Andrew Metrick

Estimating the Returns to Insider Trading: A Performance-Evaluation Perspective

This paper uses performance-evaluation methodology to estimate the returns earned by insiders when they trade their companys stock. Our methods are designed to estimate the returns earned by insiders themselves and thereby differ from the previous insider-trading literature, which focuses on the informativeness of insider trades for other investors. We find that insider purchases earn abnormal returns of more than 6% per year, and insider sales do not earn significant abnormal returns. We compute that the expected costs of insider trading to noninsiders are about 10 cents for a

Should Investors Avoid All Actively Managed Mutual Funds? A Study in Bayesian Performance Evaluation

10,000 transaction.

How does the Internet affect trading? Evidence from investor behavior in 401(k) plans☆

This paper analyzes mutual-fund performance from an investors perspective. We study the portfolio-choice problem for a mean-variance investor choosing among a risk-free asset, index funds, and actively managed mutual funds. To solve this problem, we employ a Bayesian method of performance evaluation; a key innovation in our approach is the development of a flexible set of prior beliefs about managerial skill. We then apply our methodology to a sample of 1,437 mutual funds. We find that some extremely skeptical prior beliefs nevertheless lead to economically significant allocations to active managers.

Performance Evaluation with Transactions Data: the Stock Selection of Investment Newsletters

We analyze the impact of a Web-based trading channel on trader behavior and performance in two large corporate 401(k) plans. After 18 months of Web access, trading frequency at sample firms doubles relative to a control group of firms without a Web channel. Web trades tend to be smaller than trades made through other channels and Web traders tend to have smaller portfolios than other traders, so the Webs impact on portfolio turnover is substantially smaller than its effect on trading frequency. There is no evidence than any of this new trading on the Web is successful.

Venture Capital and Other Private Equity: a Survey

This paper analyzes the equity-portfolio recommendations made by investment newsletters. The dataset spans 17 years, is free of survivor and back-fill biases, and includes the complete recommendations for 153 different newsletters. Overall, there is no significant evidence of superior stock-picking ability for this sample of newsletters. Some individual letters do have superior performance records, but this does not occur more often than would be expected by chance, and these records are never more extreme than would be expected for the sample size. In addition, a strategy of buying past winners does not earn positive abnormal returns. The comprehensive and bias-free transactions database also allows for insights into several popular models of performance evaluation. The transactions-based approach of Daniel, Grinblatt, Titman and Wermers (1997) yields a median improvement in precision of 10 percent over the 4-factor model of Carhart (1997a), with the former approach providing more precise estimates of abnormal performance for more than 80 percent of the newsletters. This compares with a median improvement of less than 1 percent for the 4-factor model over the CAPM.

Fictitious play in 2 x 2 games: a geometric proof of convergence*

We review the theory and evidence on venture capital (VC) and other private equity: why professional private equity exists, what private equity managers do with their portfolio companies, what returns they earn, who earns more and why, what determines the design of contracts signed between (i) private equity managers and their portfolio companies and (ii) private equity managers and their investors (limited partners), and how/whether these contractual designs affect outcomes. Findings highlight the importance of private ownership, and information asymmetry and illiquidity associated with it, as a key explanatory factor of what makes private equity different from other asset classes.

Extreme Governance: An Analysis of Dual-Class Companies in the United States

SummaryThis paper provides a new proof of Miyasawas (1961) result showing the convergence of fictitious play in 2×2 games. The novelty of the approach used here is that it rests entirely on the geometric properties of the best-response correspondence. The geometric approach greatly shortens the exposition, and it suggests some possible extensions to more difficult convergence conjectures.

Venture Capital and Other Private Equity: A Survey

Dual-class common stock allows for the separation of voting rights and cash flow rights across the different classes of equity. We construct a large sample of dual-class firms in the United States and analyze the relationships of insider’s cash flow rights and voting rights with firm value, performance, and investment behavior. We find that relationship of firm value to cash flow rights is positive and concave and the relationship to voting rights is negative and convex. Identical quadratic relationships are found for the respective ownership variables with sales growth, capital expenditures, and the combination of R&D and advertising. Our evidence is consistent with an entrenchment effect of voting control that leads managers to underinvest and an incentive effect of cash flow ownership that induces managers to pursue more aggressive strategies.

March madness? Strategic behavior in NCAA basketball tournament betting pools

We review the theory and evidence on venture capital (VC) and other private equity: why professional private equity exists, what private equity managers do with their portfolio companies, what returns they earn, who earns more and why, what determines the design of contracts signed between (i) private equity managers and their portfolio companies and (ii) private equity managers and their investors (limited partners), and how/whether these contractual designs affect outcomes. Findings highlight the importance of private ownership, and information asymmetry and illiquidity associated with it, as a key explanatory factor of what makes private equity different from other asset classes.

Consumption-Wealth Comovement of the Wrong Sign

Abstract This paper uses data from the natural experiment of NCAA Basketball Tournament “betting pools” in a descriptive study of strategic behavior. The observed behavior in these pools differs from equilibrium behavior in a robust manner; bettors overback the heaviest favorites. The size of this bias falls slightly in larger pools, where the induced profit opportunities are higher than in smaller pools. This indicates that a small number of players are adjusting their behavior to reflect the changing strategic situation, while the aggregate behavior remains away from equilibrium.