About
- Charles E. and Susan T. Harris Professor
- Guggenheim Fellowship (2002)
- Sloan Fellowship (2013)
Voting History
Tesla shareholders are likely to benefit substantially from the decision by the Delaware Court of Chancery to void Elon Musk's $56 billion remuneration package.
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On 10 January 2024, the SEC approved spot Bitcoin exchange-traded products:
https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023\
The SEC's approval of spot Bitcoin exchange-traded products makes investors overall measurably better off.
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The Biden Administration's recommendation to lower the real discount rate used in the cost and benefit analysis of federal regulations to 2 percent (from the current levels of 3 or 7 percent) will substantially improve regulatory analysis.
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Question A: Harry Markowitz, the Nobel Prize-winning pioneer of modern portfolio theory, passed away earlier this year:
https://afajof.org/news/in-memoriam-harry-markowitz-past-president-of-the-american-finance-association-1927-2023/
Application of the principles of modern portfolio theory allows investors in practice to achieve substantial improvements in the risk-expected return trade-off relative to naive strategies such as equal-weighting that do not take account of return covariances.
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Question B: Widespread adoption of modern portfolio theory by investors has substantially improved the efficiency of capital allocation in financial markets.
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Question A: The Federal Reserve has begun quantitative tightening (QT) to reduce the size of its balance sheet. Fed holdings of Treasury securities have declined by $800 billion relative to the March 2020 peak. The Fed currently holds $4.9 trillion of Treasury securities, significantly larger than the $2.5 trillion holdings prior to the Covid pandemic.
A reduction in Fed holdings of Treasury securities measurably increases the interest rate on long-term U.S. Treasury bonds.
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Question B: A reduction in Fed holdings of Treasury securities measurably increases volatility in the Treasury market.
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Question A: September 2023 was the 25th anniversary of the collapse of Long-Term Capital Management (LTCM). In response to LTCM's troubles, the Federal Reserve orchestrated a multi-billion dollar rescue package by a consortium of banks and it cut the Federal funds rate target by 75 basis points within six weeks.
The hedge fund sector's contribution to systemic risk is substantially lower today than at the time of LTCM.
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Question B: Financial market participants' expectation that the Fed will aggressively ease monetary policy in response to financial market dislocations is a substantial source of financial instability.
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Question A: SEC Announcement: https://www.sec.gov/news/press-release/2023-155
The benefits of the new SEC rules on private funds - which require private funds to provide transparency to their investors regarding the fees and expenses and other terms of their relationship with private fund advisers and the performance of such private funds - substantially exceed their costs.
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Question B: The new SEC rules will have a substantially negative impact on the industry by stifling capital formation and reducing competition.
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Question C: It is appropriate policy for the SEC to impose such rules on private funds even though the investors (limited partners) are sophisticated entities.
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Question A: New Money Market Fund (MMF) Rules: The SEC adopted amendments to the MMF rules, including a new mandatory liquidity fee for institutional prime and tax-exempt funds. The liquidity fee would trigger when daily net redemptions exceed five percent and when the costs associated with such redemptions are more than de minimus. https://www.sec.gov/news/press-release/2023-129
The new liquidity fee will substantially reduce the likelihood of runs on MMFs.
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Question B: The new liquidity fee will cause a substantial shift of assets under management from institutional prime and tax-exempt funds to government MMFs (which are exempt from the fees).
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Question A: The impact of the Covid-19 pandemic on working and shopping habits has not been fully priced into current private valuations of downtown commercial properties in major cities.
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Question B: A continued fall in commercial real estate valuations would trigger another round of banking panic.
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Question A: Regulation that allows state pension funds to consider environmental, social, and governance factors in investment decisions only if these factors are material for risk and expected return would make retirees measurably worse off.
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Question B: Regulation that prevents state pension funds from considering environmental, social, and governance factors in investment decisions even if these factors are material for risk and expected return would make retirees measurably worse off.
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Question A: Since maturity transformation is an inherent feature of commercial banks' business model, some duration mismatch between assets and liabilities is unavoidable.
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Question B: For the purposes of capital regulation, banks should be required to mark their holdings of Treasury and Agency securities to market at all times (even though their loans are not marked to market).
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Question A: Despite the empirical failures of the Capital Asset Pricing Model (CAPM) in explaining expected stock returns, a shareholder-value maximizing publicly-traded firm should still use the CAPM to calculate the cost of equity in capital budgeting.
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Question B: The equity risk premium that U.S. publicly traded firms should use in cost of equity calculations in April 2023 is above 6%.
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Question A: Financial regulators in the US and Europe lack the tools and authority to deter runs on banks by uninsured depositors.
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Comment: Do the math...
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Question B: Not guaranteeing uninsured deposits at Silicon Valley Bank in full would have created substantial damage to the US economy.
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Comment: SVB serves as banker to many tech and biotech companies, with extremely large amounts of uninsured deposits. Not insuring them would have caused a series of failures of otherwise profitable and innovative companies, allowing foreign entities to acquire them for pennies per dollar
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Question C: Fully guaranteeing uninsured deposits at Silicon Valley Bank substantially increases banks’ incentives to engage in excessive risk-taking.
