Research News
Finance
A Central Clearing House Doesn’t Reduce CDS Risk
A plan by global financial regulators to fix the mess created by the misuse of credit default swaps is flawed, says Darrell Duffie, professor of finance at the Stanford Graduate School of Business.
Depression Babies: How Our Economic Experiences
Affect Investment Behavior
Finance professor Stefan Nagel and his co-author have demonstrated that personally experiencing something like the Great Depression has a significant impact on how we invest our money.
Incentives and the Financial Crisis
In any financial crisis, it is possible with 20/20 hindsight to identify the specific proximal causes. Rather than outlawing those activities, Professor Jonathan Berk recommends designing legislation that better aligns the incentives of bankers with the public interest.
Financial Restoration for the United States
During the past 200 years, there have been 16 credit crises in the United States, all marked by speculative excesses in the years immediately preceding. As the ultimate safeguard to stem a financial panic, the government should have in place the apparatus that will allow it to curtail such excesses in advance of their triggering a financial panic says Finance Professor James C. VanHorne.
Achieving Financial Stability
Professor Darrell Duffie argues that redesigning the U.S. financial system after the current financial crisis will focus on creating financial stability. “Most of us thought we had it, but we did not,” he notes.
For Underperforming CEOs,
Economic Downturns Can Mean Sudden Death
When either their industry or the overall market is doing badly, CEOs are more likely to be fired, according to a recent study. But it isn’t just boards looking for scapegoats. The ones who are fired tend to be the underperformers regardless of market conditions.
How Dividends Encourage Consumer Spending
Consumers are likely to run out and spend stock dividends while income from capital gains is more likely to be reinvested or saved, says the Business School’s Stefan Nagel and his coauthors. The finding could be considered in setting economic policy.
Investors Fear Missing a Sure Thing More Than They Fear Risk
What investors fear the most is not the risk of a loss per se, but the risk that they may do poorly relative to their peers say researchers Peter DeMarzo and Ilan Kremer of the Business School and Ron Kaniel of Duke University.
Just Hearing About a Stock Bubble Won’t Keep Investors Safe
Just hearing about the economic chaos of an economic bubble with over-hyped and overvalued stocks won’t necessarily save investors from future economic disaster. First-hand experience appears to be necessary to avoid future bubbles say researchers. (November 2006)
Doing
the “Wall Street Walk” as a Kind of Shareholder Activism
For years major shareholders have registered their dissatisfaction
corporate management through the Wall Street Walk, selling their shares.
Business School researchers Anat Admati and Paul Pfleiderer find that this
threat—with its potential to cause a stock price fall—can significantly
impact the behavior of top management in the firm in question. (February 2006)
Economists Caution Investors on Hidden Risks of Hedge Funds
High
fees, inconsistent data, and difficult-to-understand risks are reasons for
individual investors to avoid or minimize their investments in hedge funds,
caution a group of 32 senior financial economists, including three from
Stanford, in a new report. (November 2005)
Emotions Can Negatively Impact Investment Decisions
Emotions can get in the way of making prudent financial
decisions, according to researchers who found that people with certain kinds
of brain injuries earned more money investing than a comparison group.
(September 2005)
The Argument for a 30-Year Bond
Darrell Duffie has long argued that the U.S. Treasury Dept.
should revive the 30-year bond. In May, the government
hinted it probably agrees with him. (April 2005)
Make
Day Traders Act Rationally
Rather Than Regulate Hedge Funds
Hedge funds used to be seen as a way to keep irrational prices under control. No longer, argue researchers, who say many of the funds rode the last market bubble up on the backs of overpriced securities. (October 2004)
CEO Hubris Distorts Investment Decisions
CEOs who are overconfident and thus overestimate their ability to generate
value within the company systematically make distorted decisions about
when, how, and how much to invest in new projects according to research by
Ulrike Malmendier. (June 2004)
Pricing Real Estate
Negotiating leases for commercial property is a difficult challenge even
for professional real estate managers. Professor Steven Grenadier says the
process can be broken down into actions that mirror the fundamentals of
finance. He is now developing a user-friendly tool to help managers take
the guesswork out of negotiating leases. (January 2004)
Short Selling May Affect Stock and Bond Prices
The saga of what happened to stock prices following Palm Computing's
2000 IPO left many observers scratching their heads, but it has also led
to opportunities to better understand the effects of short selling. (November 2001)
Tax Shield May Make Convertible Bonds Attractive
Theoretically, convertible bonds—hybrids that are part bond, part stock—offer investors security and the option to convert if the firm's value
rises. The real attraction may lie in the way the Internal Revenue Service
views them. (November 2001)
Using Hedge Funds as Alternative Investment Vehicles
The low correlation between hedge funds' performance and the market's ups
and downs is the main reason why such funds are valued as alternate
investment vehicles. They essentially exploit market inefficiencies, using
long or short positions to offset market risks. (November 2001)
What's in it for Fund Managers?
Compensating mutual fund managers managing active funds by benchmarking
their fund's performance against an index has some potentially serious
drawbacks. The use of benchmarks distorts the way a manager uses
information because the manager's and the investor's goals are no longer
the same say two Stanford Graduate School of Business researchers.
(September 1996)