Publications

Initial Margin Requirements and Market Efficiency ( with Ferhat Akbas and Paul Koch ) 

• 2024, Journal of Financial and Quantitative Analysis, 59(1), 249-282.

Working Papers

Market Efficiency, Skilled Human Capital, and Financial Deregulation over the Past Century ( with Ferhat Akbas and Paul Koch )

Contrary to the prevailing view, equity markets have not followed a consistent trend toward increasing efficiency over time. Instead, we document more timely adjustment of stock prices to both firm-specific news and market-wide information during the early and late decades of the past century, but less timely adjustment during the middle decades. This U-shaped trend in the degree of semi-strong form efficiency is linked to the capacity of arbitrageurs to update prices, as proxied by the levels of wages and education in the finance industry, which are in turn driven by changes in financial deregulation over the past century. We draw similar conclusions when we examine the history of weak form efficiency. These results are robust to controlling for firm-specific attributes, stock market conditions, and potential endogeneity, as well as across different industries. This analysis establishes that the flow of skilled human capital through financial markets is a significant determinant of market efficiency, and thereby uncovers an important social role for high quality human capital that benefits resource allocation in financial markets and the economy. 

• Presentations: Southern Finance Association 2023, Iowa State University*, University of Illinois at Chicago*, Erasmus University*, Clemson University*, Eastern Finance Association 2023, Southwestern Finance Association 2023, AFA Ph.D. Poster Session 2022, FMA Special Ph.D. Paper Presentations 2021, FMA Doctoral Student Consortium 2021, and Iowa State University.

Investment Volatility is Costly  ( with Ginka Borisova and James R. Brown )

Investors discount firms with volatile R&D spending but are largely unconcerned with volatility in fixed capital spending. The negative effect of R&D volatility on firm value holds after controlling for the negative effect of cash flow volatility documented in prior work. Using the staggered introduction of state-level R&D subsidies to identify plausibly exogenous variation in R&D volatility, we document a robust negative connection between current firm valuation and forward R&D volatility. The negative effect of R&D volatility on firm value is stronger in sub-sets of firms that: i) are less likely to face binding financing constraints and ii) have higher discretionary accruals. Together, these findings suggest that investors take a particularly negative view of avoidable (discretionary) R&D volatility. Firms with volatile R&D spending are less successful innovators, highlighting one key reason R&D volatility is costly. 

• Presentations: Eastern Finance Association 2024, Southwestern Finance Association 2023, Silicon Prairie Finance Conference 2021.

Margin Requirements, Risk Taking, and Multifactor Models ( with Ferhat Akbas, Ehsan Azarmsa, Chao Jiang, and Paul Koch )

When investors anticipate the Fed increasing margin requirements, they initially bid up the riskier stocks in the long legs of hedge portfolios associated with the market, HML, and SMB factors, relative to the less risky stocks in the short legs. Following such a policy change, the returns on these hedge portfolios subsequently decline, implying lower compensation for bearing risk associated with these three factors. In contrast, margin requirements are unrelated to returns on momentum. Our theory and evidence suggest that investors adjust their risk exposures to the market, SMB, and HML factors when leverage constraints are changed, but not momentum.

• Presentations: University of Texas Rio Grande Valley* 2022, China International Conference in Finance 2021, Midwest Finance Association 2020, Eastern Finance Association 2020, Silicon Prairie Finance Conference 2020, Financial Management Association 2019 (Top 10 Session), Southern Finance Association 2019, and Iowa State University.

Work in Progress

Legal Enforcement, Insider Trading, and Price Efficiency

Motivated by an exogenous shock to legal enforcement against illegal insider trading in the United States, I examine the impact of insider trading enforcement on price informativeness by combining a hand-collected sample of insider trading transactions over 1944-1987 with more recent data from readily available resources.