The study identifies the world’s leading researchers and encompasses standardized data on citations, h-index, and a wide range of bibliometric indicators. Researchers are classified into 22 scientific fields and 174 sub-fields, drawing from Scopus data provided by Elsevier through ICSR Lab.

“Our faculty are more than educators – they are pioneering thought leaders shaping industries and redefining the future of business,” shared Gareth James, John H. Harland Dean of Goizueta Business School. “They tackle today’s most pressing challenges and uncover tomorrow’s greatest opportunities, driving positive impact throughout industry and the world.”

Introducing the World’s Top 2% Scientists

EmoryBusiness.com is proud to recognize these distinguished Goizueta faculty members among the top two percent of scholars in the world:

• Anandhi Bharadwaj, Goizueta Endowed Chair in Electronic Commerce and Professor of Information Systems & Operations Management

• Tarun Chordia, R. Howard Dobbs, Jr. Chaired Professor of Finance

• Ilia Dichev, Goizueta Foundation Chair in Financial Reporting, Professor of Accounting, and Director and Associate Dean of PhD Program

• Gareth James, John H. Harland Dean of Goizueta Business School and Professor of Information Systems & Operations Management

• Sandy Jap, Sarah Beth Brown Professor of Marketing

• Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance

• Wei Jiang, Asa Griggs Candler Professor of Finance and Vice Dean for Faculty and Research

• Jay Shanken, Professor Emeritus (2024) in Finance

• Jagdish Sheth, Charles H. Kellstadt Chaired Professor of Business

Insights from Goizueta’s Distinguished Faculty

As leaders in their respective fields, our distinguished faculty members bring a wealth of knowledge, experience, and passion to Goizueta. Their journeys to academic excellence and global recognition are a testament to the school’s impact on both personal and professional growth.

EmoryBusiness.com connected with these professors to discuss their motivations, experiences, and the pivotal moments that have shaped their success.

Anandhi Bharadwaj

Q: What inspired you to choose Goizueta?

A: When I joined Emory in 1994, the business school was not yet named Goizueta—it was simply Emory Business School. At that time, Professor Benn Konsynski was the only other faculty member in my field, Information Systems, and it was his invitation and vision that initially drew me here. Professor Konsynski’s forward-thinking perspective on digital technology and its transformative role in the business world deeply resonated with me. His guiding vision not only inspired me to join the school but also fostered an environment that has kept me motivated to contribute to Goizueta’s growth and evolution over the years. The school’s commitment to innovation and excellence has only solidified my decision to remain a part of this vibrant community.

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: Goizueta has been an incredible source of support throughout my academic career, providing both tangible and intangible resources that have significantly contributed to my success. On a tangible level, the school’s commitment to fostering a research-driven ecosystem has been invaluable—offering resources such as summer salary support, access to specialized databases, funding for conference travel, and more. On an intangible level, the vibrant academic community at Goizueta has been a constant source of inspiration. The flourishing PhD program has allowed me to collaborate with some of the brightest doctoral students, while the broader Emory network and the research ecosystem in Atlanta, with its concentration of world-class scholars across universities, have undoubtedly enriched my research journey.

Tarun Chordia

Q: What inspired you to choose Goizueta?

A: I moved from Vanderbilt University to Emory as an assistant professor in summer 2000. At the time Tom Robertson was the Dean and Goizueta was transitioning from a teaching to a research school while still maintaining great teaching. One of Dean Robertson’s goals was to improve the reputation of the finance area. I had a ring-side seat to what was happening in the finance department and in the school in terms of increasing the research focus of the faculty (by starting a doctoral program and subscribing to all the standard datasets). With the support of the Dean as well as the leadership in the university we were able to strategically hire senior people in the finance department such that today we are amongst the top finance departments.

Ilia Dichev

Q: What inspired you to choose Goizueta?

A: It was a combination of things: great university and business school, great group of faculty in my academic area (Accounting), the attraction of Atlanta as a growing, business-oriented city, which is very green and with warm weather year-round. Being appointed to the distinguished position of the Goizueta Foundation Chair of Financial Reporting was definitely a big factor (so, big thanks to The Goizueta Foundation!). Plus, the personal involvement of some key Goizueta people made it happen. Perhaps most importantly, on some gut level it just felt right.

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: My most successful research project after arriving at Goizueta relied on personal access to CFOs of top companies. The dean and the alumni office at the time made most of these contacts possible. Plus, the school has top-notch working conditions all around. I am very grateful to Goizueta for the incredible opportunities to do quality work!

Gareth James

Q: What inspired you to choose Goizueta?

A: Goizueta Business School stood out to me as a premier institution with a compelling combination of strengths. As a Top 20 business school within a Top 20 university, Goizueta offers a world-class environment for both research and teaching. The school has built an exceptional research community, where faculty members not only produce groundbreaking work but also make a tangible impact on the business world.

Beyond the intellectual vibrancy, Goizueta provides strong financial resources that support high-caliber research, including access to top-tier data acquisition, research funding, and a rigorous PhD program. This commitment to advancing knowledge and fostering innovation makes it an ideal place for scholars who seek to push the boundaries of their fields.

Sandy Jap

Q: What inspired you to choose Goizueta?

A: I came to Goizueta 24 years ago after having been on the faculty at MIT. While MIT is an amazing place in and of itself, what attracted me to Goizueta was the possibility of being in a faculty group that really valued and understood the research that I wanted to do. I’m also not a big fan of winter. 

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: While I have had opportunities to leave (I visited Wharton for a year), I have remained at Goizueta because it is less bureaucratic than larger schools and provides important summer and research support that many schools do. Goizueta is an entrepreneurial environment that allows me to take on new initiatives and directions as needed to advance my research. There is also a very supportive alumni base which is always willing to speak in my classes and connect me to the decision makers in their organization who would be willing to support my research with data. 

Jegadeesh Narasimhan

Q: What inspired you to choose Goizueta?

A: I was drawn to Goizueta because of its ambitious vision to become a leader in the field. At the time I joined, the school was making strategic hires of top scholars, strengthening its focus on rigor and academic excellence. Its growing reputation was gaining well-deserved recognition, and the school’s proposed launch of the PhD program underscored a strong commitment to long-term academic leadership. These factors offered an exciting and intellectually stimulating environment—an ideal place not only to advance my research and teaching but also to contribute to Goizueta’s progress toward its ambitious vision.

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: Goizueta’s strong culture of academic excellence provided an ideal environment for impactful research. I had the privilege of working alongside colleagues who are thought leaders in the profession, engaging in stimulating intellectual exchanges. The school’s regular academic seminars brought in leading scholars, fostering a dynamic and enriching research atmosphere. The launch of the PhD program further strengthened this environment, attracting bright students and promoting vibrant research activity.

Additionally, because my research focuses on rigorous empirical testing of theory, Goizueta’s generous financial support for data and research assistance was invaluable in enabling high-quality studies. Importantly, all of us—faculty and students—collectively contributed to enhancing Goizueta’s reputation as a place of excellence. At the same time, we all benefited from its growing visibility, which expanded opportunities for collaboration and increased our scholarly impact.

Wei Jiang

Q: What inspired you to choose Goizueta?

A: It was a privilege to join a finance department already with three Top 2% scholars worldwide, reflecting a strong research environment and an intellectually vibrant community. I valued the opportunity to work alongside faculty whose seminal research I had studied extensively as a PhD student and cited as foundational to my own work. Being part of a department where groundbreaking ideas are developed and advanced was both inspiring and motivating.

