Conference Agenda

Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).

Please note that all times are shown in the time zone of the conference. The current conference time is: 29th June 2022, 03:55:14pm EDT

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Session Overview
Date: Friday, 06/May/2022
9:00am - 9:15amWelcome
Location: WebEx

Chief Economist Jessica Wachter (SEC)

9:15am - 9:30amOpening Remarks
Location: WebEx

Chair Gary Gensler (SEC)

9:30am - 11:00amFinancial Intermediation
Location: WebEx
Session Chair: Jonathan Sokobin, FINRA

Deputizing Financial Institutions to Fight Elder Abuse

Bruce Carlin2, Tarik Umar2, Hanyi {Livia} Yi1

1Boston College; 2Rice University

Discussant: Erin Smith (SEC)

Deputization is a permissive policy that asks agents to help screen for dangerous activities without providing explicit incentives. To assess its efficacy, we exploit the staggered adoption of recent laws that deputized financial professionals to help fight elder financial abuse — a widespread and pernicious problem that is hard to police. We find that deputization led to a 6%-9% decrease in elder financial abuse. Investment advisers may be more effective deputies than brokers, and existing safeguards curbed the benefits of deputization.

Carlin-Deputizing Financial Institutions to Fight Elder Abuse-138.pdf

Monetary Policy and the Run Risk of Loan Funds

Nicola Cetorelli, Gabriele La Spada, Joao Santos

Federal Reserve Bank of New York

Discussant: Patrick McCabe (Federal Reserve Board)

We document empirically that loan funds are more susceptible to run risk than other open-end debt funds, including corporate bond funds. Investor flows in loan funds positively depend on past fund performance, and this sensitivity is between four and seven times higher than that of investor flows in corporate bond funds. Moreover, the higher flow sensitivity only occurs for negative fund performance. We also show that aggregate loan-fund flows are more volatile than bond-fund ones, suggesting that loan funds are more exposed to a common factor than bond funds. Since loan funds mainly hold leveraged loans, and leveraged loans are floating-coupon contracts tied to a short-term reference rate (typically the LIBOR), policy rate increases should be associated with inflows into loan funds and vice versa. Indeed, we document a positive link between monetary policy and loan-fund flows, indicating a pro-cyclical impact of monetary policy in the leveraged lending market, and a novel channel of monetary policy transmission in the broad space of open-end funds.

Cetorelli-Monetary Policy and the Run Risk of Loan Funds-330.pdf
11:00am - 11:15amBreak 1
Location: Offline
11:15am - 12:45pmMarket Microstructure
Location: WebEx
Session Chair: Haoxiang Zhu, SEC

Squeezing Shorts Through Social Media Platforms

Angel Tengulov1, Franklin Allen2, Eric Nowak3,4, Matteo Pirovano3,4, Marlene Haas5

1University of Kansas; 2Imperial College; 3Swiss Finance Institute; 4Universita della Svizzera italiana; 5Independent Scholar

Discussant: Lorien Stice-Lawrence (University of Southern California)

At the end of January 2021, a group of stocks listed on US stock exchanges experienced sudden surges in their stock prices, which - coupled with high short interest – led to short squeeze episodes. We argue that these short squeezes were the result of coordinated trading by retail investors, who discussed their trading strategies on social media platforms. Contrary to popular beliefs, bot activity on social media did not play a role. However, option markets played a central role in these events. Using hand-collected data we provide the first rigorous study of these short-squeezes and show that they significantly impeded market quality not only of the stocks at issue but also of their competitors. Thus, we contribute to the debate about the benefits and the risks associated with increased retail investor participation in capital markets. The evidence also calls for tighter monitoring of social media platforms and a better understanding of the inter-linkages between these platforms, derivatives markets and equity markets.

Tengulov-Squeezing Shorts Through Social Media Platforms-351.pdf

The Market Inside the Market: Odd-lot Quotes

Robert Bartlett1, Justin McCrary2,4, Maureen O’Hara3

1University of California, Berkeley; 2Columbia University; 3Cornell University; 4National Bureau of Economic Research (NBER)

Discussant: Katya Malinova (McMaster University)

We show how current market practices relating to odd lot quotes result in a large “inside” market where for many stocks better prices routinely exist relative to the NBBO. We provide strong evidence that being able to see these odd lot quotes provides valuable information to traders with access to proprietary data feeds. We develop a XGBoost machine learning prediction algorithm that uses odd lot data to predict future prices, and demonstrate a simple and profitable trading strategy using odd lot data. We show that the SEC’s new approach of changing the definition of a round lot reduces, but does not ameliorate, the high incidence of superior odd lot quotes within the NBBO.