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Comment: That's what guarantees do to the insured...
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Question A: By issuing inflation-indexed bonds, and thereby providing a long-term real safe asset for pension funds and retirement savers, governments can make a substantial contribution to social welfare.
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Question B: Issuance of inflation-indexed bonds substantially helps government commit to a responsible fiscal and monetary policy.
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Question A: Large-scale stock buybacks by public corporations provide short-term rewards for shareholders and senior executives at the expense of potentially higher-return corporate investments.
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Question B: The proposed higher tax on corporate stock buybacks (an increase from 1% to 4%) would generate substantial public revenues.
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Question C: The proposed higher tax on corporate stock buybacks would generate a substantial increase in corporate investment.
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Question A: Missing payments on the US Treasury security obligations for several weeks would pose a substantial risk of a global financial crisis.
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Comment: I can't believe I need to explain this... By risking default, the U.S. is injecting risk into the holdings of both domestic and foreign investors. Such investors will respond to this risk as all rational agents do---by holding less U.S. debt, increasing our borrowing cost.
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Question B: The requirement to periodically increase the debt ceiling measurably reduces the long-run size of the debt.
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Comment: Periodically requiring Congress to engagement in brinksmanship has little bearing on fiscal responsibility. We should pay our bills.
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Question A: The SEC’s proposed new rule for stock orders from individual investors is likely to be effective in giving those investors better prices on their trades on average.
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Question B: The new rule would improve the overall operation of the stock market.
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Question A: Although the reported volatility of asset values in private markets (private equity, buyouts, and venture capital) is lower than that of comparable assets in public markets, their true volatility is broadly similar or greater.
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Question B: Since the global financial crisis, the realized returns on private equities have measurably exceeded the returns on public equities.
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Question A: The collapse of a major crypto intermediary will have little impact on the wider economy and the stability of the traditional financial system.
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Comment: Crypto is largely distinct from most of the traditional financial system and although the collapse of FTX has unfortunate consequences for a number of investors, their losses are unlikely to trigger any type of threat to financial stability.
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Question B: The collapse of a major crypto intermediary suggests the need for the crypto asset class to be more tightly regulated.
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Comment: FTX is just one illustration that there is a need for regulatory oversight, primarily related to disclosure of the risks involved in these investments.
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The amount of passively invested funds has reached levels at which it has a measurable detrimental effect on market efficiency.
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Question A: Research on the nature and impact of bank runs has made it possible to limit substantially the wider economic damage from financial crises.
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Question B: Reforms of financial regulation since 2008 (and macroprudential policies in some countries) will not substantially reduce the probability of financial crises.
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Question A: The costs and risks associated with a sharp fall in the value of sterling outweigh any macroeconomic benefits for the UK of export stimulus due to a weaker currency.
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Question B: Concerns about government finances and debt sustainability can undermine the reserve currency status of a major currency.
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Question A: The typical chief executive officer of a publicly traded corporation in the U.S. is paid more than his or her marginal contribution to the firm's value.
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Comment: How could one possibly know that a CEO is being paid more or less than their marginal value? What does "value" mean??
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Question B: Mandating that U.S. publicly listed corporations must allow shareholders to cast a non-binding vote on executive compensation was a good idea.
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Comment: This law creates the opportunity for adding more noise to the governance process. The shareholders already have a mechanism for addressing executive compensation: the board of directors. Why should we expect a typical shareholder's opinion to be more informed than the board's?
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Question A: Having companies run to maximize shareholder value creates significant negative externalities for workers and communities.
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Question B: Appropriately managed corporations could create significantly greater value than they currently do for a range of stakeholders – including workers, suppliers, customers and community members – with negligible impacts on shareholder value.
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Question C: Effective mechanisms for boards of directors to ensure that CEOs act in ways that balance the interests of all stakeholders would be straightforward to introduce.
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Question A: A mandate for public companies to provide climate-related disclosures (such as their greenhouse gas emissions and carbon footprint) would provide financially material information that enables investors to make better decisions.
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Comment: Disclosure is a two-edged sword. Although more information is often argued as being preferred to less information, providing additional disclosure is not costless and shareholders will have to pay for the direct costs as well as unintended consequences. This needs more thought.
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Question B: A mandate for public companies to provide climate-related disclosures would provide material information that enables investors to make better decisions with regards to non-financial objectives (such as aiding portfolio choice based on ESG principles).
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Comment: For non-financial objectives, it makes more sense for companies to disclose their climate-related exposures. However, the cost factor is still present and must be considered relative to the benefits of disclosure.
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Question C: A mandate for public companies to provide climate-related disclosures would induce them to reduce their climate impact substantially.
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Comment: Disclosure, when combined with moral suasion, can be a powerful motivation for companies to reduce their climate impact, but it's not clear how certain companies are able to do so and "green washing" can quickly become an even greater concern.
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