Aron Gottesman

The Capital Asset Pricing Model and the Liquidity Effect: A Theoretical Approach

In this paper we develop a CAPM-based model which incorporate liquidity costs. This model implies, that for markets with nontrivial liquidity costs, the measure of systematic risk is based on returns net of bid-ask spread. Another implications of our CAPM-based model is that the relationship between the expected return and the bid-ask spread is positive and convex. This results differs from Amihud and Mendelsons (1986) concave relationship, but is consistent with empirical evidence obtained by Brennan and Subrahmanyam (1996).

Does Better Corporate Governance Result in Higher Valuations in Emerging Markets? Another Examination Using a New Data Set

This paper utilizes a new data set from AllianceBernstein that, unlike other corporate governance data, has monthly-updated firm-level governance ratings for 21 emerging markets countries for almost a five year period. With these unique data, we examine how changes in corporate governance ratings impact firm valuation. Using this test we find evidence that improvements in corporate governance result in significantly higher valuations.

Samuelsonian Economics and the Twenty-First Century

This volume illuminates and critically assesses Paul A. Samuelsons voluminous and groundbreaking contributions to the field of economics. The volume includes contributions from eminent scholars, including 6 Nobel Laureates, covering the extraordinary depth and breadth of Samuelsons contributions. Samuelson, the first American economist to win the Nobel prize in 1970, was the foremost voice in economics in the latter half of the 20th century. He single-handedly transformed the discipline by creating a new way of presenting economics, making it possible for it to be cast all in mathematical terms. Samuelson developed broad frameworks, such as the neoclassical synthesis, a mixed economy, and the surrogate production function, which provided practitioners with a vision for research. Samuelsons contributions to economics are rich, complex, consequential, and relevant to the ordinary economics of life. The quality of Samuelsons output and methods leave no doubt that his contributions continue to be timely and relevant even in the 21st century. Ideal as a reference or an introduction to Samuelsons work, this is a must-have for students and academics alike. Contributors to this volume - James B. Cooper, Johannes Kepler University, Austria Rod Cross, University of Strathclyde, UK Paul Davidson, University of Tennessee Peter Diamond, MIT Avinash Dixit, Princeton University Franklin Fisher, MIT Milton Friedman, Stanford University Geoff Harcourt, Cambridge University Lawrence R. Klein, University of Pennsylvania Laurence J. Kotlikoff, Boston University Rachel McCulloh, Brandeis University Harry M. Marowitz, University of California, San Diego Robert C. Merton, Harvard University Paul Milgrom, Stanford University William D. Nordhaus, Yale University Luigi Pasinetti, Universita Cattolica del Sacro Cuore, Milano Robert A. Pollak, Washington University Lall Ramrattan, University of California, Berkeley Kenneth Rogoff, Harvard University Thomas Russell, Santa Clara University Robert M. Solow, MIT Joseph E. Stiglitz, Columbia University Michael Szenberg, Pace University Hal R. Varian, University of California, Berkeley

Does a Better Education Make for Better Managers? An Empirical Examination of CEO Educational Quality and Firm Performance

This paper represents the first attempt, to our knowledge, to empirically examine the relationship between the quality of Chief Executive Officer (CEO) education and firm performance. This is an important question as many papers in the management literature have postulated that managers with higher educational attainment will be more adaptive and innovative, and more likely to possess other characteristics that may improve firm performance. We find four results in our analysis. First, using the mean entrance scores as proxies for the prestige of undergraduate and graduate programs, we find no evidence that firms with CEOs from more prestigious schools perform better than firms with CEOs from less prestigious schools. Second, we find that firms managed by CEOs with MBA or law degrees perform no better than firms with CEOs without graduate degrees. Third, we find some limited evidence that firms led by CEOs with non-MBA, non-law graduate degrees have slightly better risk-adjusted market performance than other firms. Fourth, we find that compensation is somewhat higher for CEOs who attended more prestigious schools.