Jay Shanken

Q: What inspired you to choose Goizueta?

A: The school, led by Tom Robertson, was committed to taking the (already very good) finance group to the next level and Professor Jegadeesh and I were recruited at the same time. The commitment to faculty research was backed up by a low teaching load for chaired faculty and they made me an aggressive offer. I always enjoyed working with PhD students and the fact that the school would soon be starting a PhD program in finance was definitely a consideration as well. Although Rochester’s Simon School was very strong in those days, Atlanta seemed like it would be a better place to live at that point in my life. All of these factors together resulted in my decision to move to Emory and I enjoyed my many years there. 

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: It was the excellent overall academic environment and colleagues. Specifics like the low teaching load mentioned above and the nice view from my office helped.

Jagdish Sheth

Q: What inspired you to choose Goizueta?

A: There were three specific reasons. First, I wanted to move to the East Coast from the West Coast and in a moderate climate. Second, I did not want commute and wanted to have housing nearby. Finally, Emory University provided opportunities to grow the marketing area with new and innovative programs and recruit young faculty. For example, we focused on Relationship Marketing and became among the top ten marketing departments in the country.

Q: How did Goizueta support your journey to becoming part of the top 2% of scholars worldwide?

A: When I joined the Goizueta in 1991, we were an “up and coming” business school. Both President James Laney and Dean John Robson were committed to invest in professional schools and their graduate programs including the MBA and the Executive MBA programs. They had already recruited senior faculty in Finance and Management and they wanted me to lead the Marketing discipline. Over the past 30 years, Goizueta gave me opportunities both at the Goizueta and the university level to be on several committees including the Personnel Committee and Emory’s inaugural Presidential Advisory Committee (PAC). My professional growth and recognition came from the silent language of Emory culture that states that you belong here. Finally, Atlanta was emerging as a global hub city and many large companies such as Coca-Cola, Delta, UPS and Home Depot were headquartered here. Atlanta is also the capital of Georgia. This allowed me to contribute to policy work especially for the telecommunications industry.

Goizueta faculty are eminent in their respective fields, advancing global knowledge and inspiring further research. Learn more about the research projects driven by our esteemed Goizueta faculty.

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A master’s degree in finance is your passport to a dynamic and data-driven career in finance. This specialized program equips you with advanced quantitative and analytical skills. It enables you to dissect complex financial data, model risk, and forecast market trends with precision. It’s a qualification that can do incredible things for your career prospects. It can open doors to quantitative finance, asset management, and financial technology roles. This makes you a sought-after professional in a rapidly evolving financial landscape. However, do you need years of work experience to embark on this graduate program?

At Emory University’s Goizueta Business School, little or no professional experience is required to join its Master of Analytical Finance. The program is ideal for a novice or one who is looking to further their skills. This 10-month, action-based STEM degree has experiential learning built into its curriculum. Students experience the working life of a Wall Street analyst through four divisions of a top-tier global bank or fund. To ensure a solid foundation, there are boot camps in financial statements, business statistics, and technology/data to kickstart the program.

Hands-on Learning

“The entire curriculum focuses on students having direct experiences with the industry,” says Tom Smith, professor in the practice of finance and academic director of Emory’s finance master’s degree.

The curriculum is built around our practicum experience. That places students at the center of a ‘high-touch’ learning environment. They get to interact with industry leaders and engage with markets on a daily basis.

Tom Smith, professor in the practice of finance & academic director of Emory’s finance master’s degree

Students experience the working life of a Wall Street analyst through four divisions of a top-tier global bank or fund. To ensure a solid foundation, there are boot camps in financial statements, business statistics, and technology/data to kickstart the program. Goizueta then gives students access to global markets on a professional trading floor. Students learn and utilize professional tools, data, and trading platforms including Bloomberg, FactSet, Thompsons, Python, R Studio, Barra, and MATLAB.

“We have two ‘jewels’ within the program—our amazing faculty and our state-of-the-art Finance Lab,” says Smith.

Our students work out of the Finance Lab, which includes Bloomberg terminals, for most of their classes. Our faculty are approachable and offer hands-on learning to our students.

Tom Smith

The major difference from other schools is that this master’s degree takes a more hands-on learning approach. “This internship-style graduate program allows us to gain more real-world experience than a typical master’s program,” says Lauren O’Banion 23MAF.

Hands-On Learning

There are four different rotations: global markets, asset portfolios, investment strategies, and a final ‘in practice’ rotation on a global leadership team. “We designed the curriculum to take advantage of the amazing talent within Goizueta’s Finance faculty. Our students are learning from award-winning faculty, including professors Narasimhan Jegadeesh, Kevin Crowley, and Tetyana Balyuk,” says Smith. “I enjoy seeing our finance students learning each quarter. It’s a thrill whenever one of the students stops me in the hall. They want to talk about a project or about the job they just landed. The students are flourishing.”

Global Markets

In the “global markets” rotation, students become part of the Wall Street research team responsible for analyzing connections in real-time and publishing sell-side client research. Not only will they gain expertise in how the global markets function, but an insight into the operations of the financial system, tracking real-world news and events and making connections to theory learnt in the classroom.

Asset Portfolios

With the sales and trading team in the “asset portfolios” rotation, students will gain an understanding of the asset classes that are traded around the world. In this, they get insights into markets and deliverables as well as pitch live trading ideas to their portfolio manager.

Investment Strategies

During the “investment strategies” rotation, students develop and propose a proprietary trading strategy to institutional investors. This is when turning ideas into real investment strategies will become second nature. Emory master’s in finance students can choose to specialize in strategies such as ESG, algorithmic trading, or digital currencies to deliver customer-driven results.

Practice Rotation

The final “practice” rotation is where students put what they have learned into their on-the-job training. As part of a team, they must propose ventures and investment opportunities that can make the world a better place. Using data-driven analysis and innovative blue-sky ideas, their respective teams leverage a firm’s global reach and funding sources to tackle a pressing social, economic, or environmental issue using a strategy that has a positive return on investment.

A Strong Foundation

Each of these rotations takes students deep into the global finance community in the number one city for fintech: Atlanta. Georgia has become a giant in sub-field of technology, with 70% of all transactions on a global scale passing through the state. Goizueta’s strategic location in the global commerce capital adds to the list of opportunities for students with the many fintech industry leaders and Fortune 1000 companies around. Thanks to these connections, students have no shortage of chances to network and collaborate with professionals, clients, and mentors.

In addition to technical finance skills, we want our students in our finance master’s program to learn the soft skills necessary to thrive and grow in the modern finance workplace.

Kirsten Travers-UyHam, associate professor in the practice of finance

The program includes visiting experts, including ESG-impact specialists, who give talks and will listen to pitches of the investment proposal to a panel of respected corporate leaders.

With access to experts, cutting-edge systems, and real-world projects, Goizueta master’s in finance students gain a wealth of experience to launch their careers in all the right ways. This master’s in finance helps students earn professional licensing, including Bloomberg BMC, SIE (Series 7 preview), and CFA prep, as well. As an unmatched experience and insight into the world of finance, this Goizueta program ensures every student evolves from a beginner in this field into a graduate set to excel in areas such as sales and trading, investment management, fintech, and investment banking.

“Our students are receiving employment across the finance spectrum. The quality of jobs that these students have secured has impressed me,” says Smith. “In fact, several of our current students have already secured employment for next year and we’ve just finished our first quarter of classes. Our students are very employable.”

