Donald B. Keim

Donald B. Keim

Contact Information

  • office Address:

    3253 Steinberg-Dietrich Hall
    3620 Locust Walk
    Philadelphia, PA 19104

Research Interests: asset pricing, behavior of institutional traders, measurement of institutional investor trading costs, risks and returns of stock market based real estate investments

Links: CV, Personal Website, Rodney L White Center



PhD, University of Chicago, 1983; MBA, University of Chicago, 1980; BSBA, Bucknell University, 1975

Career and Recent Professional Awards; Teaching Awards

Trefftz Award, Western Finance Association, 1982; Roger F. Murray Prize, Institute for Quantitative Research in Finance, 1996; Graham & Dodd Award, Financial Analysts Federation, 1987, 1999; New York Stock Exchange Award, Western Finance Association, 1996

Academic Positions Held

Wharton: 1982-present (named John B. Neff Professor of Finance, 1998). Previous appointment: Loyola University of Chicago. Visiting appointment: INSEAD, France, 1994, 1996-98; 2004

Other Positions

Research Associate, Research Division, Federal Deposit Insurance Corporation, 1978.

Professional Leadership 2005-2009

Co-Editor, European Finance Review,1999-2003; Member, Best Execution Task Force, Association for Investment Management and Research, 2001-2002

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  • Ian Appel, Todd A. Gormley, Donald B. Keim (Working), Standing on the Shoulders of Giants: The Effect of Passive Investors on Activism.

    Abstract: We analyze whether the growing importance of passive investors has influenced the campaigns, tactics, and successes of activists.  We find activists are more likely to pursue changes to corporate control  (e.g., via board representation) and to forego more incremental changes to corporate policies (e.g., via shareholder proposals) when a larger share of the target company’s stock is held by passively managed mutual funds. Furthermore, higher passive ownership is associated with increased use of hostile, expensive tactics (e.g., proxy fights) and a higher likelihood the activist obtains board representation or the sale of the targeted company.  Overall, our findings suggest that the increasingly large ownership stakes of passive institutional investors mitigate free-rider problems associated with certain forms of intervention, and ultimately increase the likelihood of success by activists.     

  • Ian Appel, Todd A. Gormley, Donald B. Keim (2016), Passive Investors, Not Passive Owners, Journal of Financial Economics, Forthcoming.

    Abstract: Passive institutional investors are an increasingly important component of U.S. stock ownership.  To examine whether and by which mechanisms passive investors influence firms’ governance, we exploit variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes. Our findings suggest that passive mutual funds influence firms’ governance choices, resulting in more independent directors, removal of takeover defenses, and more equal voting rights. Passive investors appear to exert influence through their large voting blocs, and consistent with the observed governance differences increasing firm value, passive ownership is associated with improvements in firms’ longer-term performance. 

  • Donald B. Keim and Olivia S. Mitchell (Working), Simplifying Choices in Defined Contribution Retirement Plan Design.

    Abstract: In view of the growth and popularity of defined contribution pensions, along with the government’s growing attention to retirement plan costs and investment choices provided, it is important to understand how people select their retirement plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.

  • Bastian von Beschwitz, Donald B. Keim, Massimo Massa (Working), First to "Read" the News: News Analytics and High Frequency Trading.

    Abstract: We investigate whether providers of high frequency news analytics affect the stock market. We exploit a unique identification strategy based on differences in news event classifications between different product releases of a major provider of news analytics. We document a causal effect of news analytics on the market, irrespective of the informational content of the news. Coverage in news analytics speeds up the market reaction in terms of stock price response and trading volume, but increases illiquidity immediately after the article. Furthermore, we document that traders learn dynamically about the precision of news analytics.

  • Todd A. Gormley, Donald B. Keim, Ian Appel (Work In Progress), Identification Using Russell 1000/2000 Index Assignments: A Discussion of Methodologies.

    Abstract: This paper discusses tradeoffs of various empirical methods used in recent papers that rely on Russell 1000/2000 index assignments for identification.  The paper also addresses why different approaches to this identification appear to reach different conclusions about the effect of index assignment on firm’s ownership structure and corporate policies.  

  • Marshall E. Blume and Donald B. Keim (Forthcoming), The Changing Nature of Institutional Stock Investing.

    Abstract: We document that institutional investors, particularly hedge funds, decreased their holdings of larger stocks from 1980 to 2010 and increased their holdings of smaller stocks.  Since 1990 institutions have underweighted, relative to market weights, those stocks that make up the largest 40 percent of the value of the market, and since 2006 have overweighted the stocks that make up the smallest 20 percent of the market.  The contrary findings in the literature that institutions overweight larger stocks and underweight smaller stocks (e.g., Gompers and Metrick (2001) and Bennett, Sias and Starks (2003)) are due to the use of a linear relation between institutional ownership and the logarithm of market value.  In fact, we show that this relation is nonlinear and resembles an inverted U.  We discuss three factors that may have contributed to these changes in institutional holdings: better understanding of diversification; growing awareness of the small stock premium; and less efficient pricing of smaller stocks relative to larger stocks.

