Edwards School of Business
University of Saskatchewan
Tel: (306) 966-7938
Institutional Affiliation: University of Saskatchewan
NBER Working Papers and Publications
|April 2010||The Shanxi Banks|
with Randall Morck: w15884
The remote inland province of Shanxi was late Qing dynasty China's paramount banking center. Its remoteness and China's almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders' retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed e...
|December 2001||The Mysterious Growing Value of S&P 500 Membership|
with Randall Morck: w8654
The efficient markets hypothesis implies that passive indexing should generate as high a return as active fund management. Indexing has been a very successful strategy. We document a large value premium in the average q ratios of firms in the S&P 500 index relative to the q ratios of other similar firms that appears in the mid 1980s and grows in step with the growth of indexing. Passive investment strategies that require the purchase of the particular 500 stocks in this index increase demand for those stocks and so push up their prices. In short, indexing induces downward sloping demand curves for stocks in the index. For reasons that are not fully clear, arbitrageurs apparently do not correct this overvaluation.