Excited to expand your professional horizons and experience? To check out Emory University Goizueta Business School, click here.

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“We continue to develop principled and impactful leaders and entrepreneurs, foster innovation for a data and technology driven world, and grow a global presence fueled by local synergies,” said Gareth James, John H. Harland Dean. “I’m proud of our faculty and staff – and energized about the future of our school and students.”

Impacting Business & Beyond

Faculty and staff contribute to the Goizueta and Emory community, but also have significant impact on society and the broader business world. External awards include:

Karen Sedatole, Asa Griggs Candler Professor of Accounting, was named as an editor to the Accounting Review. Sedatole was also elected to the position of president elect for the Management Accounting section of the American Accounting Association.

Emma Zhang, associate professor of information systems & operations management, was named an elected member of the International Statistical Institute. Zhang was also named an associate editor to the Journal of the American Accounting Association.

Ruomeng Cui, associate professor of information systems & operations management, was a finalist for the 2022 Management Science Best Paper Award in Operations Management for her paper, “Learning from Inventory Availability Information: Evidence from Field Experiments on Amazon.”

Panos Adamopoulos, assistant professor of information systems & operations management, was named as an associate editor at Management Science.

Giacomo Negro, professor of organization & management, was appointed as the senior editor of Organization Science and also received an honorable mention for the Robert K. Merton Award for his paper, “What’s Next? Artists’ Music After Grammy Awards.” Negro additionally served as the principal investigator for the 2022 LGBTQ Southern Survey.

Erika Hall, associate professor of organization & management, was named as an incoming associate editor at the Academy of Management Discoveries.

Dan McCarthy, assistant professor of marketing and Marina Cooley, assistant professor in the practice of marketing were recognized by Poets&Quants’.” McCarthy was also a finalist for the Weitz-Winer-O’Dell Award.

John Kim, associate professor in the practice of organization & management, was designated as one of the top instructors by Coursera for Management Consulting courses.

Vilma Todri, assistant professor of information systems & operations management, was named an associate editor to the Management Information Systems Quarterly Journal, one of the top three leading Information Systems journals.

Tonya Smalls, assistant professor in the practice of accounting, has been appointed to serve on the Inaugural Advisory Board for Make-A-Wish Georgia (MAWGA).

Leading the Future Of Emory and Goizueta

Goizueta Business School and Emory also honor academic professionals and leaders for their dedication to excellence through teaching, content development, experiential learning, scholarly inquisition, and commitment.

“We could not be prouder of our exceptional faculty and staff for their remarkable work and dedication throughout the past year,” says Anandhi Bharadwaj, who will step down as vice dean for faculty and research this summer as Professor Wei Jiang prepares to take on the role. “It has been an honor to work alongside our faculty and staff in developing the school and its programs.”

The recipients of these prestigious honors and awards are listed below:

Rajiv Garg, associate professor of information systems & operations management, was awarded the Provost’s Distinguished Teaching Award for Excellence in Graduate and Professional Education. Garg was also honored as the MSBA Distinguished Core Educator.

John Kim, associate professor in the practice of organization & management, was awarded Emory Williams Distinguished Undergraduate Teaching Award.

Giacomo Negro, professor of organization & management, received the Keough Faculty Award. Negro also received the Jordan Research Award.

Marvell Nesmith, associate dean of academic affairs & instructional design, received the Keough Staff Award.

Marina Cooley, assistant professor in the practice of marketing, was honored as the BBA Distinguished Educator and was also recognized for MBA Teaching Excellence (One Year).

Omar Rodríguez-Vilá, professor in the practice of marketing, was awarded the Evening MBA Distinguished Core Educator and was also recognized for MBA Teaching Excellence (Two Year).

Charles Goetz, associate professor in the Practice of organization & management, was awarded Evening MBA Distinguished Elective Educator.

Ray Hill, associate professor in the practice of finance, was recognized for MBA Teaching Excellence (Classic Faculty).

Alvin Lim and David Sackin were awarded MSBA Distinguished Elective Educators.

Rob Kazanjian, Asa Griggs Candler Professor of Organization & Management, was awarded Executive MBA Distinguished Educator (Core).

Kevin Crowley, associate professor in the practice of finance and Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance, were awarded MAF Distinguished Educators. Crowley was also awarded Executive MBA Distinguished Educator (Elective).

Giacomo Negro, Melissa Williams and Panos Adamopoulos received Goizueta research awards at the levels of full, associate, and assistant professor, respectively.

Goizueta Business School is proud to present the accomplishments of these and other faculty members within our institution. To learn more about the teaching, specialized research, and core interests of each faculty member, check out our faculty profiles and their related publications. 

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Firms invest in various things: bonds, stocks or other assets—new stores, new premises or even other firms. And they do so to earn maximum value from available cash that would otherwise be idle.

For example, for the last five years Walmart generated an annual cash flow of more than $25 billion from its operations. The retailer has the option to channel this cash into opening new stores, ultimately growing its business and profits. Alternatively, Walmart can pay the cash out to its shareholders in the form of dividends, or through share repurchases.

So far, it’s been productive. However, this win-win scenario is contingent on successfully navigating a number of complexities. Primary among these is that to invest optimally, you first need to determine the correct hurdle rate for that investment.

Hurdle rates are the minimum rates of return that firms seek on their investments. The hurdle rate is the appropriate compensation commensurate with the investments’ risk. Therefore, the higher the risk, the higher the hurdle rate needs to be. For instance, a hurdle rate of 10% means that for every $100 invested, you would expect to earn an average of $10 average per year.

But it’s tricky. You have to calculate the right hurdle rate that would add the most value for your shareholders—the optimal rate of return for you and your business.

Too high and there’s risk of missing out on a good investment. If your right hurdle rate is 10%, but you mistakenly opt for 15%, you’re likely to ignore any investment that is projected to earn you less than 15%, but more than 10% is likely to be missed. As a result, you’ll end up leaving money on the table.

Too low a hurdle rate and you’re in danger of burning money. Again, supposing your hurdle rate should be 10%, but you set it at 5%, you’re likely to end up investing in things with a suboptimal return. In the end, you’re wasting your cash on low value investments when you could be paying it directly to your shareholders in dividends and giving them the chance to earn 10% return on their own.

For the last 50 years, the financial world has built models to calculate hurdle rates and rates of return. But which one works best?

Shedding critical new light on this is a recently published paper by Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance at Goizueta, entitled “Empirical tests of asset pricing models with individual assets.” Jegadeesh and his co-authors developed new statistical methods to differentiate among a raft of new models that have been developed in recent years and to compare their efficacy to that of the Capital Asset Pricing Model (CAPM), a model introduced in the 1960s.

What they found is that none of the newer models work any better than the CAPM in determining the appropriate hurdle rate or rate of return of an asset.

CAPM: Still a benchmark model

The CAPM uses a set of economic principles to determine the rates of return that investors can passively earn by investing in stocks with varying levels of risk. It does so by computing the systemic risk and delivering a formula to determine the “correct” hurdle rate to avoid burning money or leaving it on the table.

The CAPM formula shows that investments with greater betas, or systematic risk, should earn greater returns. The model has been around for nearly sixty years, but it does have some weaknesses. For example, differences between large beta investments and small beta investments are not as large as CAPM predicts. In response, several other models have been developed by economists to determine hurdle rates that posit other types of risk. The Fama-French three-factor model in particular has enjoyed growing traction, particularly among academics.

