Conference Agenda

In policing terms, a broken windows approach asserts that detecting and prosecuting minor violations will deter more severe crimes. I study the effectiveness of a broken windows approach to securities enforcement. Using SEC Chair Mary Jo White’s policies during 2013-2016, I find evidence consistent with broken windows securities enforcement policies deterring accounting fraud. This result is robust to several alternative research designs and reverses during the subsequent SEC administration starting in 2017. I also provide evidence for a deterrent mechanism that is unique to the securities enforcement context, whereby broken windows policies incentivize internal control improvements. Finally, I find that executing a broken windows policy constrains enforcement resources, resulting in tradeoffs in the investigations the SEC pursues.

Securities law prioritizes transparency through mandatory public disclosures, while banking law emphasizes opacity by prohibiting disclosure of confidential supervisory information (CSI). This conflict raises a fundamental question: is CSI material to investors? Regulators have implicitly assumed it is not, but that position has never been empirically tested. We test market reactions using a novel dataset of unexpected CSI leaks at publicly traded bank holding companies. We find statistically and economically significant abnormal stock returns and changes in implied credit default swap spreads on days when CSI is leaked, demonstrating that some CSI is indeed material to investors. These findings challenge the regulatory stance of categorical immateriality and expose unresolved tensions between securities and banking laws. They also carry implications for disclosure compliance, insider trading, due diligence in financial transactions, and the broader policy tradeoffs between investor transparency and financial stability.

This paper examines the impact of Zero-Day-to-Expiration (0DTE) options trading on stock market volatility. The monthly trading volume of 0DTE options linked to indices increased from .08 million contracts in January 2011 to 34.4 million contracts in August 2023 and now accounts for 48% of the trading in index options. Using the staggered introduction of index weekly options as an instrument variable, we show that a one standard deviation increase in 0DTE options trading leads to 9.10% increase relative to the mean value of volatility, which is 15.91% of its standard deviation. Even after controlling for option market makers’ gamma hedging, we find that the impact on volatility remains positive and is primarily driven by speculative retail investors.

Although still relatively new, nocturnal trading in U.S. equities, defined as trading between 8:00 p.m. and 4:00 a.m., has grown rapidly. It is largely retail-driven, concentrated in a small set of securities, and marked by substantial order imbalances. Using unique transaction-level data, we show that nocturnal execution costs exceed regular-hours benchmarks but are broadly consistent with elevated adverse selection faced by liquidity suppliers. Nocturnal returns generally do not reverse during the subsequent regular-hours session, except in a small subset of high-sentiment stocks. Overall, the nocturnal session appears to be an important source of price discovery and may create profit opportunities for retail liquidity demanders despite higher transaction costs.

Protective regulation aims to safeguard consumers yet may impose frictions that inhibit entrepreneurial activity. I study this tension in the context of U.S. state cryptocurrency licensing laws using novel data linking regulatory announcements, startup formation, investment, hiring, and patenting. Markets respond negatively to protective legislation, but regulated states subsequently experience more entrepreneurial activity. Difference-in-differences estimates exploiting staggered adoption show that licensing requirements increase startup entry, capital raised, patent applications, and hiring -- especially in engineering and compliance roles. To account for this divergence between market reactions and real outcomes, I develop a model in which regulatory intensity generates asymmetric responses by firm quality and size. Consistent with the model, the evidence indicates that protective regulation creates a certification channel that disproportionately benefits high-quality entrants while discouraging lower-quality competitors.

We provide the first large-sample evidence that decentralized voting is widespread within mutual fund families. Contrary to the view that families vote as unified blocs, we find that at least 40% of families exhibit evidence of decentralized voting, starting as early as 2006. We measure decentralization using voting disagreement within the family, which is low unconditionally due to the high volume of routine proposals, but rises substantially for controversial proposals, environmental and social issues, and when proxy advisors recommend voting “against.” Decentralized voting is more prevalent in families with more active funds and greater stewardship resources, and funds within a family vote more similarly when they share management structures and characteristics. Decentralization has consequences for governance and fund investors. First, it weakens the monitoring effectiveness of institutional investors—a result we corroborate using Vanguard's 2019 adoption of decentralized voting as a quasi-natural experiment. Second, funds that deviate from their family’s voting stance charge higher fees without delivering higher returns for clients. Yet, funds that deviate attract higher inflows.

Debt investors are typically viewed as passive recipients of credit ratings who make portfolio decisions accordingly. In this paper, we identify circumstances in which institutional investors act as “rating-movers”, strategically shaping rating outcomes to favor their portfolio positions and managerial compensation. Using a proprietary dataset of Collateralized Loan Obligations (CLOs), we examine the incentives of CLO managers to resist rating downgrades that could trigger overcollateralization (OC) test failures. We develop a novel measure capturing managers’ incentives to suppress downgrades, based on the significance of a loan within a manager’s portfolio and the extent to which its downgrade would affect OC compliance. We find that loans facing greater resistance from CLO managers exhibit a significantly lower likelihood of subsequent downgrades. This effect is more pronounced for loans issued by private firms and when managers are above their incentive fee hurdles, highlighting the economic motivation behind the rating influence. Our results demonstrate that investors, much like fixed-income issuers, can exert strategic pressure on rating agencies, revealing a new source of conflicts of interest in the credit rating industry.

This paper examines the role of repo lending between counterparties affiliated with the same bank holding company (BHC). Using confidential transaction-level data, we find that Treasury repo rates between affiliated entities are significantly higher than those between unaffiliated parties. This affiliation premium is more pronounced when dealers face tighter balance sheet constraints, suggesting that regulatory capital requirements raise the cost of external borrowing and enhance the value of internal funding. During a temporary period of regulatory relief—when leverage requirements were relaxed—the affiliation premium nearly disappeared, only to re-emerge once the regulations were reinstated. Our findings underscore a unique competitive advantage for dealers within large BHCs: the ability to access internal liquidity from affiliated banks. This internal liquidity channel also facilitates the distribution of liquidity from banks with high level of reserves to the rest of financial system.

Active exchange-traded funds (AETFs) are booming despite massive outflows from traditional active mutual funds (AMFs). This growth is not driven by performance; AETFs persistently underperform their AMF peers. Instead, AETFs capitalize on their intraday tradability to attract an attention-driven retail clientele. We document a novel U-shaped flow-performance relation where AETF investors chase extreme short-term returns—both positive and negative. Because long-term underperformance is not penalized with outflows, AETF managers are incentivized to rely on elevated risk-taking to generate these attention-grabbing returns. Overall, AETFs function less as skill-based investment products and more as high-risk attention assets.

This paper documents substantial asset `reclassification' in the mutual fund industry, exceeding $450 billion in 2021. These reclassification events do not involve investor flows; instead, mutual fund assets are simply converted into twin investment vehicles, such as separate accounts or collective investment trusts. Analyzing the implications of asset reclassification for the mutual fund literature, we find that these events distort inferred mutual fund flows without reflecting actual asset movements at the investment product level. Failing to account for asset reclassification in flow-based regression analyses can lead to biased estimates, as it resembles a non-classical measurement error. We first analyze scenarios in which mutual fund flows serve as a dependent variable, focusing on flow-performance sensitivity. A regression utilizing reclassification-adjusted quarterly flows demonstrates a 40-100% greater flow-performance sensitivity for mutual funds with twin vehicles than one employing unadjusted flows. We then examine cases when flows serve as an independent variable, as in `smart money' tests, where measurement error artificially inflates true estimates.