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Wealth Management Initiative, Academic Director Chris Geczy, PhD

Biography

Wharton School of Business
Adjunct Professor of Finance

Chris Geczy has been on the Finance Faculty at Wharton since 1997 and is Academic Director of the Jacobs Levy Equity Management Center for Quantitative Financial Research. He is also Academic Director of the Wharton Wealth Management Initiative at Wharton Executive Education. He has a B.A. in economics from the University of Pennsylvania and a Ph.D. in finance and econometrics from the Graduate School of Business at the University of Chicago.

Dr. Geczy regularly teaches investment management and cocreated the first full course on hedge funds at The Wharton School, the course Impact Investing, and a number of executive education courses. He has taught AIMR/CFA Instituteaccredited professional Risk Management courses through the University of Chicago's Graduate School of Business. Before his studies at Chicago, Chris worked for the Board of Governors of the Federal Reserve System, Washington, D.C., in its Division of Research and Statistics. Chris is a Fellow of the Wharton Financial Institutions Center and has been the New York Stock Exchange Fellow and the GeewaxTerker Fellow at the Rodney L. White Center for Financial Research at Wharton. He has been the Academic Director of a number of Wharton Executive Education programs including the 2009 Securities Industry Institute in partnership with SIFMA, the Investment Management Consultants Association Endowments and Foundations, Alternative Investments and the advanced Investment Strategist Certificate programs.

He serves on Intel’s US Retirement Plans’ Investment Policy Committee. He has served on the Economic Advisory Board of NASDAQ, acts as an editor of the Journal of Alternative Investments and serves on the Advisory Board of the Journal of Wealth Management. Chris is a founding board member of the MidAtlantic Hedge Fund Association (Chairman 2007 2008), and he serves on the curriculum and exam committee of the Chartered Alternative Investment Analyst Association (CAIA). Chris also serves on the board of the Alexander Hamilton Friends Association.

Current research focuses on multifactor models, wealth management, risk management, asset allocation, the performance of managed funds, and various aspects of equity lending and shortselling. His work has appeared in numerous books and scholarly journals including the Journal of Finance, Journal of Financial Economics, and the Journal of Political Economy. It has also been reported in the Wall Street Journal, the New York Times, the Financial Times, Forbes, NPR, SmartMoney magazine, on CNBC’s Squawk Box and in numerous other media.

Christopher Geczy (2013), Financial Market Assumptions & Models for Pension Plans: A Technical Comment on the PIMS Model Assumptions for Asset Markets, incorporated in report of the Technical Review Panel for the Pension Insurance Modeling System (PIMS) (Olivia S. Mitchell, chair), Pension Benefit Guaranty Corporation.

Christopher Geczy and Mikhail Samonov (Working), 212 Years of Price Momentum (The World’s Longest Backtest).

Abstract: We assemble a dataset of U.S. security prices between 1801 and 1926 and create an outofsample test of the price momentum strategy, discovered in the post1927 data. The pre1927 momentum profits remain positive and statistically significant. Additional time series data strengthen the evidence that momentum is dynamically exposed to market beta, conditional on the sign and duration of the tailing market state. In the beginning of each market state, momentum’s beta is opposite from the new market direction, generating a negative contribution to momentum profits around market turning points. A dynamically hedged momentum strategy significantly outperforms the unhedged strategy.

Rich Evans, Christopher Geczy, David Musto, Adam V. Reed (2009), Failure is an Option: Impediments to Short Selling and Options Prices, Review of Financial Studies, Forthcoming.

Abstract: Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hardtoborrow situations, it chooses not to borrow and instead fails to deliver stock to its buyers. Some of the value of failing passes through to option prices: when failing is cheaper than borrowing, the relation between borrowing costs and option prices is significantly weaker. The remaining value is profit to the market maker, and its ability to profit despite the usual competition between market makers appears to result from a cost advantage of larger market makers at failing.

Christopher Geczy, Susan Christoffersen, David Musto, Adam Reed (2007), Vote Trading and Information Aggregation, Journal of Finance.