“Testing these kinds of hypotheses empirically is very challenging because various risks proposed by competing models are highly correlated,” said Jegadeesh. “What we have done in our paper to address this issue is develop new statistical methods that allow us to differentiate among the various models. Our methodology uses an instrumental variables approach to address the statistical challenges.”

Fama-French posits risks related to firm size and growth characteristics as well as beta risk as key determinants of hurdle rates. This model shows that firms with bigger sensitivities to small firm returns should have bigger hurdle rates and firms with bigger sensitivities to growth firm returns should have smaller hurdle rates than those determined by CAPM.

The relative merits of various models for practical applications have been widely debated by economists. Do investors earn bigger returns if they invest in firms with the same beta risk as Walmart’s portfolio or if they invest in smaller firms as the Fama-French model suggests?

“The basic idea of our research is to determine what investors passively earn in the stock market if they invest in a portfolio with risks similar to that of Walmart and to compare that to returns from investing in companies with bigger small-firm betas that the Fama-French model says should yield higher returns,” said Jegadeesh.

Putting CAPM, Fama-French and other models to the test, Jegadeesh and coauthors find that while the newer models are more “empirical,” in the sense that they integrate more risk factors and financial anomalies, they are no more reliable than the CAPM in calculating rates of return.

“We find no support for the idea that newer models are superior to CAPM. The Fama-French model and others have gained currency and popularity in recent years, but we find no argument to support discarding CAPM in favor of them. In fact, we believe that CAPM, which is inherently based on strong theoretical foundations, is still the best model out there for CFOs.”

These findings should be on the radar of corporate CFOs looking to build strong investment portfolios for their company, said Jegadeesh.

Regulators would do well to take heed too.

“When regulators set fair rates that utility companies can charge, for electricity for instance, they compute the costs of material and labor to produce electricity and add a fair rate of return for the companies’ investments,” noted Jegadeesh. “Regulators have long relied on experts who use CAPM to determine this fair rate. There is no reason why they should change now.”

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Mobile advertising and crowded locations

As marketers look for new ways to target consumers on their smartphones, they are capitalizing on the ability to use location for mobile advertising. Today, retailers send mobile coupons and alert shoppers to sale items as they roam the aisles of the store. New research from Michelle Andrews, assistant professor of marketing, and coauthors Zheng Fang (Sichuan U), Anindya Ghose (NYU), and Xueming Luo (Temple U), investigates the impact of another type of location on mobile ad effectiveness. The authors studied real-time data from one of the world’s largest telecom providers, compiling responses to mobile advertising by 14,972 mobile phone users on crowded and noncrowded subway trains. Surprisingly, commuters in packed subway trains were twice as likely to respond to and make a purchase from a mobile ad than travelers in less crowded subway trains. The researchers write, “A plausible explanation is mobile immersion: As increased crowding invades one’s physical space, people adaptively turn inwards and become more susceptible to mobile ads.” The research indicates that “hyper-contextual mobile advertising” needs to be a bigger consideration for marketers looking to improve their mobile advertising. Marketing Science (2016)

CFOs & earnings misrepresentation

The quality of a company’s earnings is determined by controllable factors, such as internal controls and corporate governance, and noncontrollable factors, such as industry and economic conditions. But CFOs also have considerable influence over the communication and presentation of those earnings. In a new research study, Ilia Dichev, Goizueta Foundation Chair, professor of accounting, and coauthors John Graham (Duke U), Campbell R. Harvey (Duke U), and Shiva Rajgopal (Columbia U) note that discretion in accounting methods allows CFOs to misrepresent earnings. CFOs are motivated to misrepresent earnings in order to increase stock price and meet earnings targets, as well as boost their own compensation and career profile. The authors conducted a survey of 375 CFOs to explore their definition of earnings quality and ways to determine earnings misrepresentation. The authors concluded that “in any given period, a remarkable 20% of companies intentionally distort earnings, even while adhering to GAAP (generally accepted accounting principles).” The study found a number of red flags for earnings misrepresentation, including “a lack of correspondence between GAAP earnings and cash flows from operations, and unexplained deviations from peer and industry norms.” Financial Analysts Journal (2016)

Team leader experience in improvement teams

According to research from George Easton and Eve Rosenzweig, both associate professors of information systems & operations management, a team leader’s social capital and experience leading projects of the same type are factors in the effectiveness of an improvement team. By using six years of six sigma improvement project data from a Fortune 500 consumer products manufacturer, the researchers reached a rather surprising finding regarding a team leader’s social capital. Improvement teams do not appear to benefit from the leader’s experience working with the current team members on prior projects. What matters instead is the team leader’s experience working with a variety of people on prior improvement projects. The researchers suggest that the experience of dealing with many different individuals allows improvement team leaders to better identify suitable people to join their teams. Such a variety of experience also likely makes team leaders more politically astute when determining projects to pursue. In addition, the professors found that a team leader’s experience with the same type of project is important during the early stages of a six sigma implementation. The importance of this kind of experience declines as the system becomes more mature. The professors suggest that in a mature six sigma deployment, the organization’s cumulative body of documented learnings may well substitute for a team leader’s own prior experience leading a particular project type. Journal of Operations Management (2015)

Accounting data and volatility predictions

Generally speaking, financial research has studied how past equities and options volatility can help to predict future volatility in the markets. However, new research from Suhas Sridharan, assistant professor of accounting, investigates the impact of supplementing past volatility data with actual financial statement information to forecast future realized volatility. Sridharan used a large sample of 47,398 quarterly observations from 3,078 firms taken from 1996 to 2012. Her results indicate that incorporating accounting-based information, such as “standard deviation of the earnings yield, standard deviation of the change in premium of market value over book value, and the covariance of the two,” into forecasting models lowers forecast errors compared to models based solely on past realized volatility. She finds, “Equity returns volatility is significantly positively related to the earnings yield volatility and the volatility of the change in market to book premium. Volatility is significantly negatively related to the covariance of the earnings yield and change in market to book premium.” Sridharan also discovered that using accounting-based fundamental information in trading strategy could help to predict option returns. The Accounting Review (2015)

The impact of corporate vs. independent  foundations

Debate continues as to whether corporate or independent foundations are more impactful, despite the shared interest in supporting charitable services. In research from Justin Koushyar, doctoral candidate in organization and management (2017), Wesley Longhofer, assistant professor of organization and management, and Peter Roberts, professor of organization and management, the trio determines that the answer is mixed. They used data from a matched random sample of corporate and independent foundations that operated across the United States in 2005 and 2009. With deeper pockets, corporate foundations were able to raise more funds than their nonprofit counterparts. Company sponsorship of a philanthropic foundation also meant that they could operate with lower overhead. However, Koushyar, Longhofer, and Roberts found that corporate foundations are “more dispersed and less relational, and they tend to be governed by more ephemeral groups of officers and trustees.” Simply put, corporate foundations have fewer longterm attachments to the charitable organizations they support. Additionally, “market-based motivations” may influence how they give. Corporate foundations do tend to provide smaller individual grant amounts than independent foundations. These “stakeholder effects” are even more dramatic for the foundations linked to larger publicly traded companies. Sociological Science (2015)

