2026 Theses Doctoral

Essays in Financial Economics

Goldenring, Jessica

This dissertation studies how tax frictions shape the competitive landscape of the asset management industry. In the first chapter, Who Stays, Who Switches: Tax Frictions and the Shift from Mutual Funds, I show that unrealized capital gains generate both persistence and fragility in mutual funds. Using newly compiled fund-level data on unrealized gains from SEC filings, I document how investors decide to stay in a mutual fund or switch to lower-fee, tax-efficient vehicles such as separately managed accounts and exchange-traded funds. Unrealized gains create persistence by locking investors into funds despite higher fees and tax disadvantages, as switching triggers immediate capital gains taxes. I show unrealized gains reduce outflows and enable managers to charge higher fees. However, unrealized gains also create fragility through capital gains distributions: when some investors redeem shares, and the fund liquidates appreciated securities, these realized gains are passed through as taxable income to remaining investors. This creates strategic complementarities in which one investor's redemption and switching decision affects others' incentives to stay or switch.

In the second chapter, Tax Frictions and Mutual Fund Fragility: A Bank Run Model of Capital Gains Distributions, I rationalize these dynamics through a bank-run model with heterogeneous investor-level unrealized gains and endogenous capital gains distributions. The model shows that identical MF fundamentals can support multiple equilibria, one in which few investors exit and distributions remain modest, and one in which many investors exit, creating large distributions that make further exit optimal. Parameterized to the data, comparative statics show how mutual fund's liquidation strategy, capital gains tax rates, and liquidity shocks all shape the cutoff between persistence and fragility of mutual funds. The analysis reveals a fundamental tension in the mutual fund structure: the same unrealized gains that sustain mutual funds by locking investors in also make them vulnerable to fragility when redemptions begin, creating coordination risk similar to bank runs but transmitted through tax externalities rather than asset illiquidity.

In the third chapter, Converting and Integrating: The Mutual Fund Response to Exchange-Traded Funds, which is co-authored with Kirsten Burr, we study how mutual fund managers respond to competition from exchange-traded funds. We do this by studying innovations that blur the boundary between the mutual fund and exchange-traded fund structure. We examine two pathways through which managers integrate exchange-traded fund structures: full mutual fund-to-exchange-traded fund conversions and the introduction of exchange-traded fund share classes within existing mutual funds. Integrating the exchange-traded fund structure reduces capital gains distributions and attracts substantial asset growth, allowing managers to offset lower fees through scale.