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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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UBS's Yield Enhancement Strategy ("YES") Returns - and then the Losses - Were Caused by Equity Market Exposure

By: Craig McCann, Regina Meng, Edward O'Neal

UBS marketed YES as market-neutral based on a combination of four options is sometimes referred to as an "Iron Condor". UBS accounts subjected to YES treatment suffered losses of 12% to 14% in December 2018 when the S&P 500 dropped 9.2% because the overlay was more than 100% In this paper the authors we explain the option basics necessary to understand the YES strategy and illustrate how UBS actually implemented the strategy with predictably disastrous results. They also present how UBS...

Puerto Rico Securities Arbitration Settlements and Awards Likely to Exceed $1.25 Billion (Updated May 15, 2019)

By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan

SLCG releases its updated Puerto Rico Securities Arbitration Report showing over $600 million paid out so far in settlements and awards with a similar amount likely to be paid out in coming years as a result of brokerage firm customers losses in Puerto Rico.

Reporte de Arbitrajes de Valores en Puerto Rico: entre Acuerdos Transaccionales y Laudos Arbitrales seguramente se excederá de $1.25 billon (15 de may de 2019)

By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan

SLCG publica su Informe de Arbitraje de Valores de Puerto Rico actualizado que muestra más de $600 millones pagados hasta el momento en acuerdos y adjudicaciones con una cantidad similar que probablemente se pagará en los próximos años como resultado de las pérdidas de clientes de la firma de corretaje en Puerto Rico.

Puerto Rico Securities Arbitration Settlements and Awards Sure to Exceed $1 Billion (Updated November 15, 2018)

By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan

In 2013, a shrinking economy and the government's loss of continued access to capital markets necessary to make interest payments, refinance principal coming due and to fund an unsustainable government deficit caused Puerto Rico tax exempt bond prices to fall substantially.

Puerto Rico brokerage firms' customers held poorly diversified securities accounts, concentrated in Puerto Rico municipal bonds or closed end funds that held leveraged portfolios of Puerto Rico municipal bonds. Often these...

Large Sample Valuations of Tenancies-in-Common

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

In this paper, we value a large sample of tenant-in-common (TIC) investments based on cash flow projections found in 194 private placement memoranda. Our sample of TIC offering documents covers approximately 20% of the TIC industry from 2004 to 2009. Based on the sponsor's projections, we find that the TICs on average were worth 83.6 cents per $1 paid by TIC equity investors. However, we have found that sponsors' cash flow projections overstate likely returns to investors by assuming...

Private Placement Real Estate Valuation

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

As a result of the Securities and Exchange Commission's relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets.

We have reviewed over 200 syndicated commercial real estate private placement memorandums and...

Auction Rate Securities

By: Craig McCann and Edward O'Neal

Auction Rate Securities (ARS) were marketed by broker-dealers to investors, including individuals, corporations and charitable foundations as liquid, short-term, cash-equivalent investments similar to traditional commercial paper. ARS's liquidity and similarity to short-term investments were entirely dependent on the presence of sufficient orders to buy outstanding ARS at periodic auctions in which they were bought and sold subject to a contractual ceiling on the interest rate the issuer...

What TiVo and JP Morgan teach us about Reverse Convertibles

By: Geng Deng, Craig McCann, and Edward O'Neal

Reverse convertibles are short term, unsecured notes issued by brokerage firms including JP Morgan, Barclays, Citigroup, Morgan Stanley, Wachovia, Lehman Brothers, and RBC that pay less than the notes' face value at maturity if the price of the reference stock or the level of the reference stock index declines substantially during the term of the note. The SLCG study finds that brokerage firms overcharge for reverse convertibles so significantly that the expected return on these complex...

What Does a Mutual Fund's Term Tell Investors?

By: Geng Deng, Craig McCann, and Edward O'Neal

In a previous article, we highlighted a flaw in the average credit quality statistic frequently reported by bond mutual funds. That statistic understates the credit risk in bond portfolios if the portfolios contain bonds of disperse credit ratings. In this article we address a similar problem with bond mutual funds' reporting of the average term of their portfolios. The somewhat ambiguous nature of this statistic provides an opportunity for portfolio managers to significantly increase the...

What Does a Mutual Fund's Average Credit Quality Tell Investors?

By: Geng Deng, Craig McCann, and Edward O'Neal

The SLCG study explains that the Average Credit Quality statistic as typically calculated by the mutual fund companies and by Morningstar significantly overstates bond mutual funds' true credit quality. This statistic is based on Standard & Poor's and Moody's assessment of the credit risk of the individual bonds in the portfolio and is reported to mutual fund investors using the familiar letter scale for rating the credit risk of bonds.

The study concludes that, for instance, funds that...

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