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

2019-10-02 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

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

2019-06-10 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

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)

2019-06-10 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

Rating Brokerage Firms by Their Complaint Histories Rather Than by Their Brokers' Histories

2017-08-09 By Craig McCann, Chuan Qin and Mike Yan

In our previous research, we ranked brokerage firms based on the proportion of their brokers on December 31, 2015 who had been associated with at least one resolved customer complaint. That approach assigns a higher ranking to a firm if a larger proportion of its

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

2017-02-22 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

Reporte de Arbitrajes de Valores en Puerto Rico: 2,983 Reclamaciones, $470 millones en Acuerdos Transaccionales y Laudos Arbitrales Hasta la fecha (07 de septiembre de 2018)

2017-02-22 By Craig McCann, Chuan Qin y Mike Yan


Structured Products and the Mischief of Self-Indexing

Published in The Journal of Index Investing, Spring 2017, Vol. 7, No. 4, pp. 16-29.

2016-10-19 By Geng Deng, Craig McCann and Mike Yan

In recent years, investment banks have issued structured products linked to indexes they create rather than just linking to standardized indexes from Standard & Poor's. In doing so, the issuers create additional difficulties for retail investors to understand

How Widespread and Predictable is Stock Broker Misconduct?

Published in The Journal of Index Investing, Summer 2017, Vol. 26, Issue 2, pp. 6-25.

2016-04-21 By Craig McCann, Chuan Qin, and Mike Yan

In this paper we reconcile widely diverging recent estimates of broker misconduct. Qureshi and Sokobin report that 1.3% of current and past brokers are associated with awards or settlements in excess of a threshold amount. Egan, Matvos, and Seru find that 7.8% of

Craig McCann's NASAA 2015 Presentation, Investments Through Time

2015-09-28 By Craig McCann

Investments Through Time: The Evolution of Investment Products and How They are

Securities-Based Lending

2015-06-24 By Paul F. Meyer

A perfect storm of soaring equity values and historically low interest rates has sparked a borrowing binge among securities investors. Securities-based loans ("SBLs") are a very attractive product for the broker-dealers who market them. However, SBLs impose

Fiduciary Duties and Non-traded REITs

Published in the Investments & Wealth Monitor, July/August 2015.

2015-06-10 By Craig McCann

A summary of SLCG's analysis of investor returns in 81 non-traded REITs. Investors are at least $45.5 billion worse off as a result of investing in the 81 non-traded REITs compared to investing in a diversified portfolio of traded REITs. Investors in non-traded

An Empirical Analysis of Non-Traded REITs

Published in the Journal of Wealth Management, 19(1):83-94, Summer 2016.

2015-06-01 By Brian Henderson, Joshua Mallett, and Craig McCann

We find that returns to 81 non-traded REITs which had listed, been acquired by or merged with a listed REIT or had updated per share values average 6.3% annually compared to 11.6% returns earned over the same period in traded REITs. A significant portion of

Ex-post Structured Product Returns: Index Methodology and Analysis

Published in The Journal of Investing, Summer 2015, Vol. 24, No. 2: pp. 45-58.

2014-04-02 By Geng Deng, Tim Dulaney, Tim Husson, Craig McCann, and Mike Yan

The academic and practitioner literature now includes numerous studies of the substantial issue date mispricing of structured products but there is no large scale study of the ex-post returns earned by structured product investors. This paper augments the current

Efficient Valuation of Equity-Indexed Annuities Under Lévy Processes Using Fourier-Cosine Series

Published in The Journal of Computational Finance, Vol 21, No. 2, September 2017

2014-04-01 By Geng Deng, Tim Dulaney, Craig McCann, and Mike Yan

Equity-Indexed Annuities (EIAs) are deferred annuities which accumulate value over time according to crediting formulas and realized equity index returns. We propose an efficient algorithm to value two popular crediting formulas found in EIAs - Annual

The Fall of Willow

Published in the PIABA Bar Journal, 21 (1): 71-90, 2014.

