Brett W. Myers

How Does the Market Value Toxic Assets

How does the market value “toxic†structured-credit securities? We study the valuation of what is possibly the most toxic of all toxic assets: the equity tranche of a collateralized debt obligation (CDO). In theory, CDO equity should be similar in nature to bank stock since both represent residual claims on a portfolio of loans. We find CDO equity returns are much more related to stock returns than to fixed-income returns. CDO equity returns track the returns of financial stocks much more closely than any other industry. Nearly two-thirds of the variation in CDO returns can be explained by fundamentals.

Corporate Political Activity and Asset Pricing

This study considers the implications of corporate political activity and political risk on asset pricing. Firms which operate an affiliated political action committee (PAC) outperform firms that do not. Among firms that operate a PAC we find that those that spend relatively less on politics outperform those that spend more and that political risk is successfully hedged by firms that are relatively more politically active than their peers. The difference in performance is largely (but not entirely) explained by exposure to systematic political risk, and there is a component to political risk that is orthogonal to commonly considered risk factors.

Leverage and the Interaction between Firms and Non-Financial Stakeholders: Evidence from Contract Negotiations and Union Strikes

We use contract negotiation data to study how leverage affects the interaction between firms and an important non-financial stakeholder, labor unions. Consistent with the idea that leverage diminishes the bargaining position of labor, we find that unions are less likely to strike when a firm has high leverage or increases leverage prior to a contract negotiation. Consistent with the idea that firms intentionally use leverage to improve their bargaining position, we find that firms facing a high likelihood of a strike increase their leverage, as do firms that have recently experienced a strike.We use contract negotiation data to study how leverage affects the interaction between firms and an important nonfinancial stakeholder, labor unions. Consistent with the idea that leverage diminishes the bargaining position of labor, we find that unions are less likely to strike when a firm has high leverage or increases leverage prior to a contract negotiation. We also find large leverage increases after a strike, consistent with the idea that firms intentionally use leverage to improve their bargaining position. This poststrike increase in leverage is particularly pronounced when the union wins the strike. Moreover, we do not find any clear indication that such increases in leverage are linked to changes in investments. In addition, firms that experience a strike subsequently invest more internationally and in right-to-work states where union are afforded fewer legal protections, and they increase their disposal of production units that are located in states where strikes have occurred. This paper was accepted by Brad Barber, finance .

Practical Applications of Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies

The causes and persistence of the value premium remain a mystery to finance researchers. Do the actions of small, na?ve individual investors provide the premiums for more-sophisticated investors? Even when the value premium has been notably high, the average value investor in mutual funds has done worse than a buy-and-hold investor in an S&P 500 Index fund. In Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies , Jason Hsu of Rayliant Global Advisers , Brett W. Myers of Texas Tech University and Ryan Whitby of Utah State University study the allocations and timing decisions of less-sophisticated investors and find that small investors may be giving up value to the benefit of larger, more-sophisticated investors. The authors conclude that financial education is needed to help less-sophisticated investors capture the value in their value investments.