Research Interests: capital markets, consumer credit, financial intermediation
PhD, University of Chicago, 1995; BA, Yale University, 1987
Wharton: 1995-present(named Ronald O. Perelman Associate Professor in Finance, 2007; Professor, 2008)
Programmer, Trout Trading Company, 1993; Systems Consultant, Roll & Ross Asset Management, 1987-89
Krista Schwarz, David Musto, Greg Nini (2018), Notes on Bonds: Illiquidity Feedback During the Financial Crisis, Review of Financial Studies , 31 (8), pp. 2983-3018.
Abstract: We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis.
Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2017), In Pursuit of Good & Gold: Data Observations of Employee Ownership & Impact Investment, Seattle University Law Review, 40.
Description: Alcoa, Inc. (Alcoa), an S&P 500 Index constituent and Dow Jones Industrial Average (DJIA) component, has just announced its fourth quarter 2008 earnings. In the midst of the Global Financial Crisis, Alcoa reported a net loss of US$1.19 billion for the quarter. With aluminum prices off by 56 percent in the last five months and a sharp drop in demand from its end markets, Alcoa announced a major restructuring including a workforce reduction of 15,000 jobs. Joan Davidson, a managing director at Pinnacle Capital (a fictitious investment bank), is scheduled to meet with Alcoa management and needs to strategize to give the company her recommendations on what actions Alcoa should take. The case examines Alcoa's history, current situation, and the potential alternatives it can take. To use this case, please contact firstname.lastname@example.org.
Description: The case follows Elliott Management, one of the world’s largest activist investors, in its campaign in 2014 to buy out Riverbed Technology, a formerly high-flying technology firm. The campaign involves a sequence of moves by Elliott and countermoves by Riverbed. The narrative includes communications between the parties; Riverbed’s earnings announcements and other corporate actions; and the impact on Riverbed’s stock price. To use this case, please contact email@example.com.
Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2015), Institutional Investing When Shareholders Are Not Supreme, Harvard Business Law Review , 5:1.
Description: Alibaba Group Holding Limited (Alibaba) is finishing up its IPO roadshow. James Miller, an associate at Dragon Fund (a fictitious financial institution), is asked to prepare a recommendation on Alibaba for its upcoming Investment Committee meeting. The case examines Alibaba's history; business model; opportunity in China (and globally); governance structure; valuation (versus potential comparable companies); and the forms of securities it is offering. To use this case, please contact firstname.lastname@example.org.
Description: This case focuses on the strategic decision EMC made to carve out its high-growth subsidiary, VMware. The case examines some of the factors companies use to determine whether or not to carve out a subsidiary and the potential implications. It also examines the valuation impact on both EMC and VMware at IPO. To use this case, please contact email@example.com.
Rich Evans, Christopher Geczy, David Musto, Adam V. Reed (2009), Failure is an Option: Impediments to Short Selling and Options Prices, Review of Financial Studies, Forthcoming.
Abstract: Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hard-to-borrow situations, it chooses not to borrow and instead fails to deliver stock to its buyers. Some of the value of failing passes through to option prices: when failing is cheaper than borrowing, the relation between borrowing costs and option prices is significantly weaker. The remaining value is profit to the market maker, and its ability to profit despite the usual competition between market makers appears to result from a cost advantage of larger market makers at failing.
Abstract: Regulators express growing concern over predatory loans, which the authors take to mean loans that borrowers should decline. Using a model of consumer credit in which such lending is possible, they identify the circumstances in which it arises both with and without competition. The authors find that predatory lending is associated with highly collateralized loans, inefficient refinancing of subprime loans, lending without due regard to ability to pay, prepayment penalties, balloon payments, and poorly informed borrowers. Under most circumstances competition among lenders attenuates predatory lending. They use their model to analyze the effects of legislative interventions.
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.
The objective of this course is to give you a broad understanding of the framework and evolution of U.S. capital markets, the instruments that are traded, the mechanisms that facilitate their trading and issuance, and the motivations of issuers and investors across different asset classes. The course will highlight the problems that capital market participants are seeking to solve, which you can use in your post-Wharton careers to evaluate future market innovations. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another,and the associated economic and financial stability issues. We will draw from events in the aftermath of the recent financial crisis, which illustrate financing innovations and associated risks, as well as policy responses that can change the nature of these markets. In addition to course prerequisites, FNCE 101 is recommended.
This course combines lectures and cases, and will go through actual situations where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues such as investor activism, governance and regulatory and valuation impact. FNCE 283 is a half semester course. FNCE 238 is recommended but not required.
Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.
The objective of this course is to give you a broad understanding of the instruments traded in modern financial markets, the mechanisms that facilitate their trading and issuance, as well as, the motivations of issuers and investors across different asset classes. The course will balance functional and institutional perspectives by highlighting the problems capital markets participants are seeking to solve, as well as, the existing assets and markets which have arisen to accomplish these goals. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another, and the associated economic and financial stability issues. The course is taught in lecture format, and illustrates key concepts by drawing on a collection of case studies and visits from industry experts. In addition to prerequisites, FNCE 613 may be taken concurrently.
This half-semester course combines lectures and cases, and will go through actual situation where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues such as investor activism, governance and regulatory and valuation impact.
Strategic Equity Finance has a new course number effective 19A This course is listed as FNCE783 going forward
This course will be a survey of the private equity asset class. Its objective is to provide an understanding of the concepts, agents, and institutions involved in the late stage corporate private equity market in the U.S. and around the globe. It will examine the buyout market and the activities of buyout funds from the differing perspectives of private equity investors, private equity fund sponsors, and managers of the portfolio companies. The course will be taught almost entirely with cases. Distinguished Wharton alumni in the private equity industry will be our guest speakers for many of the cases based on transactions they concluded. While this course is primarily intended for graduate students, admission may be granted to a limited number of interested undergraduate students. PLEASE NOTE: this course may be recorded for live or subsequent distribution, display, broadcast, or commercialization in any media, including video, audio, or electronic media. For additional information, see the course syllabus or contact the department. This is a Pass/Fail course and will not count towards your concentration.
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. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.
This course provides students with an overview of the basic contributions in the modern theory of corporate finance and financial institutions. The course is methodology oriented in that students are required to master necessary technical tools for each topic. The topics covered may include capital structure, distribution policy, financial intermediation, incomplete financial contracting, initial and seasoned public offerings, market for corporate control, product market corporate finance interactions, corporate reorganization and bankruptcy, financing in imperfect markets, security design under adverse selection and moral hazard, and some selected topics.