Optimal Exercise of Employee Stock Options and Securities Arbitrations
In this paper, Craig McCann and Kaye Thomas extend previous analyses of employee stock options and evaluate advice to hold unexercised options.
Concentrated Investments, Uncompensated Risk and Hedging Strategies
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
Published in the Securities Arbitration 2004 Handbook PLI.
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
Published in the Securities Arbitration 2003 Handbook PLI.
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.
Detecting Personal Trading Abuses
Recent actions by the New York State Attorney General have highlighted abusive personal trading practices by mutual fund portfolio managers. In this paper, Dr. McCann explains how abusive personal trading practices, including those most recently identified, can be detected in a simple, cost effective manner.
Securities Class Action Lawsuits
Investors sometimes sue publicly traded companies, executives, accountants and underwriters alleging that important information concerning the companies was omitted or misrepresented thereby causing the investors to pay too much for the companies' securities. Financial economists assist fact finders in determining whether allegedly omitted or misrepresented information was truly important or 'material.' This is done with the use of event studies or by reference to published scientific literature. Financial economists help the parties reach settlements by estimating alleged damages. Alleged damages depend on the amount by which a company's stock price was allegedly inflated and the number of shares that were bought at fraudulently inflated prices. In these slides, SLCG outlines the major issues in estimating alleged damages in securities class action lawsuits.
The Suitability of Exercise and Hold
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.
Bid-Ask Spread, Sales Credits and Brokers' Compensation
In this working paper, co-authored with Richard Himelrick, Esq., Dr. McCann explains the role of market makers and the provision of sales credits as a basis for brokers' compensation.