About
- TD Bank Professor of Finance
- Director of the American Finance Association (2022–present)
- Founding Member of AFFECT (Academic Female Finance Committee)
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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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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Comment: If disclosure requirements become too high, market participants are likely to employ other derivative instruments that have lower disclosure requirements
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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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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: The greatest potential benefit to shareholders would be if this caused Tesla to improve its overall corporate governance. However, at this point that does not seem likely.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: First, it reduces transactions costs, which is a positive for investors who would have purchased bitcoin anyway. However, it will likely cause more investors to purchase bitcoin, which may be negative given the lack of connection to a real asset, unclear value proposition, etc
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: The objective is to choose a rate that reflects the real interest rate. While 3% was a realistic estimate of this rate back in 2003 (when it was set), much evidence suggests it has fallen.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: This should lower investors' costs of comparing PE funds, and it should mitigate conflicts of interest (whereby fund managers give better terms to favored clients).
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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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Comment: There is substantial heterogeneity in the level of investor sophistication, even among this set of investors. Also, even sophisticated investors can incur substantial costs to 'learn' the true costs of these funds
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: There is a risk that in a period of severe market disruption, institutional investors will withdraw their funds earlier than they otherwise would have. There is an increased incentive to withdraw ahead of others in order to avoid the new fee
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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).
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: My expectation is that investors would only move money out of these funds during a period of pending market disruption. During normal times, the probability of a severe negative shock that would cause 5% withdrawals is quite low
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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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Comment: Lower demand (due to remote work), higher maintenance costs, and rising interest rates contribute to lower valuations. While many major banks are expected to lower their valuations in the 2nd quarter, other institutions will likely wait until the loans are refinanced.
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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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Comment: According to a recent Goldman Sachs report, small and medium sized banks account for 80% of commercial real estate lending. These are the banks that are subject to less regulatory scrutiny, and may be slower to adjust valuations.
-see background information here |
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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Materiality can be have a heavy burden of proof. There is substantial evidence that governance affects risk and return, but regulation such as this may deter pension funds from incorporating it into investment decisions.
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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: It would be detrimental to prevent the consideration of any factor that is material for risk and return.
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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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Comment: Given the failure of the CAPM, at a minimum a firm should do sensitivity using alternative models (e.g., Fama-French). This is particularly relevant for firms in size - BM categories where CAPM failures are particularly large
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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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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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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: Uninsured depositors in SVB did not appear to closely monitor SVB's financial position - there were observable weaknesses in SVB's financial position long before uninsured depositors withdrew funds. How different would things have been if these depositors were 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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Comment: This would only be the case if managers were foregoing positive NPV projects in order to do buybacks, and if markets perceived this foregoing of positive NPV projects to be value-increasing.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: All else equal, the tax would generate substantial public revenues. The question is what behaviors firms will change. Over time, a strong takeaway is that changes in tax code cause changes in corporate behavior.
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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: Firms should invest in positive NPV projects. While a change in tax code may have a marginal effect on the NPV of various projects, it should not have a 'substantial' effect.
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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: In the absence of any countervailing policies, I would 'strongly agree' that this would pose a substantial risk. However, there is a high probability that the government would utilize other tools - the existence of these other tools mitigates the risk
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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: To this point, there is little evidence of of such an effect. However, it seems that it might have a measurable effect in the future, if debt levels continue to increase.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: The direct effect of the rule should be beneficial to retail investors. However, the obvious question relates to indirect effects. I have not seen sufficient research to make conclusions regarding indirect effects - and the magnitude of such effects.
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Question B: The new rule would improve the overall operation of the stock market.
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Comment: There will be winners and losers from this rule, but it is very hard to make predictions regarding overall effects. Also, by changing so many things at once, the SEC loses transparency regarding the efficacy of each individual change.
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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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Comment: Uncertainty related to underlying fundamentals is higher for riskier companies. Many companies within this category of private firms - including for example VC-backed startups - are extremely risky.
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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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Comment: There are two caveats to this: First, reflecting the higher Beta of VC funds (compared to buyout funds), returns of VC funds tend to be higher. Second, overall realized returns are much higher than net of fee returns obtained by investors.
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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: At this point, crypto represents a reasonably small fraction of the world economy and it is not tightly integrated into traditional finance channels. This of course could change in the future
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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: Regulation can increase trust in an asset class, as fraud decreases. The decrease in expected fraud can engender further growth in the asset class. Historical examples abound.
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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: The growth in indexing would have a detrimental effect on the market if nothing else simultaneously changed. However, we expect activist investors to 'fill the gap' in information production - to take advantage of inefficiencies.
-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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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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Comment: One of the biggest challenges in preventing future crises relates to the fact that the underlying triggers are often different.
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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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Comment: A key factor underlying a reserve currency is trust. Trust is built upon sound government finances and sound policies.
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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 agency issues in some firms can contribute to the CEO being overpaid, investor monitoring should mitigate the extent of this.
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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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Question A: Having companies run to maximize shareholder value creates significant negative externalities for workers and communities.
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Comment: This is the motivation for regulation, including regulation related to labor, the environment, and antitrust
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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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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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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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