The corporate finance concentration is designed to teach the role of accounting in business management, financial planning and decision-making. The study of corporate finance, you develops knowledge in areas such as reporting to shareholders, managing costs, creating shareholder value, measuring performance and making strategic accounting and financing choices.
Research Expertise: Empirical asset pricing, real estate finance, option-pricing and portfolio theory
Lecturer Robert Jalali is a visiting scholar at the UC Berkeley Haas School of Business, where he is conducting research for his doctoral dissertation. He recently published articles on asset price dynamics for the 2014 World Economic Forum Annual Meeting and has other finance and business publications in the UK and in Korea.
Research Expertise: International trade, finance, macroeconomics and economic history
Professor Alan Taylor teaches economics and finance at the University of California, Davis, with appointments in the Department of Economics and the Graduate School of Management. He is also a research associate of the National Bureau of Economic Research in Cambridge, Mass., and a research fellow of the Center for Economic Policy Research in London. He serves as a co-editor at the Journal of International Economics.
1 Shields Ave
Research Expertise: Banking and corporate finance
A leading expert in banking and corporate finance, Professor Robert Marquez tries to uncover the mechanisms that underlie the behavior of financial institutions. One important focus of his research is the effect low interest rates have on banks and whether they encourage banks to take on more leverage. Marquez joined the Graduate School of Management faculty in July 2012.
540 Alumni Lane
Even in these roller coaster financial times, Associate Professor Joseph Chen believes it is possible to make sense of Wall Street. Chen’s research reveals that stock market returns behave asymmetrically: they are more likely to make extreme moves on the downside than on the upside, and when markets go down, different stocks are more likely to move down together than when markets move up.
540 Alumni Lane
The Financial Principles Every Venture Capitalist Needs To Master!
Differences of Opinion in Financial Markets: The Implications for Asset Returns
VDM Verlag Dr. Müller, 2009
How are asset prices determined when investors disagree about the firm valuation? Prof. Anna Scherbina shows that market prices end up being too high, reflecting the more optimistic views.
In this study, Associate Professor Roger Edelen and co-authors Ozgur Ince and Gregory B. Kadlec from Virginia Tech examine the link between a firm’s investor base, discount rate, capital budgeting decisions, and profitability, arguing that a downward shift in discount rates associated with an expanded investor base can account for both poor stock returns and operating performance following security offerings.
Professor Brad Barber, an internationally recognized expert in investor behavior, talks about the success students find with a UC Davis MBA. He says, “What I’ve been most proud of is probably the way in which our students navigate those career objectives after leaving UC Davis. I think they’re infused with a sense of community, cooperation and teamwork which makes our graduates attractive to potential employees and also as managers.”
In this paper, Associate Professor Ayako Yasuda and co-author Andrew Metrick from the Yale School of Management review the theory and evidence on venture capital (VC) and other private equity: why professional private equity exists, what private equity managers do with their portfolio companies, what returns they earn, who earns more and why, what determines the design of contracts signed between (i) private equity managers and their portfolio companies and (ii) private equity managers and their investors (limited partners), and how/whether these contractual designs affect outcomes.
Using data from 1991 to 2010, U.C. Davis Professors Brad Barber and Guojun Wang analyze educational endowment returns using simple style attribution models pioneered by Sharpe (1992).
The Role of Institutional Investors in Propagating the Crisis of 2007-2008
Journal of Financial Economics, 2011
Using a novel data of institutional investors’ bond holdings, Associate Professor Ayako Yasuda and co-authors Alberto Manconi from Tilburg University and Massimo Massa from INSEAD examine a transmission of the crisis of 2007-08 from the securitized bond market to the corporate bond market via joint ownership of these bonds by investors.
The authors posit that, ceteris paribus, corporate bonds held by investors with high exposure to securitized bonds and liquidity needs experience greater selling pressure and price declines (yield increases) at the onset of the crisis.
In this study, Professor Brad Barber and co-author Terrance Odean from U.C. Berkeley provide an overview of research on individual investor stock trading behavior.
In this paper, Assistant Professor Anna Scherbina and co-author Li Jin from Harvard Business School show that new managers who take over mutual fund portfolios sell off inherited momentum losers at higher rates than stocks in any other momentum decile, even after adjusting for concurrent trades in these stocks by continuing fund managers.
