We explore the use of deep learning hierarchical models for problems in financial prediction and classification. Financial prediction problems – such as those presented in designing and pricing securities, constructing portfolios, and risk management – often involve large data sets with...

We develop a simple stock selection model to explain why active equity managers tend to underperform a benchmark index. We motivate our model with the empirical observation that the best performing stocks in a broad market index often perform much better than the other stocks in the index....

The single-firm event studies that securities litigants use to detect the impact of a corrective disclosure on a firm's stock price have low statistical power. As a result, observed price impacts are biased against defendants and systematically overestimate the effect on firm value. We use the...

There is much evidence that passive equity strategies dominate active equity management, but many investors remain committed to active investing despite its poor relative performance. We explore the behavioral-economic hypothesis that investors fall prey to the conjunction fallacy, believing...

That solvency testing is difficult is nothing new. Commentators in a 1929 Columbia Law Review article lamented that “courts have not yet developed any clear-cut principles or rules” for solvency testing.Seventy-five years later, Delaware's Court of Chancery complained that “it is not...

Insolvency often precedes default for nonpayment of debt. A firm is instantaneously insolvent whenever the market value of its assets is below the face value of its debt. Default occurs when the firm is instantaneously insolvent when the firm's debt matures. The natural log of the ratio of the...

For an investor, litigation funding is too tempting to resist. Litigation funding promises that most elusive of investment returns: ones uncorrelated with an investor's other investment returns, like those from stocks and bonds and commodities. Litigation funding also invests in a world that...

Big Data hype has not missed investment management, the reality is that price data from U.S. financial markets are not really Big Data. Price data is Small Data. The fact that sellers and advisors in financial markets use Small Data to generate and test investment strategies creates two major...

Securities litigation is a hotbed of junk science concerning market efficiency. This Article explains why and suggests a way out. In its 1988 decision in Basic v. Levinson, the Supreme Court endorsed the fraud on the market presumption for securities traded in an efficient market. Faced with the...

A long-held view in the academy is that shareholders are "residual claimants" in the sense that shareholders are paid in full only after the corporation pays its creditors. The reality on the ground is far different. Corporations give assets away to their shareholders long before they have...