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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Regulation D Offerings: Issuers, Investors, and Intermediaries

The Reg D offering market is similar to the public offering market in capital raised and has been growing rapidly over recent years. The proceeds from Reg D offerings sold between 2021 and 2023 total $6.2 trillion, 23% more than the capital raised in registered offerings over the same period and a 86% increase over the proceeds from Reg D offerings sold during 2011-2013. Reg D securities have recently been sold to more investors per offering with a less amount sold per investor, suggesting an increasing retail preference for unregistered securities. Intermediaries play an important role in reaching retail investors. Offerings sold by broker-dealers with more retail clients and offerings sponsored by investment advisers with more wealthy individual clients are purchased by more investors per offering and raise less capital per investor. Investors of unregistered offerings must be wary of intermediariy misconduct and conflicts of interest. Broker-dealers that receive more commissions and specialize in selling unregistered offerings tend to receive more customer complaints stemming from unregistered securities. Investment advisers with non-fund clients are more likely to disclose conflicts of interest in regulatory filings when they sponsor Reg D offerings, indicating that they allocate client funds in self-sponsored unregistered securities.

Diversifying a Concentrated Stock Position in 2023

Twenty years ago, we evaluated brokerage firms' recommendation that investors should diversify a concentrated stock position by buying additional stocks on margin[McCann and Luo, 2003]
Twenty years later, some brokers and advisors continue to recklessly recommend that their clients borrow against concentrated stock positions and purchase additional stocks to diversify. In this note, we use recent stock market returns to update our previous work which used data from the 1990s. We also extend the analysis to cover a larger universe of stocks and employ more sophisticated simulations. Our updates and enhancements show that this "hold, borrow, and buy some more" strategy remains inconsistent with basic principles of prudent investment management; leveraged diversification perversely increases risk and or lowers expected returns.

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