About
- Miller Anderson & Sherrerd Professor of Finance, Professor of Economics
- President, American Finance Association (2013)
- Editor, Journal of Finance (2003–2006)
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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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Quite possibly, yes, for investors seeking a "well-diversified" portfolio. The classic argument for holding the market portfolio (i.e., the CAPM) is that it's a mean-variance efficient portfolio, whether or not it's a well-diversified portfolio.
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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: Judging by Tesla's stock-price reaction to the decision (down slightly), stockholders do not perceive a benefit. I would not argue otherwise.
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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: Better off from the perspective of the those trading them? Of course. Better off from the perspective of a social planner? Unclear.
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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: Hard to believe that tinkering with the discount rate is first-order compared to other dimensions of policy evaluation.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Key points of Markowitz (1952, JF): Consider the E-V tradeoff (vs just max E), diversify to reduce V, and covariance's role in V makes diversifying across industries important. Equal vs non-equal weights is a lesser point, missing the broader message of modern portfolio theory.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Index funds apply the advice of Markowitz (1952, JF): diversify, especially across industries. Active quant funds often make covariance-conscious portfolio decisions. Net effects on price discovery and capital allocation seem hard to identify..
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: There should be some effect, but I'm not sure one could isolate and thereby measure it.
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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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Comment: Depends on how transparent and predictable the Fed would be about the course and extent of its tightening.
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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.
Vote | Confidence | Median Survey Vote | Median Survey Confidence |
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Comment: Hard to see a current LTCM equivalent.
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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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Comment: Not clear how much any given institution internalizes a Fed put.
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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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Comment: The LPs, as qualified purchasers, may well be "sophisticated," but that does not imply they otherwise receive the relevant information at issue here.
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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: Yes, perhaps, if "worse off" can include retirees' psychic disutility associated with ESG characteristics of the fund's holdings. Otherwise no.
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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: Yes, if retirees bear some of the state's defined-benefit shortfall risk. If not, then still perhaps yes, if "worse off" includes ESG psychic disutility. Otherwise no.
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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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Comment: But they can hedge interest-rate risk to at least some degree.
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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: A case for yes can be made, as the sources of the empirical failures matter.
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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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Comment: Above versus below is about even. Key is to recognize the uncertainty.
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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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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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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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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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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: Yet to see how cryptocurrencies provide a net benefit to society.
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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 amount of indexing is a result, not a cause. It reflects money that cannot be deployed actively, net of costs, to exploit profitably whatever inefficiency remains.
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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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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: Depends on the regulatory environment in which companies maximize shareholder value.
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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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