Current Glucksman Fellowship Program Student Research Reports
Shourya Ghosh, under the supervision of Edward Altman, does a statistical comparison of credit ratings from Moody’s and Standard & Poor’s to see whether there are any consistent biases between the two rating agencies. Kenneth McDermid, under the direction of Jeffrey Wurgler, investigates the performance of hedge funds and confirms that institutions with fewer assets and more concentrated portfolios outperform the others and that the out-performance is the result of selection ability. Joe Mellet, under the supervision of David Yermack, examines the market’s reaction to 320 special dividend announcements made in October, November, and December of 2012 in response to the looming tax increases and finds significant Cumulative Abnormal Returns (CARs) in the days surrounding the dividend announcement. These papers, reflecting the research effort of three outstanding Stern MBA students, are summarized in more detail below. You may download any of these research papers, as well as those of previous years, by clicking here.
William L. Silber, Director
A Study of Differences in Standard & Poor’s and Moody’s Corporate Credit Ratings
This paper studies the differences in corporate issuer ratings from Moody’s and Standard & Poor’s for firms in the Russell 3000 index over the time period 2006 to 2012. We expect differences because the rating methodologies of the two firms are different, with Moody’s ratings based on expected losses and Standard & Poor’s ratings based on the likelihood of defaults. The study finds that Moody’s has a consistent bias towards a more conservative rating as compared to Standard & Poor’s. For low recovery sectors, like financials and technology, the difference in ratings were not statistically significant, but for other sectors, Moody’s ratings were lower at a statistically significant level. The trends observed were persistent throughout the time period 2006 to 2012.
An Analysis of Hedge Fund Equity Returns from Public Filings
This study focuses on assessing the factors that affect the performance of institutionally managed hedge funds. Previous studies of mutual funds and hedge funds suggest that institutions with fewer assets and more concentrated portfolios will outperform and that the out-performance comes from selection ability. Previous work also suggests that portfolios consisting of the largest position and newly-initiated positions will outperform. The paper confirms that institutions who manage hedge funds with fewer assets and more concentrated portfolios (at the industry, sector, and individual position level) outperform and that the out-performance is the result of selection ability alone. The paper finds no evidence that the largest position of a portfolio outperforms the aggregate portfolio, but does find evidence that newly-initiated positions outperform older positions.
The Impact of Special Dividend Announcements, Insider Ownership, and Tax Increases on US Equity Prices
In the fourth quarter of 2012, large cash balances and looming tax increases led to unprecedented levels of special dividend payments by US corporations. This study examines the market’s reaction to 320 special dividend announcements made in October, November, and December of 2012 and finds significant Cumulative Abnormal Returns (CARs) in the days surrounding the dividend announcement. We conclude that CARs were positively correlated with dividend size, which implies that investors reacted favorably to anticipated tax savings of receiving dividends prior to an expected tax increase. We also conclude that CARs were positively correlated with the percent of shares held by insiders, signaling the possible existence of agency problems associated with free cash flow and dividend payments.