How big institutional shareholders make companies more investor-friendly – Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

MIT Sloan Assistant Professor Nemit Shroff

From MarketWatch 

Over the past three decades, there has been tremendous change in ownership of publicly traded firms in the U.S. Consolidation in the asset management industry and the rise in mutual fund investing have led to a small number of institutional investors becoming the largest shareholders of most listed firms. Today, just shy of 70% of U.S. public firms are commonly owned. According to Compustat, Black Rock and Vanguard Group are among the largest five shareholders of more than 53% of the firms in its database.

Given this significant shift toward common ownership, it’s important to understand the consequences on a company’s behavior. Does common ownership impact competition? Does it benefit investors?

Prior literature suggests that common ownership decreases competitive behavior. The theory is that managers of co-owned firms behave in ways to increase the portfolio value of the common owners. It also maintains that disclosure by one firm in an industry is good for everyone, as there are spillover effects related to liquidity and cost of capital for other firms in that industry.

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Business Books podcast: “adaptive” markets – Andrew Lo

MIT Sloan Professor Andrew Lo

From Financial Times

The adaptive markets theory is a “reframing of our view of financial markets”, says Andrew Lo, author of Adaptive Markets: Financial Evolution at the Speed of Thought.

In the fifth episode of the Business Books podcast, hear Lo, shortlisted for the Financial Times & McKinsey Business Book of the Year Award, in conversation with John Authers, the FT’s senior investment commentator.

Rather than looking at markets as a mechanical system with laws of motion, Lo’s hypothesis takes the view that markets “are a human endeavour and as a result are subject more to laws of biology than physics”. What is the future for markets?

Read the full post and listen to the entire podcast at Financial Times.

Andrew W. Lo is the Charles E. and Susan T. Harris Professor, a Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management.

What can mother nature teach us about managing financial systems? – Andrew Lo

Read the full post at The Christian Science Monitor

Andrew W. Lo is the Charles E. and Susan T. Harris Professor, a Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management.

At last, Obama stands up to the big banks — Simon Johnson

MIT Sloan Prof. Simon Johnson

From MarketWatch

Not surprisingly, at least some people at the Securities and Exchange Commission have reacted negatively — this is stepping onto their turf, after all. And the lobbyists are, naturally, out in full force.

But with sufficient White House willpower, the administration can see this through. What is needed is a change in the rules set by the Department of Labor, which has jurisdiction over retirement-related issues.

No doubt industry defenders will claim that current practices benefit small investors — a point disputed directly by the CEA. The broader and more interesting question is: Where are the statesmen in the financial industry? Where are the leaders who push for a race to the top, by better serving their clients’ best interests?

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Flash Crash jitters: What to know about high-speed trading before the next market disaster strikes — Andrei Kirilenko

MIT Sloan Professor Andrei Kirilenko

MIT Sloan Professor Andrei Kirilenko

From The Conversation

Ask people on the street what mental image they associate with the words “stock exchange,” and you’ll likely hear about a large imposing building in the middle of New York or Chicago. Inside the building there is a huge space crowded with traders in multicolored jackets screaming and gesticulating to each other.

Until ten years ago, that would have been a pretty accurate description of a stock exchange. Today, however, almost all trading is done by algorithms firing digital commands traveling near the speed of light to rows upon rows of computer servers sitting in nondescript suburban warehouses.

The transition from human to electronic trading came with the promise of using faster and cheaper technology to drastically lower the costs of trading shares and to make it much easier to determine the most up-to-date prices for all market participants (commonly known as price discovery).

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