2014-03-04 By Geng Deng and Craig McCann

From May 8, 2000 until June 30, 2007, the UBS Willow Fund was invested in distressed obligations with offsetting but smaller cash and synthetic short debt positions through credit default swaps (CDS). After June 2007 the Fund dramatically increased its purchases
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Valuation of Structured Products

Published in The Journal of Alternative Investments, Spring 2014, Vol. 16, No. 4: pp. 71-87.

2014-02-03 By Geng Deng, Tim Husson, and Craig McCann

The market for structured products has grown dramatically in the past decade. Their diversity and complexity has led to the development of many diff erent valuation approaches, and which approach to use to value a given product is not always clear. In this

Valuation of Reverse Convertibles in the VG Economy

Published in the Journal of Derivatives & Hedge Funds 19, 244-258 (November 2013).

2014-01-07 By Geng Deng, Tim Dulaney, and Craig McCann

Prior research on structured products has demonstrated that equity-linked notes sold to retail investors in initial public off erings are typically issued at above their fair market value. A particular type of equity-linked note { reverse convertibles { embed

Crooked Volatility Smiles: Evidence from Leveraged and Inverse ETF Options

Published in the Journal of Derivatives & Hedge Funds 19, 278-294 (November 2013).

2014-01-07 By Geng Deng, Tim Dulaney, Craig McCann, and Mike Yan

We find that leverage in exchange traded funds (ETFs) can a ffect the "crookedness" of volatility smiles. This observation is consistent with the intuition that return shocks are inversely correlated with volatility shocks - resulting in more expensive

Modeling a Risk-Based Criterion for a Portfolio with Options

Published in the Journal of Risk, Vol. 16, No. 6.

2013-12-13 By Geng Deng, Tim Dulaney, and Craig McCann

The presence of options in a portfolio fundamentally alters the portfolio's risk and return pro files when compared to an all equity portfolio. In this paper, we advocate modeling a risk-based criterion for optioned portfolio selection and rebalancing problems.

Robust Portfolio Optimization with VaR Adjusted Sharpe Ratio

Published in the Journal of Asset Management, 14(5):293-305, 2013.

2013-11-05 By Geng Deng, Tim Dulaney, Craig McCann, and Olivia Wang

We propose a robust portfolio optimization approach based on Value-at-Risk (VaR) adjusted Sharpe ratios. Traditional Sharpe ratio estimates using a limited series of historical returns are subject to estimation errors. Portfolio optimization based on traditional

Large Sample Valuations of Tenancies-in-Common

Published in the Journal of Real Estate Portfolio Management, Vol. 20, No 2, 2014.

2013-10-28 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

The Priority Senior Secured Income Fund

Published in the PIABA Bar Journal, 20 (2): 191-206, 2013.

2013-09-23 By Tim Dulaney, Tim Husson, and Craig McCann

Retail investors are being sold increasingly obscure non-conventional investments. With the Priority Senior Secured Income Fund (PSSI), issuers may have finally gone too far. PSSI is the first registered investment company that invests primarily in leveraged

Structured Product Based Variable Annuities

Published in the Journal of Retirement, Winter 2014, Vol. 1, No. 3: pp. 97-111.

2013-09-11 By Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Recently, a new type of variable annuity has been marketed to investors which is based on structured product-like investments instead of the mutual fund-like investments found in traditional variable annuities. Embedding a structured product into a variable
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Private Placement Real Estate Valuation

Published in the Journal of Business Valuation and Economic Loss Analysis Volume 9, Issue 1, January 2014.

2013-09-03 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

Structured Certificates of Deposit: Introduction and Valuation

Published in the Financial Services Review, Volume 23, Number 3, 2014.

2013-07-30 By Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

This paper examines the properties and valuation of market-linked certificates of deposit (structured CDs). Structured CDs are similar to structured products -- debt securities with payoffs linked to market indexes -- but while structured products have garnered

Using EMMA to Assess Municipal Bond Markups

Published in the PIABA Bar Journal, 20 (1): 99-122, 2013.

