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Staff Papers and Economic Analyses

Staff Papers and Economic Analyses

 
Working papers in the series were prepared in full or in part by SEC staff economists in the Division of Economic and Risk Analysis. They investigate a broad range of issues relevant to the Commission's mission and are disseminated to stimulate discussion and critical comment to the benefit of the public. DERA Working Papers are preliminary materials that have not been approved by the Commission and reflect only the views of the author(s).

White papers and economic analyses are prepared by SEC staff in the course of rulemaking and other Commission initiatives. Some of these materials are available elsewhere on the Commission website.
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Date Title Category
May 30, 2014 White Paper on Computing Tools for Promoting Sound Investment Decisions (pdf)

Show Abstract Abstract

Numerous academic studies document that retail investors make systematic “mistakes” in assessing the risk and return characteristics of their portfolios. In this paper, I introduce a computing tool which can help individuals better assess these characteristics by displaying simulated portfolio returns. This paper features a demo version of this calculator for the federal government’s Thrift Savings Plan. The output shows that riskier investments can lead to higher wealth outcomes than less risky investments although this outperformance is sensitive to assumptions about the mean return, particularly at long horizons. In addition, the risk of such investments does not decrease but rather increases with time horizon. I conclude by proposing ways in which to study the impact this tool can have on investors’ behavior.
White Papers
April 28, 2014 Interconnectedness in the CDS Market (pdf)

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Concentrated risks in markets for credit default swaps (CDS) are widely considered to have significantly contributed to the recent financial crisis. In this paper we study the structure of the CDS market using explicit connections based on the total number of CDS transactions, notional value of CDS transactions, and network diagrams. The main objective is to provide statistics that characterize the CDS market, the degree of counterparty concentration, the size of different contracts as well as underlying contractual features, and a preliminary analysis of interconnectivity. Our new approach informs the discussion of the structure and resulting fragility or stability of the CDS market and studies potential contagion among its participants.
White Papers
April 28, 2014 Differences in the Information Environment Prior to SEOs under Relaxed Disclosure Regulation (pdf)
Sarah B. Clinton, Joshua T. White and Tracie Woidtke
DERA Working Paper 2013-05

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We examine whether the Securities Offering Reform (SOR) is associated with differences in disclosure and a richer information environment during seasoned equity capital formation. SOR eases disclosure restrictions and reduces uncertainty regarding disclosures allowed prior to a seasoned equity offering (SEO). We find more frequent disclosure of management earnings forecasts and Form 8-K filings immediately preceding SEOs under SOR. Earnings forecasts are more accurate and 8-K filings contain more information just prior to SEOs under SOR. In addition, we find a greater magnitude of information and more positive net returns under SOR concentrated in SEOs immediately preceded by disclosure. Moreover, returns do not reverse after the issue date. Overall, these results suggest that SOR is associated with greater disclosure closer to the time when investors commit to invest and assess the SEO price; and greater disclosure closer to the SEO issue date is related to a richer information environment with capital formation benefits.
Working Papers
March 20, 2014 OTC Trading: Description of Non-ATS OTC Trading in National Market System Stocks (pdf)

White Papers
Jan. 24, 2014 The Economic Implications of Money Market Fund Capital Buffers (pdf)
Craig M. Lewisnew material
DERA Working Paper 2014-01

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This paper develops an affine term structure for the valuation of money market funds. This valuation framework is then used to consider the economic implications of funds that are supported by a capital buffer. The main findings are twofold. First, relatively small capital buffers are capable of absorbing daily fluctuations between a fund's shadow price and its amortized cost. For example, a fund with a capital buffer of 60 basis points can absorb most day-to-day price risk. The ability to absorb large scale defaults, however, would require a significantly larger and more costly buffer. Second, because a buffer is designed to absorb credit risk, capital providers demand compensation for bearing this risk. The analysis shows that, after compensating capital buffer investors for absorbing credit risk, the returns available to money market fund shareholders are comparable to default free securities, which would significantly reduce the utility of the product to investors.
Working Papers
Oct. 1, 2013 Alternative Trading Systems: Description of ATS Trading in National Market System Stocks (pdf)

