Finance Panel

The Clark Center for Global Markets explores finance professors’ views on vital policy issues via our Finance Panel. We regularly poll over 40 individuals on a range of timely and relevant topics. Panelists not only have the opportunity to respond to a poll’s statements, but an opportunity to comment and provide additional resources, if they wish. The Clark Center then shares the results with the public in a straightforward and concise format.

Please note that from September 2022, the language in our polls will use just two modifiers to refer to the size of an effect:

‘Substantial’: when an effect is large enough that it would make a difference that matters for the behavior involved.
‘Measurable’: when the direction of the effect is clear, but perhaps experts would differ as to whether it is substantial.

Modern Portfolio Theory

Finance

Modern Portfolio Theory

Question A:

Harry Markowitz, the Nobel Prize-winning pioneer of modern portfolio theory, passed away earlier this year:
https://afajof.org/news/in-memoriam-harry-markowitz-past-president-of-the-american-finance-association-1927-2023/

Application of the principles of modern portfolio theory allows investors in practice to achieve substantial improvements in the risk-expected return trade-off relative to naive strategies such as equal-weighting that do not take account of return covariances.

Responses

Source: Clark Center Economic Experts Panel
Methodology

Question B:

Widespread adoption of modern portfolio theory by investors has substantially improved the efficiency of capital allocation in financial markets.

Responses

Source: Clark Center Economic Experts Panel
Methodology

Financial Markets & Banking

November 15, 2023

Quantitative Tightening and Demand for US Treasuries

Finance

Quantitative Tightening and Demand for US Treasuries

Question A:

The Federal Reserve has begun quantitative tightening (QT) to reduce the size of its balance sheet. Fed holdings of Treasury securities have declined by $800 billion relative to the March 2020 peak. The Fed currently holds $4.9 trillion of Treasury securities, significantly larger than the $2.5 trillion holdings prior to the Covid pandemic.

A reduction in Fed holdings of Treasury securities measurably increases the interest rate on long-term U.S. Treasury bonds.

Responses

Source: Clark Center Economic Experts Panel
Methodology

Question B:

A reduction in Fed holdings of Treasury securities measurably increases volatility in the Treasury market.

Responses

Source: Clark Center Economic Experts Panel
Methodology

Bonds

October 25, 2023

Long-Term Capital Management

Finance

Long-Term Capital Management

This Finance survey examines: (a) September 2023 was the 25th anniversary of the collapse of Long-Term Capital Management (LTCM). In response to LTCM's troubles, the Federal Reserve orchestrated a multi-billion dollar rescue package by a consortium of banks and it cut the Federal funds rate target by 75 basis points within six weeks. The hedge fund sector's contribution to systemic risk is substantially lower today than at the time of LTCM; (b) Financial market participants' expectation that the Fed will aggressively ease monetary policy in response to financial market dislocations is a substantial source of financial instability.

Financial Crises

October 9, 2023

Enhanced Regulation of Private Fund Advisers

Finance

Enhanced Regulation of Private Fund Advisers

This Finance survey examines (a) The benefits of the new SEC rules on private funds - which require private funds to provide transparency to their investors regarding the fees and expenses and other terms of their relationship with private fund advisers and the performance of such private funds - substantially exceed their costs; (b) The new SEC rules will have a substantially negative impact on the industry by stifling capital formation and reducing competition; (c) It is appropriate policy for the SEC to impose such rules on private funds even though the investors (limited partners) are sophisticated entities

Financial Regulation

September 14, 2023

New Money Market Fund Rules

Finance

New Money Market Fund Rules

This Finance survey examines (a) The new liquidity fee will substantially reduce the likelihood of runs on MMFs; (b) The new liquidity fee will cause a substantial shift of assets under management from institutional prime and tax-exempt funds to government MMFs (which are exempt from the fees)

Financial Regulation

July 28, 2023

Commercial Real Estate

Finance

Commercial Real Estate

This Finance survey examines (a) The impact of the Covid-19 pandemic on working and shopping habits has not been fully priced into current private valuations of downtown commercial properties in major cities; (b) A continued fall in commercial real estate valuations would trigger another round of banking panic

Banking

July 6, 2023

ESG Factors

Finance

ESG Factors

This Finance survey examines (a) Regulation that allows state pension funds to consider environmental, social, and governance factors in investment decisions only if these factors are material for risk and expected return would make retirees measurably worse off; (b) Regulation that prevents state pension funds from considering environmental, social, and governance factors in investment decisions even if these factors are material for risk and expected return would make retirees measurably worse off

Financial Regulation

June 7, 2023

Banks’ Business Model

Finance

Banks’ Business Model

This Finance survey examines (a) Since maturity transformation is an inherent feature of commercial banks' business model, some duration mismatch between assets and liabilities is unavoidable; (b) For the purposes of capital regulation, banks should be required to mark their holdings of Treasury and Agency securities to market at all times (even though their loans are not marked to market)

Banking

May 17, 2023

Discount Rates

Finance

Discount Rates

This Finance survey examines (a) Despite the empirical failures of the Capital Asset Pricing Model (CAPM) in explaining expected stock returns, a shareholder-value maximizing publicly-traded firm should still use the CAPM to calculate the cost of equity in capital budgeting; (b) The equity risk premium that U.S. publicly traded firms should use in cost of equity calculations in April 2023 is above 6%

Business, Management, & Corporate Performance

April 18, 2023

Banking Crisis

Finance

Banking Crisis

This Finance survey examines (a) Financial regulators in the US and Europe lack the tools and authority to deter runs on banks by uninsured depositors; (b) Not guaranteeing uninsured deposits at Silicon Valley Bank in full would have created substantial damage to the US economy; (c) Fully guaranteeing uninsured deposits at Silicon Valley Bank substantially increases banks’ incentives to engage in excessive risk-taking

Banking

March 30, 2023