2013-06-07 By Geng Deng and Craig McCann

In the past, assessment of the reasonableness of municipal bond markups depended on anecdotal recollection of markups and subjective judgment about what was customary. Interested parties including regulators can now use the MSRB's EMMA service to determine the

The Rise and Fall of Apple-linked Structured Products

2013-01-25 By Geng Deng, Tim Dulaney, Craig McCann, and Mike Yan

The rise in Apple's market capitalization in 2012 coincided with a dramatic increase in single-observation reverse convertibles, reverse convertibles and autocallable notes linked to Apple's stock price. These notes all transfer the downside risk of owning Apple

What is a TIC Worth?

Published in the PIABA Bar Journal, 19 (3): 373-392, 2012.

2013-01-04 By Tim Husson, Craig McCann, and Carmen Taveras

Tenants-in-common interests are passive real estate investments which are sold based on two claimed benefits: stable "cash on cash" returns and deferral of capital gains tax through 1031 exchanges. The "cash on cash" returns are found in financial projections in
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Dual Directional Structured Products

Published in the Journal of Derivatives & Hedge Funds, (5 June 2014)

2013-01-03 By Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

We analyze and value dual directional structured products - or simply dual directionals (DDs) - which have been issued in large amounts since the beginning of 2012. DD's evolved out of another type of structured product called absolute return barrier notes

Are VIX Futures ETPs Effective Hedges?

Published in The Journal of Index Investing, Winter 2012, Vol. 3, No. 3, pp. 35-48.

2012-06-27 By Geng Deng, Craig McCann, and Olivia Wang

Exchange-traded products (ETPs) linked to futures contracts on the CBOE S&P 500 Volatility Index (VIX) have grown in volume and assets under management in recent years, in part because of their perceived potential to hedge against stock market losses. In this

Sharpe Ratio Practice Note

2012-06-26 By SLCG

We provide a detailed discussion of the relationship between the underlying return distribution and the Sharpe ratio from a series of historical returns drawn from that return distribution. We provide two examples of portfolio allocations that highlight the

Isolating the Effect of Day-Count Conventions

2012-05-01 By Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Day-count conventions are a ubiquitous but often overlooked aspect of interest-bearing investments. While many market traded securities have adopted fixed or standard conventions, over-the-counter agreements such as interest rate swaps can and do use a wide

Optimizing Portfolio Liquidation Under Risk-Based Margin Requirements

Published in the Journal of Finance and Investment Analysis, 2(1): 121-153, 2013.

2012-04-06 By Geng Deng, Tim Dulaney, and Craig McCann

This paper addresses a situation wherein a retail investor must liquidate positions in her portfolio -- consisting of assets and European options on those assets -- to meet a margin call and wishes to do so with the least disruption to her portfolio. We address

A Primer on Non-Traded REITs and other Alternative Real Estate Investments

Published in the Alternative Investment Analyst Review, 2014.

2012-03-07 By Tim Husson, Craig McCann, and Carmen Taveras

In this paper we provide a brief overview of the ways to achieve real estate exposure and focus our analysis on alternative real estate investments. The term alternative real estate investment, as used in this paper, refers to real estate securities such as

CLOs, Warehousing, and Banc of America's Undisclosed Losses

2012-01-31 By Tim Husson, Craig McCann, and Olivia Wang

Collateralized Loan Obligations (CLOs) are issued by trusts which in turn invest the proceeds from issuing the CLO securities in portfolios of bank loans. This note explains the conflicts of interest created when an investment bank accumulates loans for potential

Valuing Partial Interests in Trusts

2011-12-15 By Geng Deng, Tim Husson, and Craig McCann

The financial interests of a trust's beneficiaries are often diametrically opposed and conflict among trust beneficiaries is common. Although applicable law requires that trustees adhere to lofty standards of 'good faith' and 'fair dealing' they must make

Rethinking the Comparable Companies Valuation Method

2011-11-01 By Paul Godek, Craig McCann, Dan Simundza, and Carmen Taveras

This paper studies a commonly used method of valuing companies, the comparable companies method, also known as the method of multiples. We use an intuitive graphical presentation to show why the comparable companies method is arbitrary and imprecise. We then show

The Properties of Short Term Investing in Leveraged ETFs

Published in the Journal of Financial Transformation, Fall 2012, Journal 35.

