More from these Authors

• Working Paper | HBS Working Paper Series | 2018

  Do Banks Have an Edge?

  Juliane Begenau and Erik Stafford

  We decompose bank activities into passive and active components and evaluate the performance of the active components of the bank business model by controlling for passive maturity transformation strategies that can be executed in the capital market. Over the period 1960–2016, we find that (1) unlevered bank assets underperform passive portfolios of maturity-matched U.S. Treasury bonds; (2) the cost of bank deposits exceeds the cost of bank debt; (3) bank equities have CAPM betas near one, while passive maturity transformation strategies have CAPM betas near zero; and (4) portfolios of bank equities consistently underperform portfolios designed to passively mimic their economic exposures. The very strong investment performance of passive maturity transformation strategies over this period may mask the underperformance of the specialized bank activities.

  Keywords: banks; capital markets; market efficiency; bank capital; bank debt; CAPM; banking; bank deposits; bank funding advantage; leverage; maturity transformation; replicating portfolio; efficiency; Banks and Banking; Capital Markets; Performance Evaluation; Performance Efficiency; Banking Industry; United States;

  Citation:

  Begenau, Juliane, and Erik Stafford. "Do Banks Have an Edge?" Harvard Business School Working Paper, No. 18-060, January 2018.  View Details

  CiteView Details Read Now

  Related

• Response | Journal of Political Economy | December 2017

  Reply: Do Powerful Politicians Really Cause Corporate Downsizing?

  Lauren Cohen, Joshua D. Coval and Christopher J. Malloy

  While we commend the initiative of Snyder and Welch (2017), we lay out in this short reply why we remain highly confident in our results and our interpretation thereof. We welcome authors to continue to explore the data for themselves and look forward to the new questions they can tackle with it.

  Keywords: Spending; Private Sector; Taxation; Interest Rates; Business and Government Relations; Investment; Employment; Power and Influence;

  Citation:

  Cohen, Lauren, Joshua D. Coval, and Christopher J. Malloy. "Reply: Do Powerful Politicians Really Cause Corporate Downsizing?" Journal of Political Economy 125, no. 6 (December 2017): 2232–2237.  View Details

  CiteView DetailsFind at Harvard

  Related

• Working Paper | HBS Working Paper Series | 2015

  Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

  Erik Stafford

  Private equity funds tend to select relatively small firms with low EBITDA multiples. Publicly traded equities with these characteristics have high risk-adjusted returns after controlling for common factors typically associated with value stocks. Hold-to-maturity accounting of portfolio net asset value eliminates the majority of measured risk. A passive portfolio of small, low EBITDA multiple stocks with modest amounts of leverage and hold-to-maturity accounting of net asset value produces an unconditional return distribution that is highly consistent with that of the pre-fee aggregate private equity index. The passive replicating strategy represents an economically large improvement in risk- and liquidity-adjusted returns over direct allocations to private equity funds, which charge average fees of 6% per year.

  Keywords: private equity; value investing; endowments; investment management; Asset Pricing; United States;

  Citation:

  Stafford, Erik. "Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting." Harvard Business School Working Paper, No. 16-081, January 2016.  View Details

  CiteView Details Read Now

  Related