Misreporting in securitized loans

Nonagency mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) derived from MBSs and their role in the recent financial and housing crisis remain a subject of discussion. An MBS is an asset-backed security secured by a mortgage or grouping of mortgages. Non-agency MBSs are not guaranteed by any government-sponsored organization, such as Freddie Mac or Fannie Mae, or the federal government. According to research from Gonzalo Maturana, assistant professor of finance, and John Griffin (U of Texas), the complexity of these structured products made it difficult to learn the true value of the underlying assets. They analyzed “apparent fraud among securitized nonagency loans, looking at unreported second liens, owner occupancy misreporting, and appraisal overstatements.” The study data comes from Lewtan’s ABSNet Loan and HomeVal data sets, along with DataQuick’s Assessor and History files, for the time period between January 2002 and December 2011. The researchers discovered that “48% of loans exhibited at least one indicator of misrepresentation.” The level of misreporting was similar for low- and full-documentation loans. Also, loans with a misreporting were 51% more likely to be delinquent. Maturan and Griffin’s research points to apparent fraud by loan originators and MBS underwriters, and it also suggest that MBS underwriting banks were aware of some of the MBS representations at issuance. The Review of Financial Studies (2016)

Risk and returns for private equity and venture capital funds

The early success of some well-known private equity and venture capital funds has led to their rapid growth. According to research from Narasimhan Jegadeesh, the Dean’s Distinguished Chair in Finance, Roman Kraussl (U of Luxembourg), and Joshua M. Pollet (U of Illinois), investors should carefully evaluate the future risk and return potential of this asset class and avoid investing primarily because of past successes. Some private equity indices compiled by the industry suggest that these funds offer bigger returns than the public equity market, but prior academic studies offer mixed evidence on performance. Jegadeesh and his coauthors devised a new approach to determine the actual risk and returns by using market prices of funds that primarily invest in unlisted PE and VC funds listed on several European stock exchanges. This approach has a distinct advantage because it uses publicly available market prices rather than self-reported data, which were previously used in other academic studies. Their findings indicate that unlisted PE and VC funds as an asset class are unlikely to yield extraordinary returns as suggested by some self-reported data. They may even yield about the same return as the stock market but are illiquid. The Review of Financial Studies (2015)

The role of social networks and information  on creativity

Much of the research devoted to creativity in organizations delves into social networks and their impact on employee creativity. However, research from Jill Perry-Smith, associate professor of organization and management, investigates how types of knowledge factor into creativity in an organization. Perry-Smith conducted her research in a laboratory setting, analyzing the results of two distinct studies of undergraduate participants. The studies reference two types of knowledge content—information (facts or data) and frames (interpretations or impressions). She found that participants receiving nonredundant or unique information were significantly less creative compared to participants receiving nonredundant framing. Her research also suggests that content received from individuals with less of an emotional connection to one another—the so-called “weak tie”—boosts creativity regardless of the type of knowledge received. Strong ties to an individual aids creativity only when different frames are received. Even when team members in an organization seem to reject information from a minority opinion holder, it forces the other team members to delve more deeply into their own opinions, look at alternatives, and consequently, be more creative. Journal of Applied Psychology (2014)

Misreporting in securitized loans

Nonagency mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) derived from MBSs and their role in the recent financial and housing crisis remain a subject of discussion. An MBS is an asset-backed security secured by a mortgage or grouping of mortgages. Non-agency MBSs are not guaranteed by any government-sponsored organization, such as Freddie Mac or Fannie Mae, or the federal government. According to research from Gonzalo Maturana, assistant professor of finance, and John Griffin (U of Texas), the complexity of these structured products made it difficult to learn the true value of the underlying assets. They analyzed “apparent fraud among securitized nonagency loans, looking at unreported second liens, owner occupancy misreporting, and appraisal overstatements.” The study data comes from Lewtan’s ABSNet Loan and HomeVal data sets, along with DataQuick’s Assessor and History files, for the time period between January 2002 and December 2011. The researchers discovered that “48% of loans exhibited at least one indicator of misrepresentation.” The level of misreporting was similar for low- and full-documentation loans. Also, loans with a misreporting were 51% more likely to be delinquent. Maturan and Griffin’s research points to apparent fraud by loan originators and MBS underwriters, and it also suggest that MBS underwriting banks were aware of some of the MBS representations at issuance. The Review of Financial Studies (2016)

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Individuals who enter adulthood during a recession are less likely to be narcissistic, finds Emily Bianchi, assistant professor of organization & management. Using two large, diverse samples of US adults, Bianchi found that people who came of age during periods of high unemployment, specifically during ages 18 through 25, were “more likely to develop an other-oriented and ultimately less narcissistic self-concept.” An additional study similarly found that CEOs who came of age in more difficult economic times exhibited less narcissism than counterparts who came of age in more prosperous economic times. “These findings suggest that macroenvironmental experiences at a critical life stage can have lasting implications for how unique, special, and deserving people believe themselves to be,” she writes. Psychological Science (2014).

Product word-of-mouth & the value of disclaimers

Consumers often rely on word-of-mouth to make decisions on buying a specific product. This is due in part to public exhaustion with the slick and biased messages advertisers often use. But not all word-of-mouth communication is equally persuasive, says Ryan Hamilton, associate professor of marketing, and his co-researchers Ann L. McGill (UChicago) and Kathleen D. Vohs (UMinn). The trio investigated what they term “the dispreferred marker effect,” or the use of disclaimers when a person offers word-of-mouth criticism of a product. They tested the idea in five separate experiments and determined that consumers were more likely to trust product evaluations by other consumers who couched negative criticism in a polite way. The study centered on one kind of dispreferred marker, i.e., idiomatic phrases such as “I’ll be honest” or “I don’t want to be mean, but…” The researchers found that such an approach made the commenter more likeable and appear more credible than those who didn’t offer such a disclaimer. Journal of Consumer Research (2014).

Market reaction to the tone of 10-Ks

In their research, Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance and interim vice dean for faculty and research, and Di Wu (UPenn) present a new methodology to investigate just how the positive or negative wording in a company’s financial statements are interpreted by the market. The authors used their “content analysis algorithm” to study all 10-Ks filed from January 1995 through December 2010, using only the 10-Ks that were the first filing for the year by the company. The final sample was a large group, representing 45,860 filings for 7,606 unique firms. The researchers concluded that there was a “significant relation between document tone and market reaction for both positive and negative” of 10-Ks. The study also looked at all IPOs during the 1995 to 2010 period, which included 1,475 IPOs in the sample. The coauthors found a negative relation between the tone of the prospectus and IPO underpricing. Journal of Financial Economics (2013).

Organizational failure and job prospects

Potential employers often evaluate job applicants based on the standing of their current employer. If that employer has failed, even a productive employee can suffer a significant disadvantage when looking for a new position. Giacomo Negro, associate professor of management and organization, and Christopher Rider (Georgetown) used the failure of a prominent law firm in their research to show evidence of this “intraprofessional status loss,” analyzing 224 of the firm’s partners and their transitions to subsequent employers. While the majority of the partners were able to find employment at other law firms, the new firms were on average of lower status than the failed firm. But all employees did not experience the loss of status in the same way. Negro and Rider also found that even after accounting for their productivity, graduates of more prestigious law schools who were displaced were less likely to be negatively impacted. Organizational Science (2014).

Understanding investor behavior

Prior research indicates that when it comes to trading patterns, investors hold losing positions far too long and sell off winning positions way too soon. Kathryn Kadous, professor of accounting; William Tayler (BYU); Jane Thayer (UVirginia); and Donald Young (Georgia Tech) take the research a step further by disproving the common belief that investor behavior is primarily motivated by “mean reversion,” which is simply the assumption that “losing stocks will bounce back and that winning stocks will fall” over time. Instead, they argue that self-esteem, self-regard, and confidence are the real reasons for this sort of investor behavior. The motivation of investors is complex, so the researchers completed two separate experiments to tease out the differing motivations of investors in losing vs. winning positions. They conclude, “Investors with lower self-regard hold losing investments longer than those with higher self-regard, and investors with higher confidence hold losing investments longer than those with lower confidence.” This implies that feeling good about oneself, in general, and avoiding overconfidence about one’s investing ability jointly allow for better investment decisions. Journal of Behavioral Finance (2014).

