The magazine for alumni and friends of the UB School of Management
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B B Autumn 2014 Contrary to widespread media reports, the collapse of several financial firms during the 2008 economic crisis was not triggered by unsettled stock trades, according to new research from the School of Management. The study, forthcoming in the Journal of Financial Economics, analyzed the open inter- est of fails-to-deliver—stock trades where shares are not delivered within the three-day trading cycle—in the days before and after the stock crashes of American Insurance Group, Bear Stearns, Lehman Brothers and Merrill Lynch. The researchers, including co-author Veljko Fotak, assistant professor of finance and managerial economics, particularly focused on fails caused by naked short sales, deals initiated for securities the seller does not own and has not arranged to borrow. In each case, they found these trades were not responsible for falling stock prices. "Short sellers have been accused of using fails-to-deliver as a way to cause sharp declines in stock prices and profit from the resulting col- lapse of several major financial institutions," Fotak says. "However, we found that on most days there weren't enough settlement fails to cause significant price changes. And when fails were unusually high, it was only after price declines generated by other negative economic news." The study examined 1,492 New York Stock Exchange and 2,381 Nasdaq common- share trades from January 2005 to June 2008. The research showed that although regulators have been focusing on short sales, the impacts of short sales that fail to deliver and those that deliver on time are similar, and both largely beneficial for the market. Fotak says regulators should instead focus on eliminating the eco- nomic incentives for delivery failures by improving liquidity and transparency in the market. Fotak collaborated on the study with Vikas Raman, assistant professor at Warwick Business School, and Pradeep K. Yadav, profes- sor and W. Ross Johnston Chair in Finance at the University of Oklahoma. x Treadway named to workplace bullying academy Darren Treadway, associate professor of organization and human resources, has been named a founding fellow to the U.S. Academy on Workplace Bullying, Mobbing and Abuse. The academy is a joint initiative between the Workplace Bullying Institute and the New Workplace Institute. It supports and promotes the multidisciplinary work of leading and emerging educators, researchers, practitioners, writers and advocates who are dedicated to understanding, prevent- ing, stopping and responding to workplace bul- lying and related forms of interpersonal mistreatment. "Studies have shown that as many as half of all employees in the U.S. have witnessed bul- lying at work and 25 percent have been the tar- get of bullying," says Treadway. "I look forward to bringing my research on bullying, victimiza- tion and abusive supervision to the academy to help find solutions for these critical issues in the American workplace." x "Studieshaveshownthatasmany ashalfofallemployeesintheU.S. havewitnessedbullyingatwork and25percenthavebeenthe targetofbullying." Short sellers not to blame for 2008 financial crisis, study finds Treadway I n s i g h t s