Israel Shaked

Does Business Diversification Affect Performance

* In spite of the trend toward diversification during the past decade, relatively little is known about the relationship between financial performance and the extent to which a firm diversifies. This study relates several measures of financial performance to the degree of relatedness of a firms operations. The empirical question of whether shareholder value is increased through increasing amounts of diversification is investigated. The study concludes that firms diversifying into unrelated areas have been able to generate superior performance over those with predominantly related businesses.

Evaluating Merger Performance

This article surveys the available empirical evidence assessing merger performance; its conclusions are important to the senior management of both potential acquirers and firms seeking to be acquired. The authors examine relative gains to the merging units, changes in their risk characteristics, and changes in the operating results of the merging firms.

Not All Buybacks are Created Equal: The Case of Accelerated Stock Repurchases

This paper investigates the new and growing practice of accelerated share repurchases (ASRs). In an ASR a firm hires an investment bank to borrow shares from existing investors. The investment bank delivers these shares to the firm, and the firm eliminates the shares immediately. The bank then repurchases shares in the open market over a period of several months and returns them back to the lenders. We document the characteristics and market performance of ASR stock. ASRs are primarily used to accelerate existing open-market repurchase programs. While the announcement return on ASRs is positive, it is very small when compared to other repurchase methods. Interestingly, the post-announcement performance of ASR stock is poor, unlike that documented in the literature for other repurchase methods. Our findings suggest that ASRs do not signal undervaluation, a motivation frequently suggested by analysts and academics for repurchases. The firm is getting the shares today but only will pay tomorrows price.

Have We Learned from Previous Stock Meltdowns

We have witnessed three major stock market meltdowns over the past three decades. This paper assesses the market shocks of 1987, 1997 and 2008. In particular, we review the history of modern finance and assess whether the role of quantitative finance has developed to reduce the likelihood of future meltdowns. We see that the role of models based on historical price movement often ignore the possibility of fat tails, that risk free arbitrage may exist in normal, but not tumultuous markets and that asset returns and correlations result in extreme values more frequently than predicted by the standard bell curve. Moreover, the desire for outsized returns has driven many money managers to leverage their returns beyond prudent levels, dramatically increasing portfolio risk. In addition, many in Wall Street sell and create new derivative products that are often sold without the necessary due diligence and properly conducted stress tests. The same quantitative courses are taught and similar derivative products are sold as during the three previous meltdowns. Unfortunately, the SEC and academia have taken little permanent action to reduce the odds of further stock meltdowns.

Index correlation: implications for asset allocation

Purpose - – The cornerstone of Modern Portfolio Theory with implications for many aspects of corporate finance is that reduced correlation among assets and reduced standard deviation are key elements in portfolio risk reduction. The purpose of this paper is to analyze the conditional correlation and standard deviation of a broad set of indices with the S & - P 500 conditioned on market performance. Design/methodology/approach - – The authors examined volatility and correlation for a set of indices for a 19-year period based on weekly data from July 2, 1993 to June 30, 2012. These included the NASDAQ, MSCI EAFE, Russell 1000, Russell 2000, Russell 3000, Russell 1000 Growth, Russell 1000 Value, Gold, MSCI EM and Dow Jones UBS Commodity. The data for the Wilshire US REIT, Barclays Multiverse, Multiverse 1-3, Multiverse 3-5 and Multiverse 10+ became available starting July 2, 2002. For these indices the authors used weekly data from July 1, 2002 through June 30, 2012. For the iBarclays TIPS, the authors used weekly data from the time of availability, namely, for the period December 12, 2003 through June 29, 2012. Findings - – The findings demonstrate that both the conditional correlations and standard deviations vary as a function of market performance. Moreover, the authors obtain a Originality/value - – While it has been observed that asset classes move together, this paper is the first to systematically analyze the nature of these asset class correlations.