Product differentiation and industry structure

Much is written about how companies use product differentiation to boost margins or gain market share. But little is known about how firms’ efforts to differentiate their products, individually or jointly, impact their industry’s structure. New research by Richard Makadok, associate professor of organization and management, and David Gaddis Ross (Columbia U.) employs formal modeling to examine how product differentiation can not only shape a firm, but also an industry. The researchers separate two of the effects that product differentiation has on firms’ profits. First, they analyze the “competitive advantage effect” of differentiation and how it increases customers’ willingness to pay for the differentiating firm’s product, thereby raising that firm’s profit at the expense of its rivals. Second, they investigate the “rivalry restraint effect,” or when competitors’ products differ enough from one another to reduce the intensity of price competition among them and,  ultimately, raise the profits of all firms in the industry. Since these two effects can either reinforce or counteract each other, competitors may vary in their incentive to  differentiate, and they tend to underinvest in differentiation relative to the industry-wide optimum unless they coordinate with each other on their differentiation decisions. Strategic Management Journal (2013).

Measuring brand sentiment on social media

Large companies increasingly use customer comments on social media for market intelligence. In new research, Wendy Moe (UMaryland) and David Schweidel, associate professor of marketing, argue that these metrics have shortcomings, because they fail to consider structural differences among social media platforms and changes in customer sentiment over time. Taking these differences and changes into account, the two researchers study social media data from firms in two industries, enterprise software and telecommunications, to arrive at a more accurate assessment of customer sentiment. They find that sentiments expressed in various social media platforms evolve in different ways, underscoring the pitfalls of relying on social media comments collected from a single platform. The researchers demonstrate how social media data collected from multiple platforms can be analyzed to better assess brand sentiment, which can serve as an early indicator of shifts in other metrics, such as customer satisfaction surveys and stock prices. Journal of Marketing Research (2014).

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Those on Wall Street with skill in picking stocks tend to be compensated in one of two ways.

Some run mutual funds that actively invest in stocks and collect fees from investors. Others sell information to investors through research reports published by brokerage firms. The relationship between the two groups of investment professionals has generated considerable attention over the years in the media as well as among academics.  The New York Times, for example, once called it the “dirty little secret” of Wall Street that research from sell-side analysts is meant primarily for institutional investors rather than individuals.

The idea is that mutual fund managers and other sophisticated investors best understand conflicts of interest at brokerage firms and know when reports or recommendations can’t be taken at face value. But research from a trio of finance professors at the Goizueta Business School — Jeffrey A. Busse, T. Clifton Green and Narasimhan Jegadeesh — challenges one key aspect of the “dirty little secret” theory.

Their study results suggest that institutional investors don’t, in fact, have any special skill in discerning the quality of analyst recommendations.

Buy-side trades and sell-side recommendations: Interactions and information content (Journal of Financial Markets)

The researchers began their analysis by judging the performance of both mutual fund managers and stock analysts. For the first group, they looked at data from two sources that collectively contained data on more than 5 million transactions involving more than 10,000 stocks. Together, the data sets contained trades by 908 different institutional investors over a span of 12 years beginning in 1993.

Mutual fund performance was judged in terms of both the abnormal returns from stock purchases as well as the difference between abnormal returns from purchases and sales. Researchers also considered whether funds of different sizes exhibited different levels of skill in selecting stocks. They concluded that the value of funds’ private information was roughly one percent and found no evidence that skill varied with fund size. To evaluate analyst performance, the researchers looked at 135,652 recommendation revisions covering 8,174 different stocks during a similar time period. A comparison of abnormal returns from the two groups indicated that sell-side analysts were more skilled.

Next, the researchers considered how the two groups interacted with one another.

Many institutions pay brokerages for their research, so recommendation revisions likely play a role in trading decisions, the researchers noted. Similarly, it’s possible that analysts become aware of trades by their mutual fund clients and use the information in formulating recommendations. To evaluate how the actions of each group affects the other, the researchers looked at the pattern of trades both before and after analyst recommendations. They found that while buy-side trades often followed recommendations from sell-side analysts, the dynamic didn’t seem to work the other way around. There also was evidence that analysts might tip fund managers prior to downgrades, but not upgrades.

Finally, researchers addressed the “dirty little secret” theory.

If mutual fund managers know how to selectively use good information from analysts and ignore bad recommendations, then upgrades that institutions purchase should outperform upgrades that they sell, the researchers wrote. Conversely, downgrades that institutions purchase should outperform downgrades that they sell. Yet, the study showed that purchases around recommendation revisions outperformed sales by a relatively small magnitude, suggesting that mutual fund managers don’t have private access to superior information from analysts.

“We find that whether funds trade in the same direction as recommendation revisions or in the opposite direction does not contain incremental information,” the researchers wrote. “Our findings indicate that the empirical evidence is not consistent with the notion widely expressed in the media and in some academic studies that institutional investors are able to see through any inherent biases in recommendations due to sell-side analysts’ conflicts of interest.”

– Chris Snowbeck

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In fact however, the paper spurred a two-decade effort by scholars across the globe to take a deeper look at the conclusions reached by Jegadeesh and Titman, even as later studies continued to validate their original observations.

On March 15 Jegadeesh and his co-author’s classic paper was honored as work that has inspired many advances in the field and withstood the test of time in the conference “Finance Down Under: Building on the Best from the Cellars of Finance,” organized by The Department of Finance in the Faculty of Business and Economics at the University of Melbourne, Australia.

Before the event, which featured top researchers presenting their latest studies on the topic, Goizueta Newsroom caught up with Jegadeesh and asked him about his world-shaking publications.

Goizueta Newsroom: Could you sum up the observations in your original paper?

Jegadeesh: The central finding of our paper was that stocks that performed well in the past continued to perform well for up to 12 months in the future, and stocks that performed poorly continued to do so in the future. Interestingly, a large part the price momentum gains reversed themselves in the following two years. Our results provided new insights into how investors process information and how some of investors’ behavioral biases are reflected in pattern of price changes.

Goizueta Newsroom: Why was that significant?

Jegadeesh: Our paper was written at a time when the accepted wisdom among academics was that price changes are unpredictable and that markets are fully efficient. The primary empirical evidence at that time that challenged this notion was evidence of long term price overreaction, which resulted in stocks that performed well over the past three to five years underperforming in the future. Such evidence suggested that investor tend to overreact to information, but this evidence was generally considered weak. Our evidence was much stronger and we found that an important investor bias that underlies our finding is underreaction rather than overreaction. Since our findings challenged the prevailing wisdom, it had a major impact.

Goizueta Newsroom: Would it be accurate to say that your initial conclusions appear to have been validated by later studies?

Jegadeesh: That is correct. I published a paper with Louis Chan and Josef Lakonishokin 1996 and another paper with Sheridan Titman in 2001 that extended our original findings. The 2001 paper was also significant because we found the same trends a decade after the first paper, which helped to validate our results out-of-sample.

