Up Next

Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues



Join us to hear from Seth Lloyd, Professor of Mechanical Engineering and Physics at MIT, as he shares his findings on quantum algorithms for analyzing financial data and predicting time series

Participants include Jim Goldman, Assistant Professor of Financial Economics, University of Toronto; Eva Steiner, Associate Professor of Real Estate, Penn State University; Jay R. Ritter, Joseph B. Cordell Eminent Scholar, Warrington College of Business, University of Florida; Allyson Tucker, Chief Investment Officer, Washington State Investment Board; Michael Elio, Partner, StepStone; Christian Lundblad, Richard Levin Distinguished Professor of Finance, Director of Research, Kenan Institute of Private Enterprise; Matt Harvey, Managing Director, Head of Direct Lending, PGIM Private Capital; and David Sambur, Apollo Global Management, Inc.

Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement and 2 cash flow statement analyst and management guidance surprises—reliably explain firms’ signed earnings announcement returns.

Many business-to-business (B2B) selling situations involve outside sales (OS) representatives (reps) interfacing with customers and inside sales (IS) rep largely supporting OS reps. Put differently, OS reps are linchpins, while IS reps generally have auxiliary roles. Perhaps for this reason, the economic value of IS reps for the B2B IS-OS selling process has received little systematic investigation. The authors propose an approach that quantifies the incremental value of IS using observational data that are commonly available in organizational customer relationship management systems.

Angel investor tax credits are commonly used around the world to spur entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, marginal investments flow to relatively low-growth firms. 

We analyze how Dodd-Frank-mandated risk retention affects the information investors extract from issuers’ retention choices in the CMBS market. We show that the required retention level is both binding and stringent.

We find that Credit Rating Agencies (CRAs) see through transitory shocks to credit risk that stem from transitory shocks to equity prices, while market-based measures of credit risk do not. For a given stock return, CRAs are significantly less likely to downgrade firms with transitory shocks than those with permanent shocks. However, credit default swap spreads and model-implied default probabilities do not distinguish between such shocks. 

The last 20 years have been a period of tremendous growth for the PE industry. From its roots in the 1970s and 80s in the buyout and venture capital spaces, private capital has expanded dramatically in both scope and scale. Funds have gotten larger, the investor pool has broadened and the largest players have transformed themselves into fully diversified alternative asset managers, with offerings across a wide range of geographies and asset classes.

What is the impact of higher technological volatility on asset prices and macroeconomic aggregates? I find the answer hinges on its sectoral origin. Volatility that originates from the consumption (investment) sector drops (raises) macroeconomic growth rates and stock prices.

We examine realized spreads and price impact in clock and trade time following each trade in all common stocks from 2010 to 2017. The term structure of realized spreads (price impact) is sharply downward (upward) sloping, implying that (a) market maker profitability is sensitive to speed, and (b) the choice of the horizon of measurement is critical when drawing inferences from spread decompositions.

Except for relatively short but intense episodes of high market risk, average idiosyncratic risk (IR) falls steadily after 2000 until almost the end of our sample period in 2017. The decrease has been such that from 2012 to 2017 average IR was lower than any time since 1965.

Using a novel database on venue short sales and market design characteristics, we ask: Where do short sellers exploit their information advantage?