Research Expertise: Private Equity, Venture Capital, Impact Investing, Social Entrepreneurship, Finance of Innovation, Corporate Finance.
Research Expertise: Finance, capital market theory, monetary economics, management control systems, international finance and accounting
This article analyzes the economics of the private equity industry using a novel model and dataset. Metrick and Yasuda obtain data from a large investor in private equity funds, with detailed records on 238 funds raised between 1993 and 2006. They build a model to estimate the expected revenue to managers as a function of their investor contracts, and test how this estimated revenue varies across the characteristics of our sample funds.
Having grown steadily over the past three decades, private equity funds worldwide today manage $1 trillion in capital raised from retail, individual and institutional investors. They play an increasingly important role as financial intermediaries in addition to their significant day-to-day involvement as company board members and advisors. Yet relatively little is known about the industrial organization of these various funds.
The Relative Sentiment Indicator: On the Asset Allocation Decisions of Institutional vs. Retail Investors
Financial Analysts Journal, 2010
In this study, Associate Professor Roger Edelen and co-authors Alan J. Marcus and Hassan Tehranian from Boston College measured retail investor sentiment relative to that of institutional investors by comparing their respective portfolio allocations to equity versus cash and fixed-income securities. The results suggest that fluctuations in retail sentiment are a primary driver of equity valuations for reasons unrelated to fundamentals.
The equilibrium magnitude of mispricing can be no greater than the cost of arbitraging it away. Yet, mispricing typically arises when the uncertainty about a firm is high, which is precisely when the stock’s liquidity is low.
A decade before the 1929 stock market crash there was a booming real estate market in New York City that Assistant Professor Anna Scherbina says resembles the housing bubble of the 1990s and 2000s.
In a recent radio interview, Scherbina discussed an index of home prices in Manhattan between 1920 and 1939 that she and Associate Professor Tom Nicholas of the Harvard Business School collected by hand from the Manhattan Public Library archives. This data set is informative because the housing market in Manhattan represented 5% to 10% of all the U.S. real estate wealth at that time.
In this paper, Professor Brad Barber and co-authors Terrence Odean from the University of California, Berkeley and Ning Zhu from the Shanghai Advanced Institute of Finance analyze trading records for 66,465 households at a large discount broker and 665,533 investors at a large retail broker to document that the trading of individuals is highly correlated and persistent.
As more and more people invest to save for college educations and their retirements, research shows that aggressive trading in these accounts can lead to large losses. Professor Brad Barber has published “Just How Much Do Individual Investors Lose by Trading?” in The Review of Financial Studies in collaboration with Y-Tsung Lee of National Chengchi University, Y-Jane Liu of the Guanghua School, Peking University and National Chenggchi University, and Terrance Odean of the Haas School of Business at the University of California, Berkeley.
Not long after the Dow Jones slid to a six-year low, Assistant Professor Anna Scherbina presented her research about stock price volatility at Tulane University’s Freeman School of Business in March.
Scherbina’s study, “Unusual News Events and the Cross-Section of Stock Returns,” co-authored by Turan G. Bali of Baruch College’s Zicklin School of Business and Yi Tang of Fordham University’s School of Business, identified a pattern in which stocks that experience a sudden increase in volatility earn higher returns for a month, only to drop and underperform during subsequent months.
In the midst of the financial crisis and taxpayer-funded bailouts of the likes of AIG, public outrage and government scrutiny over the pay packages of executives at companies receiving federal aid has reached new heights. Largely missing from the debate over executive compensation is the unintended consequence that accounting rules have on rewards in the form of stock buybacks.
Disclosure and Agency Conflict in Delegated Investment Management: Evidence from Mutual Fund Commission Bundling
American Finance Association San Francisco Meetings Paper, 2009
This study provides empirical evidence on the role of disclosure in resolving agency conflicts in delegated investment management. For certain expenditures, fund managers have alternative means of payment which differ greatly in their opacity: payments can be expensed (relatively transparent); or bundled with brokerage commissions (relatively opaque).