Contrarian Investing in a Small Capitalization Market: Evidence from New Zealand

This paper investigates the performance of accounting-based contrarian investment strategies in the New Zealand market. The return patterns of these strategies are then related to risk-based and behavioral-based explanations of the contrarian anomaly. Based on our analysis of the risk-return characteristics of the various strategies, we attribute the first year underperformance and second year outperformance of the value portfolios to expectational errors caused by noise trading in the relatively illiquid New Zealand market. The longer two-year correction process is in contrast to the much larger and more developed U.S. and Japanese markets, where value stock price corrections have been found to occur more rapidly. This provides support for the conjecture that longer horizons are required for value strategies to pay off in imperfectly competitive markets than in competitive markets. Copyright 2002 by the Eastern Finance Association.

Predicting Emerging Market Mutual Fund Performance

This article examines the ability of well known mutual fund characteristics, including the expense ratio, turnover, fund size, recent past performance, manager tenure, and Morningstar mutual fund star ratings, to predict emerging market mutual fund performance. We form three separate samples of emerging market mutual funds, adjust the returns for loads, and employ three methods to adjust for survivorship bias. We find that the expense ratio is the only fund characteristic that consistently predicts future fund performance. Specifically, emerging market funds with lower expense ratios predict better future fund performance. We also find some limited evidence that passive management outperforms active management in emerging market funds.

Loan Rates and Collateral

We investigate the relation between corporate loan spreads and collateralization. We use propensity scoring to create a matched sample of pairs of loan facilities from the Dealscan database. We find that noncollateralized loans are associated with lower spreads even after controlling for risk.

Mutual Fund Corporate Culture and Performance

There are several reasons why mutual fund corporate culture should predict fund performance. First, at funds with excellent corporate cultures, employees are recognized for their contributions and are involved in decision making. This usually translates into employees working harder, being more productive, and more committed to the firm. All things being equal, this should enhance fund performance as funds with excellent corporate cultures will not have to engage as regularly in the expensive process of hiring and training new employees as other funds. Second, a fund with a strong corporate culture will be investor driven rather than sales driven. Consequently, it will pursue policies that always have the investor in mind, e.g., closing funds that are too large, not using trendy funds just to attract greater assets, keeping fees fair, not using soft dollars, and implementing redemption fees to stop market timing. Such policies should improve fund performance for the investor as compared to funds that do not practice these policies. Third, a fund with an excellent corporate culture will communicate well to its investors. Such a fund will put out shareholder letters that explain in-depth what they are buying, not buying, and what went right as well as what went wrong. This effective communication should help investors place the current investing environment into perspective and thus can help them think longer term and avoid making fleeting decisions. As a result such a fund will have better performance as they will have long-term investors that are less likely to engage in market timing strategies. In this paper we test if the above ideas hold as we examine if a mutual fund’s own corporate culture predicts fund performance. To do this we use Morningstar’s corporate culture grades for mutual funds and then examine the ability of these corporate culture grades to predict risk-adjusted performance of domestic equity funds over the period 2005-2010. Using methods that are robust to survivorship bias, we find there is little significant evidence that corporate culture predicts better fund performance. In the end having a fund with a strong corporate culture may insulate a mutual fund from scandal but will not result in the mutual fund outperforming the market.

An Investigation of Underwriting Fees for Asset-Backed Securities

This paper uses a proprietary database of asset-backed securities (ABS) to make two contributions to the literature: A detailed descriptive analysis of the ABS market and an investigation of the factors that influence underwriting fees in the ABS market. Using methodology similar to that used in Livingston and Miller (2000), evidence is provided that that the relation between underwriter prestige and underwriter fees is positive. Further, evidence is provided that the relation between underwriter fees and loyalty is positive, indicating that the more an issuer uses the same underwriter, the higher the fees that the issuer is charged.

Paul A. Samuelson: philosopher and theorist

Purpose – To assess not how Samuelsons individual models contributed to human knowledge but the very true foundation on which they rest, namely, sound theory, facts, and philosophy. Design/methodology/approach – This article has placed Samuelson as a philosopher seeking the truth, and as a theoretical contributor to the many sub-disciplines of economics. Findings – Shows that his truths bear the evidence of reality, and that his theoretical contributions are not different in kind from the logical theorists. Demonstrates how easily one could formulate a Samuelsonian impossibility theorem that places his thought on the level of the mathematical research started by Hilbert and concluded by Kurt Godel. Originality/value – The literature that has assessed his contributions in this regard is fragmented, and myopically sparse, leaving gaps to be filled in by a paper such as this.