2011-07-26 By Geng Deng and Craig McCann

The daily returns on leveraged and inverse-leveraged exchange-traded funds (LETFs) are a multiple of the daily returns of a reference index. Because LETFs rebalance their leverage daily, their holding period returns can deviate substantially from the returns of a

The VXX ETN and Volatility Exposure

Published in the PIABA Bar Journal, Vol. 18, No. 24, pp. 235-252.

2011-06-16 By Tim Husson and Craig McCann

Exposure to the CBOE Volatility Index (VIX) has been available since 2004 in the form of futures and since 2006 in the form of options, but recently new exchange-traded products have offered retail investors an easier way to gain exposure to this popular measure

Modeling Autocallable Structured Products

Published in the Journal of Derivatives & Hedge Funds 17, 326-340 (November 2011).

2011-03-15 By Geng Deng, Joshua Mallett, and Craig McCann

Since first introduced in 2003, the number of autocallable structured products in the U.S. has increased exponentially. The autocall feature immediately converts the product if the reference asset's value rises above a pre-specified call price. Because an

Futures-Based Commodities ETFs

Published in The Journal of Index Investing, Summer 2011, Vol. 2, No. 1: pp. 14-24.

2011-01-28 By Ilan Guedj, PhD, Guohua Li, PhD, and Craig McCann, PhD

Commodities Exchange Traded Funds (ETFs) have become popular investments since first introduced in 2004. These funds offer investors a simple way to gain exposure to commodities, which are thought of as an asset class suitable for diversification in investment

Leveraged Municipal Bond Arbitrage: What Went Wrong?

Published in The Journal of Alternative Investments, Spring 2012, Vol. 14, No. 4: pp. 69-78.

2010-10-25 By Geng Deng and Craig McCann

In this article, we explain that, while marketed as an arbitrage strategy, the leveraged municipal bond strategy was simply an opaque high-cost, highly leveraged bet on the value of call options, interest rates and liquidity and credit risk. Brokerage firms

Auction Rate Securities

2010-10-22 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

Leveraged ETFs, Holding Periods and Investment Shortfalls

Published in the Journal of Index Investing, Winter 2010, Vol. 1, No. 3: pp. 45-57.

2010-08-09 By Ilan Guedj, Guohua Li, and Craig McCann

Leveraged and Inverse Leveraged ETFs replicate the leveraged or the inverse of the daily returns of an index. Several papers have established that investors who hold these investments for periods longer than a day expose themselves to substantial risk as the

The Anatomy of Principal Protected Absolute Return Notes

Published in the Journal of Derivatives, Vol. 19, No. 2, pp. 61-70, 2011

2010-07-30 By Geng Deng, Ilan Guedj, Joshua Mallett, and Craig McCann

Principal Protected Absolute Return Barrier Notes (ARBNs) are structured products that guarantee to return the face value of the note at maturity and pay interest if the underlying security's price does not vary excessively. The SLCG study derives four

What TiVo and JP Morgan teach us about Reverse Convertibles

2010-06-22 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

Oppenheimer Champion Income Fund

2010-05-14 By Geng Deng and Craig McCann

During the second half of 2008, Oppenheimer's Champion Income Fund lost 80% of its value - more than any other mutual fund in Morningstar's high-yield bond fund category. These extraordinary losses were due to the Fund's investments in credit default swaps (CDS)

Malliavin Calculus in Calculating Delta for Structured Products

2010-05-12 By SLCG

Malliavin Calculus, also known as Stochastic Calculus of Variations, is useful for calculating sensitivities of financial derivatives to a change in its underlying parameters, such as Delta, Vega, and Gamma. In this article, we discuss how to use Malliavin

What Does a Mutual Fund's Term Tell Investors?

Published in the Journal of Investing, Summer 2011, Vol. 20, No 2: pp. 50-57.

2010-04-14 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

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

Published in the Journal of Investing, Winter 2010, Vol. 19, No. 4: pp. 58-65.

