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. I label this novel form of home bias a "foreign industry bias". The interpretation that differences in the industrial composition of stock markets provide a proxy for persistent information asymmetries in international markets finds robust support in the data, consistent with the theory of van Nieuwerburgh and Veldkamp (2009).
  • 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.