Over the last twenty years numerous papers that examined a variety of issues related to momentum were published by other researchers as well. Some of them examined the characteristics of stocks that are exhibited bigger price momentum than others and some focused on identifying periods when momentum strategies are likely to be most profitable. The literature also found that momentum is an international phenomenon that is observed in the European markets as well.

A related line of research developed theories that relied on behavioral biases that explained momentum and longer term return reversals. The momentum paper therefore contributed to the development of the field of behavioral finance as well.

Goizueta Newsroom: What are the practical and scholarly values of your findings?

Jegadeesh: Portfolio managers who use quantitative trading strategies typically incorporate trading signals based on price momentum into their models. From an academic perspective, it is more important to understand how the market processes information. The evidence we presented added to the literature documenting that the market tends to underreact to information. In others papers, I also found that the market underreacts to revenue momentum, and that analysts are slow to react to information in price changes. These findings contributed to the evolution of our understanding of the shortcomings of the efficient markets hypothesis, which is a central hypothesis in finance.

Goizueta Newsroom: Congratulations. Did you think your work would be honored 20 years down the road?

Jegadeesh: We were pretty confident about our results back in 1993, but I did not think that 20 years later this work would be honored in an international conference. However, within four years or so of our publication it became clear that the conclusions were generating a lot of interest. Even today, many researchers continue to build on the work. Personally, I am now looking into the role that other factors play in momentum strategies. It’s an area that is still wide open for study.

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The planned initial public offering in May of social media site Facebook is expected to raise $5 billion or more, at price-earnings multiples not seen since the days of the dot-com boom. Some observers wonder if the Facebook IPO represents the beginning of another stock market bubble that could burst, leaving investors holding worthless securities. But while there are some similarities, the Facebook IPO could be different, say some faculty at Emory University’s Goizueta Business School.

“With 845 million monthly users and 483 million daily users [as of the beginning of the year], Facebook has a right to sell its ‘growth potential’ to investors,” says Benn Konsynski, a chaired professor of Information Systems and Operations Management at Goizueta. “However, if the IPO launches with a price to revenue ratio of 25 to 30, it would be rather far off the charts. After all, Google was priced at about nine times revenue at the time of its IPO.”

But the prospect of an overheated IPO isn’t likely to damage Facebook’s long-term prospects, Konsynski adds.

“The initial multiplier might be the cause of some concern, but the fact is that revenue is rising, with the company bringing in $3.7 billion in 2011, compared to $1.9 billion in 2010,” he notes. “Is this another Google story? Sure for a while it will be treated as such. The initial market will likely be less than rational and FB will have to earn its way into the fair valuation, but then again Google did it — and then some. The fact that more than 12 percent of Facebook’s revenue is related to its partnership with Zynga [a social game developer that has more than 227 million monthly active users] might worry some investors, but no single partnership will tell the future story for Facebook. Instead, Facebook is a platform and will likely see a parade of partners.”

One reason that Facebook’s valuation isn’t likely to spark another market bubble is that the technology segment is more mature now compared to the 1999-2000 period, suggests Narasimhan Jegadeesh, a chaired finance professor at Goizueta.

“The increase in new tech and social networking firms is helping to create new market spaces, but the investor reaction is more measured now,” he says. “Back in the late 20th century, no one knew what the growth rate for these Internet firms would be like, so there was rampant speculation. Today, people have better understanding so investors tend to be more rational.”

Becoming a publicly traded company will undoubtedly present Facebook with more access to capital, but it will also face some challenges, according to Jegadeesh.

“I’m not too worried about Sarbanes-Oxley and other compliance costs,” he said, referring to the federal Sarbanes–Oxley Act of 2002, which set new or enhanced standards for publicly held companies. “Sarbanes-Oxley is relatively expensive but the dollar amount is mainly material for smaller companies. But the fact is that a lot of information has to be disclosed by public companies and that can be a competitive disadvantage for some firms. But I don’t think it outweighs the advantages for a company like Facebook.”

Facebook’s challenge instead may come from competitors like Google that may target its social networking space.

“Facebook and its CEO Mark Zuckerberg were able to marginalize MySpace [an early social networking site that was the leader in the field at one time], but the biggest threat today to Facebook is probably Google+, since Google has deep pockets and many alliances in place,” says Jegadeesh. “On the other hand, Facebook already has a significant network, which is effectively a barrier to entry for Google+.”

One potential Facebook weakness is its reliance on the social networking segment for the majority of its revenue.

“Facebook’s platform drives its advertising revenue,” he explains. “But Google’s revenue stream includes search engines and potentially its venture into mobile platforms with Android and Chrome, so it has a more diversified set of revenue streams.”

Whether Facebook will be able to successfully expand its revenue sources is an open question. Its attempt to branch out into a merchant discounts and rewards program based on the Groupon model was not successful. After a four-month testing period, Facebook dropped the idea.

But Facebook also has some competitive advantages.

“Facebook has lot of deep demographic and other information about its users,” Jegadeesh says. “Also, the average time a user spends on Facebook exceeds the average time a user spend on Google. All of this can make Facebook’s platform more attractive to advertisers.”

To remain competitive, Facebook has to continue to enhance the user experience, he adds.

“Users will stay on the site longer if they have a satisfactory experience,” says Jegadeesh. “That will help Facebook to sell advertising. The company is branching out into other revenue generators, like selling virtual items for online games, but Web advertising will likely remain its main source of revenue for some time.”

Jegadeesh is optimistic about Facebook’s future, but he says it can’t rest on its laurels.

“People are spending more time on the Internet, so if Facebook can continue to bring virtual interaction closer to personal interaction, it has a good chance of continuing to be successful,” he observes. “But the key will be its ability to continue to innovate. So far, Zuckerberg has been a prime mover behind that, but as the company matures it can’t depend solely on its founder. Microsoft’s Bill Gates moved away from his central role as the company matured, which positioned it for long-term growth. At some point, Zuckerberg will have to position Facebook to do the same thing.”

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Stock analysts — especially those at large brokerage firms — are known for their herding tendencies, but stock buyers need not be overly concerned at the possible destabilizing effects on stock prices, argue Narasimhan Jegadeesh, Dean’s Distinguished Chair of Finance at Emory University’s Goizueta Business School, and colleague Woojin Kim of Korea University. Their research, presented in a paper titled “Do Analysts Herd? An Analysis of Recommendations and Market Reactions,” shows that the market anticipates analysts’ herding proclivities and “responds appropriately.” Analyzing data from over two decades of stock price movements and analyst recommendations, the researchers found that investors seem to pay more attention to recommendations that go against the grain, compensating in part for any herding that pushes investors away from a true valuation of a stock based on company fundamentals. Their research suggests that market commentators should be wary of overstating the importance of herding as a major cause of market ills.

When the “dot.com” bubble started to burst in March 2000, those who’d been disbelievers in the high-flying sector pounced. In his widely watched annual letter in April 2001, Warren Buffett wrote that “it was as if some virus, racing wildly among investment professionals as well as amateurs, induced hallucinations in which the value of stocks in certain sectors became decoupled from the values of the businesses that underlay them.” In the bubble’s post-mortem, some suggested that what Buffett described as a virus might better be explained in terms of “herding”—the tendency for different agents making individual decisions to nonetheless take similar actions at roughly the same time. The theory was that many stock analysts had talked up dot.com stocks to keep pace with their peers, thereby stoking demand that ultimately resulted in excess volatility when the bubble burst.