2009-11-30 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

Structured Products in the Aftermath of Lehman Brothers

2009-11-04 By Geng Deng, Guohua Li, and Craig McCann

SLCG's prior research showed that structured products were poor investments because they were significantly overpriced when offered and were, at best, thinly traded thereafter. SLCG concluded that overpriced structured products survived in the marketplace because

Charles Schwab YieldPlus Risk

2009-07-20 By Geng Deng, Edward O'Neal, and Craig McCann

From June 2007 through June 2008, investors in YieldPlus (SWYSX and SWYPX) lost 31.7% when other ultra short bond funds had little or no losses. Schwab had marketed YieldPlus as a low risk, higher yielding alternative to money market funds. The report concludes

Regions Morgan Keegan: The Abuse of Structured Finance

2009-01-20 By Craig McCann

Investors in six Regions Morgan Keegan (RMK) bond funds lost $2 billion in 2007. The RMK funds held concentrated holdings of low-priority tranches in structured finance deals backed by risky debt. We provide five examples of the asset-backed securities RMK

An Economic Analysis of Equity-Indexed Annuities

2008-09-11 By Craig McCann

At the request of the North American Securities Administrators Association, Dr. McCann authored a White Paper on equity-indexed annuities in support of the SEC's proposal to provide federal investor protections to purchasers of equity-indexed annuities. Dr. McCann

Bid-Rigging Schemes in Securities Markets

2008-02-28 By SLCG

Bid-rigging is an illegal agreement among conspirators in an auction to predetermine the winning bidder. News that the DOJ and the SEC are investigating bid-rigging schemes in the municipal securities market should not come as a surprise. Bid-rigging

A CMO Primer: The Law of Conservation of Structured Securities Risk

2007-06-30 By Craig McCann

The collapse of Brookstreet Securities and bailout of two Bear Stearns hedge funds have focused attention on collateralized mortgage obligations (CMOs). These recent CMO losses closely parallel CMO losses in 1994 when a significant increase in interest rates

Closed-end Fund IPOs

2007-06-29 By Edward O'Neal

Dr. O'Neal describes a pattern of consistent losses relative to NAV observed after the IPO of closed end funds. Closed-end funds IPO at a 5% premium to their NAVs and within 6 months trade at a 5% discount to their NAVs. It appears that investing in a closed-end

Corporate and Municipal Bonds

2007-06-28 By Michael Piwowar

Corporate and municipal bonds are substantially more expensive for retail investors to trade than similar-sized trades in common stocks. Trading costs including explicit commissions, mark-ups and mark-downs are significantly higher for retail-sized (small) bond

Mandatory Arbitration of Securities Disputes

2007-06-13 By Edward O'Neal and Dan Solin

Dr. O'Neal and attorney/author Dan Solin today released a statistical analysis of the results of the mandatory arbitration process during the 1995 - 2004 period. They assessed almost 14,000 NASD and NYSE arbitration cases and found that Claimant win rates and

Fee-Based Brokerage Accounts

2007-03-26 By SLCG

Fee-based accounts do not eliminate all the conflicts of interest inherent in commission-based accounts. While fee-based accounts reduce an unscrupulous broker's incentive to excessively trade ("churn") an account to generate commission income, serious conflicts

Are Structured Products Suitable for Retail Investors?

2006-12-02 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

An Overview of Equity-Indexed Annuities

2006-06-01 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

Annuities

2005-12-10 By Craig McCann and Kaye A. Thomas

Regulatory scrutiny of variable annuity sales practices and private litigation have focused on the investment risk of subaccounts, on annuity 'switching' and on the purchase of annuities within IRAs. In this paper, we demonstrate that in most situations, investors

Equity-Indexed Annuities: Toxic Investments

2005-11-15 By SLCG

Equity-indexed annuities ("EIAs") are contracts with 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. The net result of EIAs' complex formulas and hidden

Asset Allocation

2005-10-31 By SLCG

Studies have shown over 90% of the variation in historical returns to managed portfolios can be explained by variations in their asset allocation. Asset allocation recommendations, especially to investors living of their wealth should include analysis of risk over

Monte Carlo Simulations

2005-10-15 By SLCG

Monte Carlo simulation is a powerful tool for estimating the risk of investments. The simulations can be set up in Excel spreadsheets and the assumptions varied to determine the impact of alternative decisions on the client\'s objectives.

