Mark Seasholes

Visiting Professor of Business Administration

Mark Seasholes conducts research in the field of financial economics, focusing on trading behavior and asset prices around the world. He has written on cross-border equity investments, herding behavior of individual investors, and loss aversion. Current work focuses on liquidity and asset pricing. One project looks at the systematic liquidity demands of individual investors. A second project studies NYSE specialist inventories (a measure of liquidity provided to the market).

His work experience includes a number of years on Wall Street and in the emerging markets of East/Central Europe. Mark was one of the first equity analysts in post-communist Poland. He has completed a valuation project in Honduras, helped with the Lloyds of London restructuring, and given a series of lectures in the People's Republic of China. Mark's experience also includes work with State Street Bank and Trust and their portfolio flow indices.

Professor Seasholes has teaching experience in a number of countries and cultures. He taught at U.C. Berkeley Haas School from 2000 to 2007 where he won teaching awards in three different programs. Other teaching experiences include London Business School, Hong Kong University of Science and Technology, Santa Clara University, and UT Austin. Visiting positions include INSEAD (France), Northwestern-Kellogg (USA), and University of Grenoble (France).

He received his BA from Wesleyan University where he graduated with high honors in physics, Phi Beta Kappa, and University Honors (the university's highest award.) University Honors was awarded to 5 of 650 graduates his year. He received his AM and PhD degrees from Harvard University.

 

 

Journal Articles

  1. Liquidity Provision and Stock Return Predictability

    This paper examines the trading behavior of two groups of liquidity providers (specialists and competing market makers) using a six-year panel of NYSE data. Trades of each group are negatively correlated with contemporaneous price changes. To test for return predictability, we sort stocks into quintiles based on each group’s past trades and then form long-short portfolios. Stocks most heavily bought have significantly higher returns than stocks most heavily sold over the two weeks following a sort. Cross-sectional analysis shows smaller, more volatile, less actively traded, and less liquid stocks more often appear in the extreme quintiles. Time series analysis shows the long-short portfolio returns are positively correlated with a market-wide measure of liquidity. A double sort using past trades of specialists and competing market makers produces a long-short portfolio that earns 88 basis points per week (act as complements). Finally, we identify a ‘‘chain’’ of liquidity provision. Designated market makers (NYSE specialists) initially trade against order flows and prices changes. Specialists later mean revert their inventories by trading with competing market makers who appear to spread trades over a number of days. Alternatively, specialists may trade with competing market makers who arrive to market with delay.

    Keywords: liquidity; market makers; market efficiency; Inventory; liquidity provision;

    Citation:

    Seasholes, Mark, and Terrence Hendershott. "Liquidity Provision and Stock Return Predictability." Journal of Banking & Finance 45 (August 2014): 140–151. View Details
  2. Investing in What You Know: The Case of Individual Investors and Local Stocks

    This paper tests the performance of individuals’equity investments. We study over 40,000 accounts and 950,000 trades from a large discount broker. Individuals invest heavily in local stocks and put 14% more into these stocks than a market-neutral portfolio would suggest. Using holdings-based calendar-time portfolios, we find the local holdings do not generate positive alphas. Using the transactions data, we find local stocks bought actually underperform local stocks sold (though the underperformance is more severe when considering remote stocks). We find no support for the folk wisdom that one should “invest in what you know.”

    Citation:

    Seasholes, Mark, and Ning Zhu. "Investing in What You Know: The Case of Individual Investors and Local Stocks." Journal of Investment Management 11, no. 1 (First Quarter 2013): 20–30. View Details
  3. Risk and the Cross-Section of Stock Returns

    This paper mathematically transforms unobservable rational expectation equilibrium model parameters (information precision and supply uncertainty) into a single variable that is correlated with expected returns and that can be estimated with recently observed data. Our variable can be used to explain the cross section of returns in theoretical, numerical, and empirical analyses. Using Center for Research in Security Prices data, we show that a −1σ to +1σ change in our variable is associated with a 0.31% difference in average returns the following month (equaling 3.78% per annum). The results are statistically significant at the 1% level. Our results remain economically and statistically significant after controlling for stocks' market capitalizations, book-to-market ratios, liquidities, and the probabilities of information-based trading

    Keywords: Risk premiums; Cross-sectional asset pricing; REE models;

    Citation:

    Seasholes, Mark, Radu Burlacu, Patrice Fontaine, and Sonia Jimenez-Garces. "Risk and the Cross-Section of Stock Returns." Journal of Financial Economics 105, no. 3 (September 2012): 511–522. View Details
  4. Trading Imbalances and the Law of One Price

    We study trading and prices of Chinese (mainland)/Hong Kong dual-listed shares. Relative prices can diverge by a factor of two and exhibit significant variation over time. Order imbalances explain contemporaneous changes in relative prices at daily and weekly frequencies.

    Keywords: Law of one price; cross-listings; order imbalances;

    Citation:

    Seasholes, Mark, and Clark Liu. "Trading Imbalances and the Law of One Price." Economics Letters 112, no. 1 (July 2011): 132–134. View Details

Working Papers

Cases and Teaching Materials

  1. USAA: Catastrophe Risk Financing

    Describes the first major risk financing using catastrophe bonds. Provides a basis for discussing the securitization of insurance risks.

    Keywords: Financial Management; Insurance; Capital Markets; Natural Disasters; Risk Management; Bonds; Insurance Industry; Financial Services Industry; United States;

    Citation:

    Froot, Kenneth A., and Mark Seasholes. "USAA: Catastrophe Risk Financing." Harvard Business School Case 298-007, July 1997. (Revised September 1997.) View Details
  2. Futures on the Mexican Peso

    The Chicago Mercantile Exchange needs to decide how to design, and whether and when to introduce, a futures contract on the Mexican peso.

    Keywords: Exchange rates; money markets; futures market; country analysis; International Finance; Financial Markets; Futures and Commodity Futures; Financial Services Industry; Chicago; Mexico;

    Citation:

    Froot, Kenneth A., Matthew McBrady, and Mark Seasholes. "Futures on the Mexican Peso." Harvard Business School Case 296-004, August 1995. (Revised October 1996.) View Details
  3. Telmex PRIDES

    The case examines an issue by a Mexican development bank of PRIDES written on Telmex stock. PRIDES are a dividend-enhanced security which are exchangeable into shares of the underlying stock. The focus is on pricing these instruments, which involve large peso-denominated payments at maturities beyond that of the Mexican yield curve. Further, the optionality of the PRIDES is interesting to analyze.

    Keywords: financial derivatives; securities; International Finance; Banks and Banking; Financial Instruments; Valuation; Mexico;

    Citation:

    Froot, Kenneth A., and Mark Seasholes. "Telmex PRIDES." Harvard Business School Case 296-009, March 1996. View Details