But in a paper recently published in the Review of Financial Studies, Narasimhan Jegadeesh at Emory University’s Goizueta Business School argues that any ill effect from herding by analysts is usually blunted because investors are well aware of the tendency. In a paper titled “Do Analysts Herd? An Analysis of Recommendations and Market Reactions,” Jegadeesh and colleague Woojin Kim of Korea University analyzed stock price movements and analyst recommendations for some 5,714 firms between 1993 and 2005. They found that investors seem to pay much more attention to analyst recommendations that go against the grain. That contrasts with changes that move toward the consensus viewpoint, which don’t drive as much action by investors. Stock buyers, in other words, are careful not to get trampled by the herd.

“The market is smart enough not to blindly follow analysts,” says Jegadeesh, who is the Dean’s Distinguished Chair of Finance at Goizueta. “The market seems to understand that analysts have some incentives to herd, and the market responds appropriately.”

There are two broad reasons that individuals might herd, Jegadeesh says. The first stems from information. An earnings announcement with positive news about a company’s revenue or net income might prompt many analysts to up their earnings estimates for the firm at around the same time. Analysts who rationally incorporate the latest financial results from the same information source will come to similar conclusions about the company’s direction. But a second reason for herding is not so benign. Individuals might herd because they are responding to incentives that encourage imitation. Previous research, for example, has suggested that analysts with low abilities often issue earnings forecasts that mimic those of superior analysts, all in hopes of winning more compensation.

“If agents act similarly only because of common information, then their actions result from rational and optimal use of information, and they are not influenced by extraneous incentives or biases,” the researchers write. “On the other hand, if agents herd for any other reason, then their actions differ from the action that one would take if he or she uses available information rationally without any influence of extraneous incentives or biases . . . Non-information-driven herding could introduce noise in prices, and contribute to excess volatility that many view as undesirable.”

Analysts typically rate stocks as “strong buy,” “buy,” “hold,” “sell,” or “strong sell.” To investigate whether analysts herd when they make changes among these five recommendation levels, the researchers tracked 71,555 upgrades and downgrades issued by analysts on the stocks of 5,714 firms between 1993 and 2005. The sample included all firms that had at least two active recommendations from analysts during the time period, including at least one revision. The 6,588 analysts in the sample came from a variety of brokerages ranging from one-analyst shops to large players like Merrill Lynch and Morgan Stanley. The researchers looked companies’ “abnormal returns,” meaning the change in the stocks’ value relative to changes in the value of the broader index, around recommendation changes.

Overall, the researchers found that analyst upgrades corresponded with a 1.97 percent abnormal returns on the day of the upgrade. Analyst downgrades corresponded with a 3.22 percent decline in abnormal returns on the day of the downgrade. The impact was significantly different when recommendation changes moved toward the consensus view relative to when they moved away from the consensus view. In the case of upgrades, the average abnormal returns was 1.75 percent when recommendations moved toward the consensus and 2.15 percent when the upgrade moved away from the consensus. The effect was more dramatic with downgrades. The average abnormal returns were –2.4 percent when the downgrade moved toward the consensus and –4 percent when the downgrade moved against the consensus.

The study also offers information about which analysts are more likely to herd, and when they are more likely to do so. There is no difference, for example, in the herding tendencies of all-star analysts, lead analysts, and other analysts, the researchers found. Analysts who make frequent revisions to their recommendations, however, were less likely to herd. And analysts were less likely to herd when evaluating stocks where there was a broad range of recommendations. Analysts from large, reputable brokerages were more likely to herd, the study suggests.

Regulation also had an influence. In the fourth quarter of 2002, ten major brokerages struck a global settlement with state and federal officials that erected barriers between the investment banking activities of brokerages and their stock research departments. In the time following the settlement, analysts were less likely to herd. This suggests that currying favor with potential investment banking clients might have contributed to herding incentives prior to 2002, the researchers write. Even so, the primary take-away as to the deleterious influence of herding on market prices is that the practice isn’t that worrisome. The study found that a large part of the stock price response to recommendation revisions occurred on the day of the change, and market prices continued to reflect information in the revisions for up to six months into the future. If the revisions had been driven by an impulse to herd that pushed investors away from a true valuation of the stock based on the fundamentals of the company, the study results would have found corrections in market prices at some point following the changes, Jegadeesh says.

“Media accounts and some academic papers have suggested that analysts’ herding tendencies could introduce noise into prices because the market could potentially overweight the common mistakes of the herd,” the study authors write. “However, our results indicate that the market anticipates analysts’ tendencies to herd, and the market price reaction on the revision date accounts for such herding tendencies. Therefore, we doubt that herding by analysts when they make recommendations would have any destabilizing effect on prices.”

The study suggests that downgrades that go against the consensus amount to higher-profile acts that are more likely to significantly move the stock price. In general, analysts seem to be more reluctant to stand out from the crowd when they convey negative information, although it depends on who they work for, the research suggests. Analysts from less prestigious firms might be more willing to offer such recommendations because they are “underdog” players who want to attract attention in the market, Jegadeesh says. Such downgrades might be less common from large brokerage houses where analysts seem more risk averse and are more cautious about offering recommendation changes that could possibly make them look bad. But whatever the motives of analysts, the study suggests that commentators should not overstate the importance of herding when looking for the cause of market ills.

“It’s not what analysts were saying that drove the tech bubble,” Jegadeesh says. The study didn’t set out to explain what caused the dot.com bubble, but Jegadeesh points out that “it could be that investors were looking at their neighbors who were buying those stocks and saying ‘I want to do this’ . . .  sometimes things turn out better than we expect, sometimes things turn out worse.”

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Global Atlanta: Usher’s New Look Foundation Inspires Youth Leaders
“Emory University’s Goizueta Business School certifies youth who complete the New Look Foundation’s leadership training programs with local, national and international levels of certification.”

The Economist: The risks posed by high-frequency trading
“Worse still, higher trading volumes have also been associated with higher volatility. This is neatly illustrated by a paper [co-authored by Ilia Dichev] to be presented at the annual meeting of the American Accounting Association this month.”

India PR Wire: Bangalore hosts IACBE Asia Regional Conference
“In his keynote address, the renowned management thinker, Dr. Jagdish Sheth, Charles H. Kellstadt Professor of Marketing, Goizueta Business School, Emory University, USA, spoke on the challenges and opportunities in management education.”

11Alive.com: Stocks close more than 600 points down following S&P downgrade
“Ray Hill, Professor of Finance at the Emory University Goizueta School of Business says its the economic turmoil in countries like Italy, Spain and Greece that are the root cause of the stock market collapse, not the S&P downgrade.  And Hill is not impressed with S&P’s record.”

Financial Times: High speed traders pounce on volatility
“In a study out this week called ‘The Dark Side of Trading,’ Ilia Dichev and Dexin Zhou of Emory university and Kelly Huang of Georgia State university (sic), say that ‘high volumes of trading can be destabilising (sic), injecting a sizeable layer of tradinginduced volatility over and above the unavoidable fundamentals-based volatility.’

Morningstar: An ETF That Buys High and Sells Higher
“Narasimhan Jegadeesh and Sheridan Titman are credited by academics for discovering momentum, though practitioners had been exploiting it for decades by the time the duo’s study came out in 1993.”

Atlanta Journal-Constitution: Georgia’s journey to become global hub
“For decades, boosters in Atlanta have touted it as ‘the next great international city.’ Metro Atlanta has made significant strides, but anyone who has been to New York, London or Paris knows that substantial work lies ahead. But there is good news: Georgia may be on a path to a notable status, that of a ‘global hub.’ [by Jeff Rosensweig]

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