Jared F. Egginton

The Impact of Revenue Diversification on Expected Revenue and Volatility for Nonprofit Organizations

We investigate the relationship between revenue diversification and volatility for nonprofits. Modern portfolio theory suggests that more diversification reduces volatility at the expense of reduced expected revenue. We find that this relationship should not be taken for granted. We use a new empirical measure of volatility that addresses estimation issues of expected revenue, including heteroskedasticity and the omission of the effect of diversification on expected revenue. We also examine the impact on nonprofits of different types of diversification. We find that the effects of diversification on volatility and expected revenue depend on the compositional change in the portfolio. For example, a more diversified portfolio achieved by replacing earned income with donations reduces both volatility and expected revenue, while replacing investment income with donations to achieve an increase in diversification of the same magnitude reduces volatility and increases expected revenue. This suggests other motives for nonprofit organizations to hold investments.

What Effect Did Aig's Bailout, and the Preceding Events, Have on its Competitors?

We examine the effect of AIG’s bailout, and the events leading up to it, on its insurance industry rivals. The reaction of rivals to AIG-related events depends on the relative strength of two competing effects. The contagion effect implies that rival returns will decrease following negative events affecting AIG. In contrast, competitive effects will occur if investors expect that rivals will be able to benefit from AIG’s downfall. Using a three-factor multivariate regression model event study methodology we find evidence of both effects around several key dates in AIG’s decline.

REITs and market friction

We examine the Hou and Moskowitz (2005) parsimonious measure of friction, which proxies investors’ difficulty in incorporating market-wide information into security prices. Our comparison of REITs and matched non-REIT stocks shows a statistical and economically higher level of friction for REIT securities. This finding suggests that REIT securities react more slowly to new information. Thus, our evidence does not support the view that REITs are more transparent than non-REITs, at least with respect to price delay. Further results indicate that the primary drivers for the REIT-delay differential include differences in size, turnover, volatility, and price level. Examining within-REIT differences in delay, we find a positive and significant relation between delay and whether the REIT is part of an operating partnership. We find only marginal differences in delay across property focus.

Exchange Entrances, Mergers and the Evolution of Order Flow on NASDAQ 1993-2010

We examine the changes in order flow on NASDAQ from 1993 through 2010. We find that while volume and the number of trades are increasing for NASDAQ-listed securities, the percentage of volume that executes on NASDAQ declines from almost 100% in the 1990’s to less than 40% in 2010. We examine the entrants of new exchanges on NASDAQ and the merger of NASDAQ and several exchanges. We do not find that either entrants of new trading venues of the merging of trading venues leads to a change in total volume of securities executed. We find that the number of trading locations increases trading costs, but as order flow becomes more fragmented, trading costs decline. We see that as order flow fragments on NASDAQ, the speed of execution increases, and find little relation between the number of exchange/venues that trade NASDAQ stocks and the speed of execution. We also document a large increase in the number of cancelled orders for NASDAQ-listed securities, and this is increasing over time.