White Papers
Sept. 30, 2013 The Effects of Regulating Hidden Add-on Costs (pdf)
K. Jeremy Ko and Jared Williams
DERA Working Paper 2013-03

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We examine the welfare effects of regulation in a model where firms can shroud add-on costs, such as penalty fees for consumer financial products. In isolation, imposing price controls or disclosure mandates on such costs can increase or decrease welfare, even when these regulations have no direct costs. There are, however, strong complementarities between price controls and disclosure mandates: conditional on disclosure being mandated, price controls always (weakly) increase welfare, and conditional on prices being sufficiently constrained, disclosure mandates always (weakly) increase welfare.
Working Papers
Aug. 1, 2013 Qualified Residential Mortgage: Background Data Analysis on Credit Risk Retention (pdf)

White Papers
July 11, 2013 Appointments of Academic Directors (pdf)
Joshua T. White, Tracie Woidtke, Harold A. Black and Robert L. Schweitzer
DERA Working Paper 2013-02

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We examine the outside director selection process using unique data on appointments of academic directors. Overall, we find academic directors tend to be appointed by small- and mid-cap firms expanding their boards. However, we find important differences in both the factors influencing academic appointments and the market's reaction when allowing for heterogeneity. Academics in science, medicine and engineering appear to be appointed for their expertise, and the market reacts favorably. Academic administrators appear to be appointed for their networks, and the market reacts favorably when the administrator is affiliated with a business school but negatively when the administrator is not within close geographic proximity. Business and law professors appear to be appointed for general expertise and prestige, but we find little evidence of any significant market reaction.
Working Papers
July 1, 2013 Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009-2012 (pdf)

White Papers
July 1, 2013 Analyst Competition and Monitoring: Earnings Management in Neglected Firms (pdf)
Laura Lindsey and Simona Mola
DERA Working Paper 2013-04

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We investigate the analyst monitoring role using a sample of firms that lose and later regain analyst coverage along with alternative samples where loss of coverage is exogenous. Relative to otherwise similar firms that maintain coverage, dropped firms reverse earnings management from managing downward to upward, and firms that do so are more likely to regain analyst attention. After resumption of coverage, upward management is attenuated only for firms regaining coverage by multiple analysts. Our findings demonstrate that analysts select firms engaged in more aggressive reporting and suggest that the monitoring role is activated by competition rather than coverage itself.
Working Papers
July 1, 2013 Going Public Abroad (pdf)
Cecilia Caglio, Kathleen Weiss Hanley and Jennifer Marietta-Westberg
DERA Working Paper 2013-01

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This paper examines the decision to go public abroad using a sample of 17,808 IPOs. Although only 6% of initial public offerings are offered abroad, these represent approximately 25% of total IPO proceeds. We find that alleviating informational frictions in order to obtain greater offering proceeds is an important determinant of the decision to go public abroad. Foreign and global IPOs originate from countries with significantly fewer recent IPOs in the same industry, less developed capital markets, and lower disclosure standards. Contrary to assumptions in prior research, we also show that the determinants of whether to go public abroad or to go public at home and cross-list later are not similar. In addition, we find that the preferences for going public in certain foreign markets have changed over time and the factors that impact the choice of listing market are not consistent across all countries.
Working Papers
Nov. 30, 2012 Money Market Fund Study: Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher (Experience through the Financial Crisis, Efficacy of 2010 Reforms, and Potential Economic Effects of Future Reforms)

Economic Analyses
Nov. 6, 2012 Economic Effects of Proposed Rule Changes by NYSE Arca, Inc. to List and Trade Shares of the JPM XF Physical Copper Trust (SR-NYSEArca-2012-28) and the iShares Copper Trust (SR-NYSEArca-2012-66) (pdf)