Bartlett-The Market Inside the Market-145.pdf
12:45pm - 1:00pmBreak 2
Location: Offline
1:00pm - 1:30pmKeynote
Location: WebEx

Commissioner Allison Herren Lee (SEC)

1:30pm - 1:45pmBreak 3
Location: Offline
1:45pm - 3:15pmAsset Management
Location: WebEx
Session Chair: Chester Spatt, Carnegie Mellon University

Index Providers: Whales Behind the Scenes of ETFs

Yang Song1, Yu An2, Matteo Benetton3

1University of Washington; 2Johns Hopkins University; 3University of California, Berkeley

Discussant: Kelsey Wei (University of Texas at Dallas)

Most ETFs replicate indexes licensed by index providers. We show that index providers wield strong market power and charge large markups to ETFs that are passed on to investors. We document three stylized facts: (i) the index provider market is highly concentrated; (ii) investors care about the identities of index providers, although they explain little variation in ETF returns; and (iii) over one-third of ETF management fees are paid as licensing fees to index providers. A structural decomposition attributes 60% of licensing fees to index providers’ markups. Counterfactual analyses show that improving competition among index providers reduces ETF fees by up to 30%.

Song-Index Providers-171.pdf

The Consequences of Fund-level Liquidity Requirements

Indraneel Chakraborty1, Elia Ferracuti2, John Heater2, Matthew Phillips1

1University of Miami; 2Duke University

Discussant: Marco Macchiavelli (Federal Reserve Board)

We investigate the effects that mutual fund liquidity requirements have on fragility. In 2018, SEC Rule 22e-4 restricted ownership of illiquid securities in funds. As expected, post-rule, funds hold more liquid securities. Firms issuing illiquid securities face higher costs due to a smaller investor pool. However, higher liquidity does not ameliorate adverse shocks. Facing outflows, funds maintain cash levels and sell illiquid securities. This is because liquidity requirements are not sufficiently countercyclical: funds must maintain cash even when they should use it to mitigate flow pressures. Hence, outflows force funds to sell more illiquid securities post-rule change, unintentionally increasing fragility.

Chakraborty-The Consequences of Fund-level Liquidity Requirements-251.pdf
3:15pm - 3:30pmBreak 4
Location: Offline
3:30pm - 5:00pmCorporate Finance
Location: WebEx
Session Chair: Mark Flannery, University of Florida

Does Socially Responsible Investing Change Firm Behavior?

Daniele Macciocchi1, Davidson Heath2, Matt Ringgenberg2, Roni Michaely3

1University of Miami; 2University of Utah; 3University of Hong Kong

Discussant: Asaf Bernstein (University of Colorado Boulder)

Socially responsible investment (SRI) funds are increasing in popularity. Yet, it is unclear if these funds improve corporate behavior. Using novel micro-level data, we find that SRI funds select firms with higher environmental and social standards: the firms they hold exhibit lower pollution, greater board diversity, higher employee satisfaction, and higher workplace safety. Yet, using an exogenous shock to SRI capital, we find no evidence that SRI funds improve firm behavior. The results suggest SRI funds invest in a portfolio consistent with the fund's objective, but they do not significantly improve corporate conduct.

Macciocchi-Does Socially Responsible Investing Change Firm Behavior-297.pdf

Everlasting Fraud

Vivian Fang1, Nan Li1, Wenyu Wang2, Gaoqing Zhang1

1University of Minnesota; 2Indiana University

Discussant: Jon Karpoff (University of Washington)

This paper models the interdependent mechanisms of corporate fraud and regulation. Our analyses yield two key insights. First, fraud is a never-ending game of cat and mouse because the strength of detection optimally matches the severity of fraud in equilibrium. Second, anti-fraud regulations can tamp down fraud pro tem by sharply decreasing the most fraudulent firms’ net benefits from continuing fraud. However, concentration of regulatory resources on these firms allows other firms to be more aggressive. As such, regulations do not eradicate fraud but synchronize firms’ otherwise idiosyncratic fraud decisions and contribute to fraud waves. Empirical examinations of these insights provide supporting evidence. These results carry strong policy implications, offering a realistic understanding of fraud as a permanent risk in the financial markets and the limited efficacy of anti-fraud regulations.

Fang-Everlasting Fraud-228.pdf
5:00pm - 5:15pmClosing Remarks
Location: WebEx

Paul Andrews, CFA Institute

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