Ethan Namvar

Price Inflation and Wealth Transfer During the 2008 SEC Short-Sale Ban

Using a factor-analytic model that extracts common valuation information from the prices of stocks that were not banned, we estimate that the ban on short-selling financial stocks imposed by the SEC in September 2008 led to substantial price inflation in the banned stocks. The inflation reversed somewhat following the ban, but the data are too noisy to conclusively link the reversal to the ban. Other factors such as the pending TARP legislation may also have affected prices, though our results suggest that it was not a significant factor. If prices were inflated, buyers paid more than they otherwise would have paid for the banned stocks during the period of the ban. We provide an estimate of

Do Hedge Funds Dynamically Manage Systematic Risk

4.9 billion for the resulting wealth transfer from buyers to sellers. Such transfers should interest policymakers concerned about maintaining fair markets.

An Introduction to Peer-to-Peer Loans as Investments

Defining systematic risk management (SRM) skill as persistently low fund systematic risk, we find evidence of time varying allocation of hedge fund management effort across the business cycle. In weak market states, skilled managers focus on minimization of systematic risk via dynamic reallocations across asset classes at the cost of fund alpha and foregoing market timing opportunities. As markets strengthen, attention shifts to asset selection within consistent asset classes. The superior performance of low systematic risk funds previously documented arises due to the superior asset selection ability of managers in strong market states. Incremental allocations by investors arise due to this superior performance and not due to recognition of SRM skill.

Modeling Municipal Yields with (and without) Bond Insurance

The paper constitutes a discussion of the rise of Peer to Peer loans as alternative investments. Peer to Peer loans are being incorporated into portfolios in the interest of diversification. This paper outlines the strategy and provides a guided tour to this new alternative asset class, along with the current risk and barriers.

The Economics of Flash Orders and Trading

We develop an intensity-based model of municipal yields, making simultaneous use of the CDS premiums of the insurers and both insured and uninsured municipal bond transactions. We estimate the model individually for 61 municipal issuers by exploiting the dramatic decline in credit quality of the bond insurers from July 2007 to June 2008, and decompose the municipal yield spread based on the estimated parameters. The decomposition reveals a dominant role of the liquidity component as well as interactions between liquidity and default similar to those modeled by Chen et al. (2016) for corporate bonds. Towards the end of the sample period, our model also reproduces the “yield inversion” phenomenon documented by Bergstresser et al. (2010).

Oh Behave! — Fuller & Thaler Asset Management

This paper surveys some economic principles required to understand the characteristics and effects of flash orders and trading. We present the benefits and current controversies surrounding flash orders. Finally, we offer recommendations that would be of interest to policymakers.

Commonalities in Investment Strategy and the Determinants of Performance in Mutual Fund Mergers

The purpose of this case is to help with the understanding of behavioral finance, biases, under reaction, and over reaction.