耶鲁大学金融市场英文文本FinancialMarketsLecture13Transcript.docx

耶鲁大学金融市场英文文本FinancialMarketsLecture13Transcript.docx

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耶鲁大学金融市场英文文本FinancialMarketsLecture13Transcript

FinancialMarkets:

Lecture13Transcript

ProfessorRobertShiller:

BeforeIbegin,IwanttosaysomethingaboutourspeakeronWednesday,AndrewRedleaf.Firstofall,heacceptedourinvitationtogotolunchwithsomeofyou.So,Iwanttoarrangeanevent,actuallyatoneofthecollege'scafeteria.Ihaven'tfiguredout--maybeoneofyouhasasuggestion,especiallyifwecangeta--seewhatcollegehewashere--wediditinhiscollegebecausehegraduatedfromYale.I'veforgottenwhichonethatwas.Ithadaniceroomupstairs,somaybeI'lltrytogetthatoneagain.Ofcourse,hesaidhedoesn'tparticularlycare--maybeIshouldtakehimtoanotherone.Yeah,ifyoucansuggestacollege,whichhasaniceroomandthatwillbeboth--I'llcomeandRedleafwillcome;so,that'sthisWednesday.WhatI'mgoingtodoisemailyouthedetails.Ifyoucouldemailmeifyou'reinterestedincoming,sowecanhaveagoodsizegroupandadiscussion.

IjustwanttosayalittlebitaboutRedleaf.HefoundedWhiteboxAdvisorsin2000--sothat'seightyearsago--anditisnowupto$1.8billionassetsundermanagement."Assetsundermanagement"ishowmuchmoneyhehasdrawninfrominvestors.So,he'sdoingquitewellandhehassomecelebritystatusamonghedgefundmanagers.Notably,IputonthewebsiteforMarch5th,underourclasssyllabus,aNewYorkTimesarticleabouthimentitled,"CuriosityHasItsMerits."IguessitstrucktheauthorofthatarticlethatRedleafisjustaguywhowasverycuriousaboutalotofthings.Hewantstoknowhowthingsworkandwhythingsarehappening.Thatmightbeanaturalimpulseandsomepeoplehavethatmorethanothers.It'sprobablyagoodimpulsetohaveifyou'regoingintoinvestment.Ofcourse,heturnsitintoproductivepurpose,sothereareacoupleexamplesfromthatarticle.

Oneisthat--there'saliteratureinfinanceaboutoptionsandstockpriceperformance,whichgoesbacktenyears,thatshowsthatsomethingisnotquiterightwiththewaycompaniesissueoptions.Letmeremindyouwhathappens.What'shappening,increasingly,isthatemployeesortopexecutiveemployees,atleast,incompaniesarerewardedaspartoftheircompensationwithoptionsonthevalueofthestockofthecompanytheyworkfor.YouworkforXYZCorporation;theshareistradingat$10ashare;theywouldgiveyou"atthemoney"or"outofthemoney"options--sayoptionstobuythestockat$11ashare.That's$1morethanitcostsnowinthemarket,sotheoptionsareworthlessunlessthepriceofthestockgoesup.So,that'ssupposedtoincentivizeyouasamanagertogetthestockpriceup.Thenyoumakemoneyifthepriceofthestockrisesabove,inthatcase,$11ashare.Allthatisfine,itsoundsgoodthatmanagersshouldbegivenoptionsbecauseitwillincentivizethemtoworkforthebenefitofthecorporation.

Theproblemthat'sbeenrevealedinfinanceliteratureisthatthere'sanuncannytendencyforthestockpricetogoupafterthecompanyawardslargequantitiesofoptionstoitsexecutives.Doesthatsoundsuspicious?

Imean,youcouldsay,wellthatmeanstheoptionsarereallyworkingwellbecauseitreallymotivatedthemanagersandtheydidsomethingandmadethecompanyworthmore.Ifitsuddenlygoesuprightafterthey'reissuedyoukindofsuspectthatsomethingisscrewyhere.So,there'sbeenanumberofarticlesthatdocumentedthatstockpricestendtojumpshortlyafteroptionsareissuedtomanagers.Theimmediatesuspicionthatthisraised,andIthinkit'smorethanasuspicion,isthatcompanieswilltimeannouncementofgoodnewsuntilaftertheyissuetheoptions.Themanagersofthecompaniesarekindofagrouphelpingeachother--let'sawardoptionstoeachotherandthenafterweawardthemwe'llannouncethegoodnewsandthestockpricewillgoupandyouguyswillgetmoney.There'sataxincentivetodothat.Iftheyawardedoptionsthatwere"inthemoney"--thatmeansalreadyexercisableatprofit--thentheywouldbesubjecttoataxliabilityimmediately,sotheydon'twanttodothat.Theywanttoissuethem"outofthemoney"andthenannouncethenewsthatbringsthem"inthemoney."It'sbeenproventhatcompaniesdothat.

Morerecently--IwasjustreadingaboutthisintheTimes.TherewasanarticlebyEricLeethatshowedthatit'snotjustannouncementofnewsthatdoesit;it'salsothatcompaniesmustbebackdatingoptionsbecauseLeeshowedthatsomeofthepricejumpsthatoccuraftertheoptionsareissuedcouldn'tpossiblyhavebeenmanipulatedbythecompanies'newsannouncements.Itmusthavebeenthattheysomehowknewontheissuancedatethatthestockpricewasgoingtogoup,buthesaidtheycouldn'tpossiblyknowthatinthesegeneralcircumstances.Leeconcludedthatcompanieswerefraudulentlybackdatingoptions.Heconcludedthisonthebasisofastatisticaltest.YouseewhatI'msaying?

