More from these Authors

• Working Paper | HBS Working Paper Series | 2019

  Do Banks Have an Edge?

  Juliane Begenau and Erik Stafford

  Overall, no! We show that the level and time series variation in cash flows for most bank activities are well matched by capital market portfolios with similar interest rate and credit risk to what banks report to hold. Ignoring operating expenses, bank loans earn high returns and transaction deposits pay low interest rates, consistent with these activities having a potential edge. The edge among these activities is insufficient to cover the large operating expenses of banks. A large portion of the aggregate U.S. banking sector closely resembles a tax inefficient passive mutual fund. The residual risks of bank activities, presumably generated by the unique components of the bank business model, generate systematic risks that are uncompensated.

  Keywords: banks; 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. (Revised October 2019.)  View Details

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• 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

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• 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

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