Securities Law

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Volume 92.3
Noisy Factors in Law
Adriana Z. Robertson
Donald N. Pritzker Professor of Business Law, The University of Chicago Law School.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

Pat Akey
Associate Professor of Finance, University of Toronto; Visiting Professor, INSEAD.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

Mikhail Simutin
Professor of Finance, University of Toronto.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

For years, academic experts have championed the widespread adoption of the “Fama-French” factors in legal settings. Factor models are commonly used to perform valuations, performance evaluation and event studies across a wide variety of contexts, many of which rely on data provided by Professor Kenneth French. Yet these data are beset by a problem that the experts themselves did not understand: In a companion article, we document widespread retroactive changes to French’s factor data. These changes are the result of discretionary changes to the construction of the factors and materially affect a broad range of estimates. In this Article, we show how these retroactive changes can have enormous impacts in precisely the settings in which experts have pressed for their use. We provide examples of valuations, performance analysis, and event studies in which the retroactive changes have a large—and even dispositive—effect on an expert’s conclusions.

Online
Essay
How Artificial Intelligence Will Shape Securities Regulation
Gabriel V. Rauterberg
Professor of Law, University of Michigan

My views on these subjects owe much to my collaborators, especially Michael Barr, Megan Shearer, and Michael Wellman, with whom I have been studying the behavior of algorithmic traders in financial markets, and Howell Jackson, with whom I have been presenting on social media and capital markets at PIFS-IOSCO’s trainings for securities regulators. All errors are my own. Thanks to the participants at the University of Chicago’s Symposium on “How AI Will Change the Law” for helpful comments, and to the editors of the University of Chicago Law Review for their helpful insights.

This Essay argues that the increasing prevalence and sophistication of artificial intelligence (AI) will push securities regulation toward a more systems-oriented approach. This approach will replace securities law’s emphasis, in areas like manipulation, on forms of enforcement targeted at specific individuals and accompanied by punitive sanctions with a greater focus on ex ante rules designed to shape an ecology of actors and information.

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Article
75.4
Stock Exchanges and the New Markets for Securities Laws
Chris Brummer
Assistant Professor of Law, Vanderbilt University Law School

This Article has benefited from the comments and suggestions of Professors Bobby Ahdieh, Douglas Baird, Margaret Blair, Bill Bratton, William Christie, Steven Davidoff, Gillian Hadfield, Paul Heald, Larry Helfer, Donald Langevoort, David Millon, Erin O’Hara, Bob Rasmussen, Hans Stoll, Bob Thompson, Joel Trachtman, and Todd Zywicki. The Article also benefited from faculty workshops at the University of Georgia, the University of Pennsylvania, the University of Southern California, and Northwestern University. I would also like to thank Murray Teitelbaum, James Duffy, and the staff of the New York Stock Exchange for their time and valuable insight.

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Article
76.1
How Private Is Private Equity, and at What Cost?
James C. Spindler
Associate Professor of Law and Business, University of Southern California Law School

In preparing this Article, I benefited greatly from conversations with several private-equity partners (both limited and general) as well as the excellent research assistance of Tracey Chenoweth. Thanks also, for insightful comments and advice, to Bobby Bartlett, Kate Litvak, Bob Rasmussen, Larry Ribstein, and Randall Thomas.

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Article
76.1
Firms Gone Dark
Jesse M. Fried
Professor of Law, UC Berkeley; Director, Berkeley Center for Law, Business and the Economy

Thanks to Robert Bartlett, Lucian Bebchuk, Richard Epstein, Larry Ribstein, Amanda Rose, and other participants in the Symposium, The Going-private Phenomenon: Causes and Implications at The University of Chicago Law School. Ching-Tang Chen, Joey Hipolito, Alex Jadin, Amad Judeh, Thomas King, I-Jung Lee, and Tal Niv provided extremely valuable research assistance. I am also thankful to Larry Goldstein of Santa Monica Partners for helpful conversations on the challenges faced by investors in firms that have gone dark. Financial support from the Boalt Hall Fund is gratefully acknowledged.

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Article
76.1
The Regulation of Sovereign Wealth Funds: The Virtues of Going Slow
Richard A. Epstein
James Parker Hall Distinguished Service Professor of Law, The University of Chicago Law School; Peter and Kirsten Bedford Senior Fellow, The Hoover Institution
Amanda M. Rose
Assistant Professor of Law, Vanderbilt University Law School

The authors thank participants at the Symposium, The Going-private Phenomenon: The Causes and Implications at The University of Chicago Law School for their helpful comments on an earlier draft.

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Article
76.1
Going Private but Staying Public: Reexamining the Effect of Sarbanes-Oxley on Firms’ Going-private Decisions
Robert P. Bartlett III
Assistant Professor of Law, University of Georgia School of Law

I thank Dan Brodansky, Brian Broughman, Tom Eaton, Jesse Fried, Kent Greenfield, Paul Heald, Todd Henderson, Christine Hurt, Bob Lawless, Jim Linck, Harold Mulherin, Jeff Netter, Chuck O’Kelley, Peter Oh, Victoria Plaut, Annette Poulsen, Jaxk Reeves, Larry Ribstein, Usha Rodrigues, Jim Rogers, Maggie Sachs, Jason Solomon, Eric Talley, and Jide Wintoki. This Article also benefited from comments received from participants in the Symposium The Going-private Phenomenon: Causes and Implications at The University of Chicago Law School; participants at the 2008 Annual Meeting of the American Law and Economics Association and workshop participants at the University of Georgia Department of Banking and Finance, the UC Berkeley School of Law, the Boston College School of Law, Emory Law School, the University of Illinois College of Law, the University of Pittsburgh School of Law, and the 2008 Law and Entrepreneurship Retreat. Additionally, special thanks go to Marc Auerbach of Standard & Poor’s and Eric Tutterow of Fitch Ratings for providing helpful data and discussion, and to Kevin Erwin (Georgia ’09) for research assistance. All errors are my own.

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84.4
Regulation by Threat: Dodd-Frank and the Nonbank Problem
Daniel Schwarcz
Professor of Law at the University of Minnesota Law School

Portions of this Article draw on the authors’ testimony to Congress and amicus briefs in MetLife, Inc v FSOC. For helpful comments and suggestions, we thank Hilary Allen, Chris Brummer, Peter Conti-Brown, Jeff Gordon, Claire Hill, Bob Hockett, Brett McDonald, Saule Omarova, Richard Painter, Christina Skinner, and Margaret Tahyar, and the audiences at presentations at Cambridge, Oxford, Columbia Business School, the University of Connecticut, the University of Minnesota, Georgetown Law Center, Wharton, and the Indira Gandhi Institute for Development Research. Thanks to Jayme Wiebold for research assistance.

David Zaring
Associate Professor at the Wharton School, University of Pennsylvania

The global financial crisis was much more than a disaster for banks.