About
- George Kozmetsky Centennial Distinguished University Chair and Professor of Finance
- President, American Finance Association (2022)
- Editor, Review of Financial Studies (2008-2014)
Voting History
Question A: Allowing short selling of financial securities, such as stocks and government bonds, leads to prices that, on average, are closer to their fundamental values.
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Comment: Although there may be occasional exceptions (e.g., meme stocks), short-selling is usually an important mechanism for market equilibrium.
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Question B: When short sellers start to establish substantial short positions in a stock, the stock is likely to have been overvalued.
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Question C: Requiring investors to disclose short positions in a stock at the equivalent threshold as they are required to do for long positions would improve the informativeness of stock prices.
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With some measures of concentration by market capitalization within broad US stock market indices at an all-time high, investors seeking a well-diversified passive equity portfolio should consider alternatives to market-cap-weighted indices.
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Did Not Answer | |||
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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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Comment: It will change the analysis, but will it actually substantially improve it? Not all questions can be addressed through solely a social approach or a market approach to determining the discount rate. Moreover, this presumes we should have the same discount rate for all regulation.
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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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Comment: If the regulation affects defined contributions funds, it may make participants worse off if they don't have the ability to invest according to their values. That is, they may invest less toward their retirement.
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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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Comment: Investors have long considered material risk factors related to environmental risks, social risks and governance risks. Preventing the consideration of material financial risks is counter to fiduciary duty.
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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: It may more of a question of regulator incentives rather than lack of tools and authority.
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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: It could have, but not sure whether it would have done substantial damage to the economy.
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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: All bank bailouts aren't the same. In this case the shareholders lost all of their investments in the bank as did the executives and board members who were removed. They may also face more liability.
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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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Did Not Answer | |||
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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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Comment: Evidence does not support this statement.
-see background information here -see background information here -see background information here |
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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Comment: Evidence does not support this statement.
-see background information here -see background information here -see background information here |
Question A: Missing payments on the US Treasury security obligations for several weeks would pose a substantial risk of a global financial crisis.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: The uncertainty surrounding the missed payments and any resultant effects will depend on a number of factors, most particularly, how investors think about the missed payments and the reputation of the safety of U.S. Treasury obligations.
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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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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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Did Not Answer | |||
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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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Did Not Answer | |||
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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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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: It is not clear why the collapse of an offshore exchange should imply regulation of the underlying asset, nor is it clear how such regulation would work.
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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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Comment: Research suggests that when active funds face more competition from passive funds, the active managers become more active and lower their fees.
-see background information here |
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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Comment: Not sure that damages can always be substantially limited.
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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: While there are extremes in CEO pay, which we can all provide anecdotal stories about, I think the average CEO of a well-governed, publicly traded company is not overpaid. There is much transparency and oversight – activist investors, shareholder votes, media, etc.
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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: Say on pay proposals give all shareholders “voice” – research has shown that this voice can have effects, not just on compensation but also performance. The question is whether this is the most cost-efficient method to achieve these goals for both large investors and companies
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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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Comment: It is not clear that it would be negligible costs. Also I would somewhat agree with the statement but that wasn't an option.
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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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Comment: Boards have many mechanisms to provide incentives for CEOs but there exists a lot of uncertainty regarding their efficacy.
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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: Research shows that investors demand and value carbon-related disclosures. The question is how much disclosure should be mandated given that there exist costs to firms (e.g., information gathering costs, releasing proprietary information).
-see background information here |
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: While disclosure provides information to individuals for their non-pecuniary preferences, the question remains as to how to weigh this benefit against the costs. With no cost to disclose, such information would help individuals make investment choices aligned with their values.
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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: Evidence exists that suggests climate-related disclosures affect firms’ emission choices. Whether the mandates result in substantial reductions to corporate climate impact is not as clear.
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