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2017 Presidential Address

The Scientific Outlook in Financial Economics, Campbell Harvey

For the working paper version of Campbell Harvey’s Presidential Address, “The Scientific Outlook in Financial Economics,” please see:

The transcript of the speech and presentation slides are available at


It is time that we reassess how we approach our empirical research in financial economics. Given the competition for top journal space, there is an incentive to produce “significant” results. With the combination of: unreported tests, lack of adjustment for multiple tests, direct and indirect p-hacking, many of the research results that we are publishing will fail to hold up in the future. In addition, there are some fundamental issues with the interpretation of statistical significance. Increasing thresholds, such as t > 3, may be necessary but such a rule is not sufficient. If the effect being studied is rare, even a rule like t > 3 will produce a large number of false positives. I take a step back and explore the meaning of a p-value and detail its limitations. I offer a simple alternative approach known as the minimum Bayes factor which delivers a Bayesian p-value. I present a list of guidelines that are designed to provide a foundation for a robust, transparent research culture in financial economics. Finally, I offer some thoughts on the importance of risk taking (both from the perspective of both authors and editors) to advance our field.

2016 Presidential Address

Debt and Money- Financial Contraints and Sovereign Finance, Patrick Bolton

2015 Presidential Address

Does Finance Benefit Society? Luigi Zingales

2014 Presidential Address

Investment Noise and Trends, Robert Stambaugh


During the past few decades, the fraction of the equity market owned directly by individuals declined significantly. The same period witnessed investment trends that include the growth of indexing as well as shifts by active managers toward lower fees and more index‐like investing. I develop an equilibrium model linking these investment trends to the decline in individual ownership, interpreting the latter as a reduction in noise trading. Active management corrects most noise trader–induced mispricing, and the fraction left uncorrected shrinks as noise traders' stake in the market declines. Less mispricing then dictates a smaller footprint for active management.

2013 Presidential Address

Financial Markets and Investment Externalities, Sheridan Titman

2012 Presidential Address

The Corporation in Finance, Raghuram Rajan

The nature of the firm and its financing are closely interlinked. To produce significant net present value, an entrepreneur has to transform her enterprise into one that is differentiated from the ordinary. To achieve the control that will allow her to execute this strategy, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets. So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the firm, including her own, replaceable, so that outside financiers obtain rights over going-concern surplus. I argue that the availability of a vibrant stock market helps the entrepreneur commit to these two transformations in a way that a debt market would not. This helps explain why the nature of firms and the extent of innovation differ so much in different financing environments.

2011 Presidential Address

Discount Rates, John H. Cochrane

Discount rate variation is the central organizing question of current asset pricing research. I survey facts, theories and applications. We thought returns were uncorrelated over time, so variation in price-dividend ratios was due to variation in expected cash flows. Now it seems all price-dividend variation corresponds to discount-rate variation. We thought that the cross-section of expected returns came from the CAPM. Now we have a zoo of new factors. I categorize discount-rate theories based on central ingredients and data sources. Discount-rate variation continues to change finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics.

2010 Presidential Address

Asset Price Dynamics with Slow-Moving Capital, Darrell Duffie

I address the apparent slow movement of investment capital to trading opportunities, and the implications for asset price dynamics.
The arrival of new capital can be delayed by fractions of a second in some markets, for example an electronic limit-order-book market, or months in other markets, such as that for catastrophe risk insurance. The pattern of price responses to supply or demand shocks, however, typically involves a sharp reaction to the shock and a subsequent and more extended reversal. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of institutional impediments to immediate trade, such as search costs for trading counterparties or time to raise capital by intermediaries. I discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions, which subsided afterward. After presenting examples of price reactions to supply shocks in more “normal” market settings, I offer a simple illustrative model of price dynamics associated with slow moving capital that is based on the notion that many investors do not monitor markets and adjust their positions continually.

2009 Presidential Address

Sophisticated Investors and Market Efficiency, Jeremy C. Stein

Stock-market trading is increasingly dominated by sophisticated professionals, as opposed to individual investors. Will this trend ultimately lead to greater market efficiency? I consider two complicating factors. The first is crowding-the fact that, for a wide range of "unanchored" strategies, an arbitrageur cannot know how many of his peers are simultaneously entering the same trade. The second is leverage-when an arbitrageur chooses a privately-optimal leverage ratio, he may create a fire-sale externality that raises the likelihood of a severe crash. In some cases, capital regulation may be helpful in dealing with the latter problem.

2008 Presidential Address

The Cost of Active Investing, Kenneth R. French

I compare the fees, expenses, and trading costs society pays to invest in the U.S. stock market with an estimate of what would be paid if everyone invested passively. Averaging over 1980 to 2006, I find investors spend 0.67% of the aggregate value of the market each year searching for superior returns. This implies that society’s capitalized cost of price discovery is at least 10% of the current market cap. Moreover, under reasonable assumptions, the typical investor would increase his average annual return by 67 basis points over the 1980 to 2006 period if he switched to a passive market portfolio.

2007 Presidential Address

Issuers, Underwriter Syndicates, and Aftermarket Transparency, Richard Green

I model strategic interaction among issuers, underwriters, retail investors, and institutional investors when the secondary market has limited price transparency. Search costs for retail investors lead to price dispersion in the secondary market, while the price for institutional investors is infinitely elastic. Because retail distribution capacity is assumed to be limited for each underwriter‐dealer, Bertrand competition breaks down in the primary market and new issues are underpriced in equilibrium. Syndicates emerge in which underwriters bid symmetrically, with quantities allocated internally to efficiently utilize retail distribution capacity.

2005 Presidential Address

American Finance Association

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