IRRC Institute Research Award: Post-Modern Portfolio Theory
Uniting the Real Economy with Portfolio and Investment Theory
We are pleased to announce the winners for the 2014 Investor Research Award at the Columbia University Millstein Center for Global Markets and Corporate Governance Forum on June 12, 2014.
An esteemed panel of judges has selected two academic research papers that promise to spark new scrutiny of corporate actions such as mergers and acquisitions. One research paper documents that informed trading of equity options prior to takeover announcements is more pervasive than would be expected, while the other examines managers’ incentives to “play it safe” with actions such as buying “cash cow” companies in diversifying industries.
The following research teams have won the 2014 IRRCi Investor Research Award and $10,000 for each paper.
Informed Options Trading prior to M&A Announcements: Insider Trading? by Patrick Augustin, Assistant Professor of Finance, McGill University; Menachem Brenner, Research Professor of Finance at New York University Stern School of Business; and Marti G. Subrahmanyam, Charles E. Merrill Professor of Finance, Economics and International Business, New York University Stern School of Business. Download the research here.
Playing it Safe? Managerial Preferences, Risk, and Agency Conflicts by Todd A. Gormley, Assistant Professor of Finance at The Wharton School at the University of Pennsylvania; and David Matsa, Associate Professor of Finance at the Kellogg School of Management at Northwestern University. Download the research here.
Winning papers are published by the IRRC Institute and submitted to the Social Science Research Network for publication. The IRRC Institute also distributes the winning papers to more than 6,000 individuals interested in the organization's research.
Why the Award?
Modern portfolio theory has dominated the academic investment landscape for a half century. One hallmark of MPT and other key investment theory paradigms is an increased focus on elements of the economic system proximate to security selection and portfolio construction (i.e. securities, asset classes, investors) rather than the real economy.
Meanwhile, the increasing importance of the private sector relative to the public sector in the real economy has increased scrutiny of private sector behavior and economic activity. This has led to the rise of a responsible investing movement.2 However, a significant focus of that scrutiny, though certainly not all, is explicitly or implicitly normative (i.e. a private sector entity "should" act in a certain manner) and pays minimal attention to portfolio and investment theory.
The IRRC Institute Research Award seeks to encourage thought leadership that integrates analysis of private sector behavior with investment theory. Because the judges seek to allow for a broad interpretation of this research goal, the award does not require specific areas such as specific asset classes or a requirement to study specific real economy issues.
1$10,000 is awarded for each winning paper. If there are multiple authors, the award will be divided evenly between each author. Each award recipient is fully responsible for all applicable taxes.
2Responsible investment, for this purpose, includes various rubrics across both the financial and real economies, such as socially responsible investing, corporate social responsibility and sustainability.