Ifstockpriceoption--ifstockoptionstendtobeissuedasannouncedbythecompanylater,justbeforestockpricesgoup,there'snowaythatthatcanberightbecausenobodycanknowexactlywhenthestockpriceisgoingtogoup.So,theymusthavebeenlyingaboutthedatethattheyissuedtheoptions.

Youunderstandthatissueaboutbackdating?

Itwas--thisarticlebyEricLeewassomethingofascandalanditledthentoregulatoryauthoritiesto--regulatoryauthoritiesthenrealizedthatthere'ssomefraudgoingon--notmostcorporations.IthinkLeeidentifiedasmall,butdefinitelysomeofthem,thatwerelyingaboutthedate.YouknowwhatI'msaying?

TheywouldannounceinDecemberthatweissuedbackinAugusttheseoptionstoourexecutives.Funnything--thestockpricesoaredrightbetweenAugustandDecemberwhentheyannouncedit.Theregulatoryauthoritieswerestartingtolookintothis--that'sfraudtobackdateoptions.WhatdoesAndrewRedleafdo?

HedecidedtodohisownstudyparalleltoEricLee'sandmuchmorepervasive.So,hewasgoingafterhimself,findingoutallthecompaniesthatwerebackdatingoptions,tryingtobeattheSECandtheregulatoryauthoritiestotheconclusion.Whatdidhedo?

Heshortedthestocksorwhatevertobenefit.Oncethey'reinvestigated,theirstockpricesandtheirbondpricesaregoingtofall.Hedidthe--hefoundoutwhotheywere,usingsimilarmethodstoLee'sandprofitedfromit.

Isthatagoodthing?

Well,that'sthewayWallStreetworksoratleasta--somepeoplesaymarketsareefficientandstockpricesincorporateallinformation.Idon'tthinktheyareefficientandthisisanexample--aRedleafexample.Inasense,efficientmarketswouldrequirethateverybody--everyanalystrushesoutandcompletesEricLee'sstudy.Buttheydon't--Idon'tknow,it'sjust--thereisn'tenoughinitiativeintheworld,notmanypeopledoit.Redleafwasabletofigureoutwhowasgoingtogethitforthebackdatingscandalbeforeotherpeopledidandthenthatwasanadvantage.

I'llgiveanotherexampleofRedleaf'ssuccess.GeneralMotors,asyouknow,isanautoproducerintheUnitedStatesandithasn'tbeendoingwell,asyoumayhaveheard--asisthegeneralautoindustryinthiscountry;it'ssufferingundercompetitionfromabroad.So,AndrewRedleafboughtGeneralMotorsbonds,whichweresellingatadiscountbecausepeopleworrythatGeneralMotorswouldn'tbeabletopayonthem,andthenheaskedtospeaktotheGeneralMotorsmanagement.HewentthereandhemadeapleathatGeneralMotorsshouldcutitsdividendthatitpaystostockholders,whichisareasonablethingtodo.Ifthey'refailingtheyshouldcuttheirdividend,butcompaniesarereluctanttodothatbecauseitlooksbad,sotheyholdoffforalongtime,notcutting.Redleafwentinandsaid,youshouldreallydoitandheconvincedthem,apparently,andtheycuttheirdividend.Wellafterthat,thebondpricewentupbecausepeoplesawthatasasignthatthecompanywastighteningitsbeltanddoingthingsrighttohavemoneytopayoffthebondholders;soitwasself-interested,Isuppose--maybeyoucanaskhimaboutthis.Butitwasalsowhatwecallshareholderactivismorinvestoractivism--thathewasgettinginvolvedinchangingthewaycorporationsdobusiness.ThosearejustacoupleofexamplesofRedleafandwhathedoes.Iadmirehim;Ithinkhehas--it'shiscuriosityanddiligencethat--hefindsinvestmentopportunities.He'sanotherexamplethatmarketsarereallynotefficient.They'reefficientenoughthatyouhavetoworkhardtofindopportunities,butnotperfectly.

TodayIwanttotalkaboutbankingandthistiesinsomewhattomypreviouslecture,whichwasonrealestate,becausebanksaremajorrealestatelendersandinvestorsinrealestatesecurities.We'regoingthroughasubprimecrisisrightnow,whichisabankingcrisisaswell.Iwilltalkalittlebitaboutwhatwediscussedlasttime.Anyway,Iwanttostartoutwiththemostfundamentalthing:

whatarebanks?

Whatisabank?

Historically,moneylendersofonesortoranothergoback--whoknowshowfarback--thousandsofyears.So,youmightsay,banksexistedinancienttimes.Thehistoryofbankingoftengoesbackonlyamatterofhundredsofyears.

Oneofthestoriesthatisoftentoldisthegoldsmithbanker'sstorythatgoesbackIdon'tknowhowmanyhundredyears.Goldsmithsarepeoplewhoworkingold;theymakejewelryandgold--goldwareandwhatever--coffeeurns.Theywouldstoregoldandtheywouldhaveasafeorsomesortofsafekeeping.Alotofpeoplewouldaskthem,sincetheyhadasafekeepingforgold,couldyouputmygoldinyoursafe?

Thegoldsmithwouldacceptthataspartofanextensionofthebusinessasagoldsmith,especiallyifthegoldwasintheformofcoinsandpeopledidn'tcarewhetherthe