Economic Analyses
June 1, 2012 FINRA Proposal to Reduce Minimum Quotation Size in OTC Market Tiers (pdf)

Economic Analyses
March 15, 2012 Information Regarding Activities and Positions of Participants in the Single-Name Credit Default Swap Market (pdf)

Economic Analyses
Feb. 1, 2012 Capital Raising in the U.S.: The Significance of Unregistered Offerings Using the Regulation D Exemption (pdf)

White Papers
April 25, 2011 Impact of Recent Regulation SHO Rule Changes on Fails to Deliver (Updates with Additional Data the Analysis Dated November 4, 2009) (pdf)

Economic Analyses
Jan. 13, 2011 Security-Based Swap Block Trade Definition Analysis (pdf)

Economic Analyses
Nov. 24, 2009 Share Ownership and Holding Period Patterns in 13F data (pdf)

Economic Analyses
Nov. 4, 2009 Impact of Recent Regulation SHO Rule Changes on Fails to Deliver (Elimination of the Options Market Maker (OMM) Exception in Rule 203 of Regulation SHO, and Implementation of Interim Final Temporary Rule 204T and Permanent Rule 204) (pdf)

Economic Analyses
Oct. 2, 2009 Study of the Sarbanes-Oxley Act of 2002 Section 404 Internal Control over Financial Reporting Requirements

Economic Analyses
Jan. 14, 2009 Analysis of the July 2008 Emergency Order Requiring a Pre-borrow on Short Sales (pdf)

Economic Analyses
Dec. 17, 2008 Analysis of a Short Sale Price Test Using Intraday Quote and Trade Data (pdf)

Economic Analyses
Dec. 16, 2008 Analysis of Short Selling Activity during the First Weeks of September 2008 (pdf)

Economic Analyses
Nov. 26, 2008 Impact of Recent Regulation SHO Rule Changes on Fails to Deliver (Elimination of the Options Market Maker (OMM) Exception in Rule 203 of Regulation SHO and Implementation of Interim Final Temporary Rule 204T) (pdf)

Economic Analyses
June 9, 2008 Impact of Recent Regulation SHO Amendment on Fails to Deliver (Elimination of the Grandfather Exception in Rule 203 of Regulation SHO) (pdf)

Economic Analyses
March 3, 2008 Fails to Deliver Statistics in Threshold Securities (pdf)

Economic Analyses
Feb. 6, 2007 Economic Analysis of the Short Sale Price Restrictions under the Regulation SHO Pilot

Economic Analyses
  
  
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Date

Date: April 28, 2014

Title: Interconnectedness in the CDS Market (pdf)

Category: White Papers

Date: Jan. 24, 2014

Title: The Economic Implications of Money Market Fund Capital Buffers (pdf)

Category: Working Papers

Date: Sept. 30, 2013

Title: The Effects of Regulating Hidden Add-on Costs (pdf)

Category: Working Papers

Date: July 11, 2013

Title: Appointments of Academic Directors (pdf)

Category: Working Papers

Date: July 1, 2013

Title: Going Public Abroad (pdf)

Category: Working Papers

Date: June 1, 2012

Title: FINRA Proposal to Reduce Minimum Quotation Size in OTC Market Tiers (pdf)

Category: Economic Analyses

Date: Jan. 13, 2011

Title: Security-Based Swap Block Trade Definition Analysis (pdf)

Category: Economic Analyses

Date: Nov. 24, 2009

Title: Share Ownership and Holding Period Patterns in 13F data (pdf)

Category: Economic Analyses

Date: Dec. 17, 2008

Title: Analysis of a Short Sale Price Test Using Intraday Quote and Trade Data (pdf)

Category: Economic Analyses

Date: March 3, 2008

Title: Fails to Deliver Statistics in Threshold Securities (pdf)

Category: Economic Analyses