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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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Are Structured Products Suitable for Retail Investors?

By: Craig McCann and Dengpan Luo

Equity-linked notes - a type of structured product - are securities issued by brokerage firms and traded in the secondary markets like shares of common stock. These investments offer part of the upside from owning stocks but limit nominal losses if held until maturity. Once sold only to sophisticated investors, structured products are increasingly being sold to unsophisticated retail investors. Equity-linked notes are difficult to evaluate and monitor, have high hidden costs and are...

An Overview of Equity-Indexed Annuities

By: Craig McCann and Dengpan Luo

Equity-indexed annuities are complex investments sold by insurance companies that pay investors part of the capital appreciation in a stock index and guarantee a minimum return if the contract is held to maturity. Equity-indexed annuities to date have been regulated by state insurance commissions, rather than by the SEC and the NASD. We estimate that between 15% and 20% of the premium paid by investors in equity-indexed annuities is a transfer of wealth from unsophisticated investors to...

Concentrated Investments, Uncompensated Risk and Hedging Strategies

By: Craig McCann and Dengpan Luo

In this paper, Dr. McCann and Dr. Luo explore the risk of holding concentrated investments and explain and evaluate risk management strategies.

The Use of Leveraged Investments to Diversify a Concentrated Position

By: Craig McCann and Dengpan Luo

Brokerage firms recently recommended that investors holding a concentrated position in a single stock borrow and invest in a portfolio of additional stocks to reduce risk. Dr. McCann and Dr. Luo demonstrate that this strategy to reduce risk predictably did exactly the opposite.

Churning - Revisited: Trading Cost and Control

By: Craig McCann and Dengpan Luo

In a previous paper, Dr. McCann outlined the portfolio approach to assessing the excessiveness of trading in churning cases. In this paper, Dr. McCann and Dr. Luo demonstrate that cost-to-equity ratios of more than 4 or 5% or commission to equity ratios of 2 or 3% in accounts with turnover ratios of 2 indicate excessive trading in common stock portfolios.

The Suitability of Exercise and Hold

By: Craig McCann and Dengpan Luo

Hundreds of lawsuits are currently working their way through the courts and arbitration panels over a strategy referred to as exercise and hold. The advice to exercise employee stock options and hold the acquired stock is essentially advice to acquire and maintain a concentrated position. As such, the advice to exercise and hold can be evaluated within the familiar suitability framework.

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