The Fallacy of Time Diversification

2005-09-30 By SLCG

Time diversification is the belief that risk declines over longer investment horizons because there is more time for future good years to offset bad years. Time diversification is a fallacy. But since remaining future earnings decline relative to our investments,

Not Your Father's Utility Stock: When It's Not Just A Name Change

2005-07-15 By SLCG

In the late 1990s, many publicly traded firms used their stock to buy up other firms. Exchanging a conservative stock for a speculative stock can dramatically increase the risk in an account. Financial advisors must recognize this material

Beta

2005-06-30 By SLCG

Beta is a statistic developed from the Capital Asset Pricing Model ("CAPM"). Beta is typically misused whenever it is offered as a measure of risk, significantly understating the risk relevant to most retail investors. Investors as a general rule should therefore

Standard Deviation, Sigma or s

2005-06-15 By SLCG

Standard deviation is the correct measure of risk for investors' entire portfolios. Presentations of standard deviation can be tailored to inform investors of varying levels of sophistication. It is simple to calculate and interpret and is ubiquitous in the

Optimal Exercise of Employee Stock Options and Securities Arbitrations

2005-06-01 By Craig McCann and Kaye A. Thomas

In this paper, Craig McCann and Kaye Thomas extend previous analyses of employee stock options and evaluate advice to hold unexercised

The "Issuer Fraud" Defense in Securities Arbitration

2005-05-31 By SLCG

Respondents sometimes attempt to shift blame for losses in retail accounts to issuer fraud at companies like WorldCom and Enron. Finding an investor's portfolio imprudently concentrated, arbitrators must not care whether the risk materialized was of an accounting

Covered Call Options & Hedging

2005-05-15 By SLCG

Brokers sometimes recommend that investors holding concentrated stock positions sell call options against their stock to hedge risk. Often sold as a conservative strategy, covered call writing delivers exactly the

Covered Call Options & Income

2005-04-30 By SLCG

Brokerage firms sometimes recommend that clients sell call options to generate income from concentrated positions. Investors, who hold concentrated positions, in part in reliance on the industry's misleading descriptions of covered call writing, may continue to be

GMDB's Are Not Much of a Benefit

2005-04-15 By SLCG

Annuity abuses arise if investors are misled into believing that the guaranteed minimum death feature of an annuity is worth anything more than a de minimis

Tax Deferred Annuities Can Make Investors Poorer

2005-03-31 By SLCG

Tax deferred annuities often leave investors with less after-tax wealth than they would have had in a taxable

Out-of-Pockets in Stock Option Arbitrations

2005-03-15 By SLCG

Out-of-pocket losses are miscalculated in employee stock option arbitrations when stock received is valued at the options' strike

Concentrated Investments, Uncompensated Risk and Hedging Strategies

2004-12-01 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

The Use of Leveraged Investments to Diversify a Concentrated Position

Published in the Securities Arbitration 2004 Handbook PLI.

2004-06-01 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

Mutual Fund Share Classes and Conflicts of Interest between Brokers and Investors

2003-12-24 By Edward O'Neal

Dr. O'Neal describes the various mutual fund share classes and explains how differences in commissions to brokers and costs to investors across share classes can create conflicts of

Churning - Revisited: Trading Cost and Control

Published in the Securities Arbitration 2003 Handbook PLI.

2003-09-01 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%

Detecting Personal Trading Abuses

2003-06-01 By Craig McCann

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

Securities Class Action Lawsuits

2002-12-01 By Craig McCann, Ph.D., CFA

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.

The Suitability of Exercise and Hold

2002-06-01 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

Churning

2001-12-01 By Craig McCann

In this paper, Dr. McCann improves upon traditional indicators of churning and demonstrates that, properly calculated, the trading costs estimate of damages closely parallels the well-managed theory, or benchmark portfolio, estimate of

Bid-Ask Spread, Sales Credits and Brokers' Compensation

2001-06-01 By Craig McCann and Richard G. Himelrick

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'

McCann On Trading Models

2000-06-01 By Craig McCann

Stock trading models are used by economists to estimate damages in securities class action lawsuits. In this note, we explain the three types of models used by plaintiffs' and defendants'