William Christopher Gerken

Hybrid integrate-and-fire model of a bursting neuron

We present a reduction of a Hodgkin-Huxley (HH)style bursting model to a hybridized integrate-and-fire (IF) formalism based on a thorough bifurcation analysis of the neurons dynamics. The model incorporates HH-style equations to evolve the subthreshold currents and includes IF mechanisms to characterize spike events and mediate interactions between the subthreshold and spiking currents. The hybrid IF model successfully reproduces the dynamic behavior and temporal characteristics of the full model over a wide range of activity, including bursting and tonic firing. Comparisons of timed computer simulations of the reduced model and the original model for both single neurons and moderate lysized networks (n 500) show that this model offers improvement in computational speed over the HH-style bursting model.

Regulatory Oversight and Return Misreporting by Hedge Funds

We use Securities and Exchange Commission (SEC) rule changes to show that regulatory oversight reduces return misreporting by hedge funds. Specifically, we use a 2004 rule change that expanded SEC oversight of hedge funds and the 2006 revocation of this rule. Differences-in-differences tests show that, following the rule change, misreporting by newly regulated funds decreased. After revocation, funds that exited the regulatory system increased misreporting relative to funds that remained registered. Placebo tests show no change in misreporting by foreign funds exempt from the rule change. We show that regulatory oversight increased the level of flows and decreased the sensitivity of flows to underperformance.

Blockholder Ownership and Corporate Control: The Role of Liquidity

Employing an instrumental variable approach based on the regulatory change of tick sizes, I examine the link between the liquidity of a firms equity and activism by large shareholders. I find that liquidity increases the likelihood of block formation. Blockholders of more liquid securities take smaller stakes that do not precommit them to monitor. I find evidence that the threat of exit from a block can discipline managers and that this threat is more effective when liquidity is higher. While liquidity increases exit from existing blocks, I find no evidence that share illiquidity that forces blockholders to actively monitor.

Hedge Fund Boards and the Market for Independent Directors

We provide the first examination of hedge fund boards and their directors. The majority of directorships are held by extremely busy independent directors. These directors are sought by funds because they have more reputational capital at stake, making them independent and credible monitors whose presence can certify fund quality to investors. Busy independent directors are more likely to be hired by high-quality funds, and their departure from the board is associated with investor withdrawals. Moreover, funds with busy independent directors are less likely to commit fraud, abuse discretionary liquidity restrictions, or engage in performance-based risk shifting.

Investment in Human Capital and Labor Mobility: Evidence from a Shock to Property Rights

We study the effect of a change in property rights on employee behavior in the industry for financial advice. Our identification comes from staggered firm-level entry into the Protocol for Broker Recruiting. The agreement waived non-solicitation clauses for advisor transitions among member firms, effectively transferring ownership of client relationships from the firm to the advisor. After the shock, advisors appear to take better care of client relationships by investing in client-facing industry licenses, shifting to fee-based advising, and garnering fewer customer complaints. Our findings support property rights-based investment theories of the firm and document offsetting costs to restricting labor mobility.

A Test for Long Memory in the Conditional Correlation of Bivariate Returns to Stock and Bond Market Index Futures

Long memory is found in the conditional volatilities of financial returns measured at daily or higher frequencies, as well as in residual cross-products in bivariate series. We test for long memory in conditional correlations by extending the fractionally integrated GARCH model to include previous conditional correlations and standardized cross-products in a bivariate system. We apply the model to stock-stock and stock-bond futures index returns using Engle’s (2002) two-stage dynamic conditional correlation approach. We find that cross-products are indeed long memory processes, but that this feature arises from long memory in conditional volatilities and not from long memory in conditional correlation.