  • Susan E. K. Christoffersen, Donald B. Keim, David Musto (Working), Valuable Information and Costly Liquidity: Evidence from Individual Mutual Fund Trades.

    Abstract: Until recently, all Canadian mutual funds were required to disclose all their individual trades, offering a unique and ideal opportunity to measure and analyze the cost and performance of mutual funds’ trades. We find that active management delivers both cheaper trades and better subsequent performance, and that the dissipative effect of flow-driven transactions costs is primarily through forced sales. Fund size associates with both cheaper trades and better subsequent performance, and a series of trades predicts more price movement in the predicted direction, indicating the value to funds of keeping their trading anonymous.

  • Marshall E. Blume and Donald B. Keim (Working), Stale or Sticky Stock Prices? Non-Trading, Predictability, and Mutual Fund Returns.

    Abstract: The observed predictability in indexes and domestic mutual funds has been attributed to stale prices. Market timing of mutual funds exploits this predictability. We show that there are few stale prices for stocks in the top few deciles of market value and that mutual funds concentrate their holding in these deciles. Still, we observe predictability in the returns of portfolios and mutual funds holding these stocks. Much of this predictability is due to stickiness, or momentum, in market returns and not stale prices. Thus, the often suggested use of “fairvalue” accounting will not eliminate the profitability of market timing.

  • Kenneth Kavajecz and Donald B. Keim (2005), Packaging Liquidity: Blind Auctions and Transaction Efficiencies, Journal of Financial and Quantitative Analysis.

    Abstract: The costs of implementing investment strategies represent a significant drag on the performance of mutual funds and other institutional investors. It is the responsibility of institutional investors, and in the interests of the individual investors they represent, to seek market mechanisms that mitigate trading costs. We investigate an example of one such liquidity provision mechanism whereby liquidity demanders auction a set of trades as a package directly to potential liquidity providers. A critical feature of the auction is that the identities of the securities in the package are not revealed to the bidder. We demonstrate that this mechanism provides a transactions cost savings relative to more traditional trading mechanisms for the liquidity demander as well as an efficient way for liquidity suppliers to obtain order flow. We argue that the cost savings afforded this new mechanism are due to the potential for low cost crosses with the bidder's existing inventory positions and through the longer trading horizon, and superior trading ability, of the bidders. This research suggests that the ability to innovate via new liquidity provision mechanisms can provide market participants with transaction cost savings that cannot be easily duplicated on more traditional exchanges.

  • Donald B. Keim (Working), The Cost of Trend Chasing and The Illusion of Momentum Profits.

    Abstract: There is a large and growing literature documenting the relation between ex ante observable variables and stock returns. Importantly, much of the evidence on the relation between returns and observable variables like market capitalization, the ratio of price/book, and prior price change has been portrayed in the context of returns to simulated portfolio strategies. Often missing in these analyses is the distinction between realizable returns (i.e., the returns portfolio managers can realistically achieve in practice) and returns to simulated strategies. There is ample evidence that size and value strategies can be successfully implemented in practice; that is not the case for momentum strategies. This paper documents the costs of implementing actual momentum strategies. I examine the trade behavior, and the costs of those trades, for three distinct investor styles (momentum, fundamental/value, and diversified/index) for 33 institutional investment managers executing trades in the U.S. and 36 other equity markets worldwide in both developed and emerging economies. The results show: (1) that momentum traders do indeed condition their trades on prior price movements; and (2) that costs for trades that are made conditional on prior market returns are significantly greater than for unconditional costs, especially for momentum traders. The evidence that we report on the actual costs of momentum-based trades indicates that the returns reported in previous studies of  simulated momentum strategies are not sufficient to cover the costs of implementing those strategies.


Past Courses


    This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., index-fund) and active (e.g., hedge-fund, long-short) strategies, mutual funds, performance evaluation, long-horizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").


    Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.


    This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., index-fund) and active (e.g., hedge-fund, long-short) strategies, mutual funds, perfermance evaluation, long-horizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").


    Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. At a minimum, we need a description of the methodology you intend to employ, a bibliography and description of the data that you will use as well as a list of interim deliverables and dates to ensure that you complete the project within the semester. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. You must submit your Finance ISP request using the Finance Department's ISP form located at under the Course ISP section


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