Former Federal Reserve Chairman Alan Greenspan has called the current global financial crisis a “once-in-a-century” event. To help put the economic turmoil in historical perspective and shed light on market behavior over the long term, Professor Brad Barber joined a panel of UC Davis faculty experts at “Understanding the Financial Crisis,” an October 17 forum hosted by the UC Davis Institute of Governmental Affairs.
The Effectiveness of Reputation as a Disciplinary Mechanism in Sell-Side Research
The Review of Financial Studies, 2009
In this study, Associate Professor Ayako Yasuda and co-author Lily Fang from INSEAD examine whether the quality differentials in earnings forecasts between reputable and non-reputable analysts vary with the severity of conflicts of interest.
Household bankruptcy filings have spiked over the past two decades. According to the American Bankruptcy Institute, 412,510 personal bankruptcies were filed in 1985 compared to 2,039,214 in 2005. During that period, personal bankruptcies rose from 0.3 percent to 1.8 percent of all U.S. households. Bank and credit card companies have reportedly lost tens of billions of dollars every year as a consequence of the upward trend in consumer bankruptcy filings. The ripple effect of the current credit crisis continues fuel filings. But what else is pushing families to the economic brink?
In this paper, Assistant Professor Anna Scherbina presents evidence of inefficient information processing in equity markets by documenting that negative information withheld by securities analysts is incorporated in stock prices with a significant delay.
For almost two decades, the California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund with more than $207 billion in assets, has been active in pursuing corporate reforms. CalPERS is generally credited as a founder of shareholder activism stemming from its heightened proxy voting activity at companies in the mid-1980s.
In this paper, Assistant Professor Anna Scherbina and co-author Ronnie Sadka from Boston College document a close link between mispricing and liquidity by investigating stocks with high analyst disagreement. Previous research finds that these stocks tend to be overpriced, but that prices correct downwards as uncertainty about earnings is resolved. The authors’ analysis suggests that one reason mispricing has persisted through the years is that analyst disagreement coincides with high trading costs.
Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan
European Financial Management, June 2007
In this study, Professor Brad Barber and co-authors Terrance Odean from U.C. Berkeley, and Yi-Tsung Lee and Yu-Jane Liu from National Chengchi University ask whether the typical investor and the aggregate investor exhibit a bias known as the disposition effect, which is the tendency to sell investments that are held for a profit at a faster rate than investments held for a loss.
This paper by Associate Professor Joseph Chen and co-author Andrew Ang of Columbia Business School shows that a conditional one-factor model can account for the spread in the average returns of portfolios sorted by book-to-market ratios over the longrun from 1926 to 2001.
In this paper, Assistant Professor Anna Scherbina provides empirical support for Miller’s 1977 hypothesis that a stock price will reflect the optimistic view whenever there is disagreement about its value. Using dispersion in analyst earnings forecasts as a proxy for disagreement, she finds that high-dispersion stocks earn lower returns than otherwise similar stocks. This effect is more pronounced for small-cap and growth stocks, and the subnormal returns are linked to the resolution of uncertainty.
All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors
European Finance Association Moscow Meetings, 2005
In this study, Professor Brad Barber and co-author Terrance Odean from UC Berkeley confirm the hypothesis that individual investors are net buyers of attention-grabbing stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume, and stocks with extreme one day returns.
In this paper, Associate Professor Joseph Chen and co-authors Harrison G. Hong from Princeton and Jeremy C. Stein from Harvard develop a model of stock prices in which there are both differences of opinion among investors as well as short-sales constraints.
Forecasting Crashes: Trading Volume, Past Returns and Conditional Skewness in Stock Prices
Journal of Financial Economics, 2001
This paper is an investigation into the determinants of asymmetries in stock returns. Associate Professor Joseph Chen and co-authors Harrison G. Hong from Princeton and Jeremy C. Stein from Harvard develop a series of cross-sectional regression specifications which attempt to forecast skewness in the daily returns of individual stocks.
Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Journal of Finance, 2000
Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned over 75 percent of its portfolio annually.
Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment
Quarterly Journal of Economics, 2000
It’s not what a man don’t know that makes him a fool, but what he does know
that ain’t so.
–Josh Billings, nineteenth century American humorist
Theoretical models predict that overconfident investors trade excessively. Brad Barber and Terrance Odean test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as finance, men are more overconfident than women. Thus, theory predicts that men will trade more excessively than women.