Research Lab

Despite the popularity of prediction, markets among economists, businesses, and policymakers have been slow to adopt them in decision-making. Most studies of prediction markets outside the lab are from public markets with large trading populations. Corporate prediction markets face additional issues, such as thinness, weak incentives, limited entry, and the potential for traders with biases or ulterior motives — raising questions about how well these markets will perform.

It is not every day that one is asked a question that is so critical to the sustenance and well-being of such a material percentage of the developed world.  Over the last century, it can be said that western society has evolved to incorporate the notion of a pension as an ideal. Just this past summer it was not inconceivable that Greece would leave the European Union. Why?

What is the next step for institutional investors who have already embraced investing in established large hedge fund managers? What are the benefits of embracing smaller emerging hedge fund managers?

We test the empirical validity of a claim that has been playing a central role in debates on corporate governance — the claim that interventions by activist hedge funds have a detrimental effect on the long-term interests of companies and their shareholders. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data.

Fraud occurs when there is an incentive and the opportunity to commit fraud and the fraudster can rationalize his behavior. Academic literature in financial economics has investigated incentives and opportunities to commit fraud but has largely ignored the fraudsters' ability to rationalize fraud. We address this gap by positing that economic actors, whose earnings are restricted by regulations, cheat more and rationalize such behavior as an effort to get "out of the hole" that regulations have forced them into.

This paper identifies cash-flow news and expected-return news in financial statements and shows that stock returns are increasing with positive cash-flow news in the statements and decreasing in the news about increasing expected returns. The identified news measures differ significantly from those identified from decomposing returns based on the Vuoltennaho (2002) framework.

A long stream of papers documents robust correlations between firm characteristics and future stock returns. Most of these characteristics involve accounting numbers. Usually, characteristics have been identified from data analysis, resulting in a proliferation of characteristics. A 2013 survey of published papers and working papers found 186 predictors — a number that the authors said likely under represents the total.

Extant knowledge of Ponzi schemes in the accounting and finance literature is mainly anecdotal. The consequence of this is that it is difficult to know what, if anything, can be done to deter these frauds. We seek to fill part of our knowledge gap about Ponzi schemes by providing large-scale evidence based on a sample of 376 Ponzi schemes prosecuted by the SEC between 1988 and 2012. Our evidence indicates that the majority of SEC-prosecuted schemes involve sums that are much lower than those in the highly visible frauds perpetrated by Bernard Madoff and Allen Stanford.

In 2013, a new law required Indian firms, which satisfied certain size and profitability thresholds, to spend at least 2% of their net income on CSR. We exploit this natural experiment to isolate the shareholder value implications of CSR activities.