Finance research topics
The Centre for Finance and Investment is a centre of excellence in financial market research. Here are some of the topics we are currently investigating.
“My research examines the role of the design of managerial incentive and remuneration schemes in mitigating the agency conflict of debt financing (excessive risk-taking, in particular),” explains Senior Lecturer in Finance, Dr Grzegorz Trojanowski. In this context, Dr Trojanowski’s research considers the role of deferred compensation and managerial pension entitlements, which represent companies' financial obligations to their executives and thus could help re-align the incentives of management with those of debt holders.
Directors trading in their own firms’ stock can provide some useful insights into their beliefs about future prospects of the firm. The information in directors’ trading can sometimes reveal behavioural biases that may then also influence their corporate finance decisions. A good example of this is mergers and acquisitions. Empirical research has shown that often these do not create any value for the shareholders. The real motivation for why managers still embark on an acquisitions strategy is not always clear. For instance, overconfidence may be the real reason and this may be seen in active share purchases by the directors in value destroying mergers. This subject is a major focus of Dr Rajesh Tharyan’s research, which he is working on with Professor Alan Gregory and Professor Ian Tonks.
Market based accounting
This area of research, which is being conducted by Dr Christina Dargenidou, includes projects investigating the relation between the cost of equity capital and earnings expectations, when the properties of accounting that determine earnings vary across different European jurisdictions. Dr Dargenidou is also looking at the impact of the switch to IFRS in the European Union, on the comparability of market participants’ earnings expectations for firms in different jurisdictions.
The dynamics of financial asset prices
Professor Richard Harris is interested in the dynamics of financial asset prices. He works in two broad areas. The first focuses on return predictability and the design of trading strategies, particularly those that employ moving average filters and other model-based rules. The second focuses on volatility modelling and forecasting, especially in a multivariate framework. He is also investigating the non-normality of short-horizon financial asset returns, and its implication for modelling asset price dynamics. Applications of this research include portfolio optimisation, risk management and derivatives pricing.
Communication by companies to analysts and investors
Companies can communicate with the investment community through accounting reports, speeches at conferences and meetings with analysts. Thomas Walmsley is comparing the stock market impact of these various media. One of the issues of concern is that all investors should have equal access to disclosed information.
Pensions, annuities and fund management
Governments around the world are responding to the rising ratio of elderly-to-young people (The Pensions Crisis) by shifting their pension policies away from pay-as-you-go systems towards individual savings schemes. Annuity markets convert retirement savings into an income stream for the lifetime of the pensioner, and understanding how annuity markets function is important for public policy. This is one of the key themes of research conducted by Professor Ian Tonks.