Abstract: The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one shareone vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higherspread and worseperforming firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.

Christopher Geczy, Robert F. Stambaugh, David Levin (Working), Investing in Socially Responsible Mutual Funds.

Abstract: We construct optimal portfolios of mutual funds whose objectives include socially responsible investment (SRI). Comparing portfolios of these funds to those constructed from the broader fund universe reveals the cost of imposing the SRI constraint on investors seeking the highest Sharpe ratio. This SRI cost depends crucially on the investor's views about asset pricing models and stockpicking skill by fund managers. To an investor who believes strongly in the CAPM and rules out managerial skill, i.e. a marketindex investor, the cost of the SRI constraint is typically just a few basis points per month, measured in certainlyequivalent loss. To an investor who still disallows skill but instead believes to some degree in pricing models that associate higher returns with exposures to size, value, and momentum factors, the SRI constraint is much costlier, typically by at least 30 basis points per month. The SRI constraint imposes large costs on investors whose beliefs allow a substantial amount of fundmanager skill, i.e., investors who rely heavily on individual funds' track records to predict future performance.

Susan Christoffersen, Christopher Geczy, David Musto, Adam Reed (2005), CrossBorder Dividend Taxation and the Preferences of Taxable and NonTaxable Investors: Evidence from Canada, Journal of Financial Economics, Vol. 78 (Issue 1), pp. 121144. 10.1016/j.jfineco.2004.08.004

Abstract: We consider how fund managers respond to the conflicting preferences of their investors. We focus on the conflict between the taxable and retirement accounts of international funds, which face different tradeoffs between dividends and capital gains. In principle, managers could resolve this conflict through dividend arbitrage, but a proprietary database of dividendarbitrage transactions shows that in practice they cannot. Thus, managers must resolve it through their investment policies. We find robust evidence that managers with more retirement money favor the preferences of retirement investors and further evidence for this view in the difference between U.S. and Canadian funds’ portfolio weights.

Christopher Geczy, David Musto, Adam Reed (2002), Stocks are Special Too: An Analysis of the Equity Lending Market002258), Journal of Financial Economics, 241269. 10.1016/S0304405X(02)002258002258)

Abstract: With a year of equity loans by a major lender, we measure the effect of actual shortselling costs and constraints on trading strategies that involve shortselling. We find the loans of initial public offering (IPOs), DotCom, largecap, growth and lowmomentum stocks to be cheap relative to the strategies’ documented profits and that investors who can short only stocks that are cheap and easy to borrow can enjoy at least some of the profits of unconstrained investors. Most IPOs are loaned on their first settlement days and throughout their first months, and the underperformance around lockup expiration is significant even for the IPOs that are cheap and easy to borrow. The effect of shortselling frictions appears strongest in merger arbitrage. Acquirers’ stock is expensive to borrow, especially when the acquirer is small, though the major influence on trading profits is not through expense but availability.

Alon Brav, George Constantinides, Christopher Geczy (2002), Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence, Journal of Political Economy, 793824.

Abstract: We present evidence that the equity premium and the premium of value stocks over growth stocks are consistent in the 1982–96 period with a stochastic discount factor calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion coefficient. Since these premia are not explained with an SDF calculated as the per capita marginal rate of substitution with a low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance. We also present evidence that an SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.

Alon Brav, Christopher Geczy, Paul Gompers (2000), Is the Abnormal Return Following Equity Issuances Anomalous? , Journal of Financial Economics, 209249.

Abstract: We examine whether a distinct equity issuer underperformance anomaly exists. In a sample of initial public offering (IPO) and seasoned equity offering (SEO) firms from 1975 to 1992, we find that underperformance is concentrated primarily in small issuing firms with low booktomarket ratios. SEO firms, that underperform these standard benchmarks have time series returns that covary with factor returns constructed from nonissuing firms. We conclude that the stock returns following equity issues reflect a more pervasive return pattern in the broader set of publicly traded companies.

Past Courses

FNCE205 INVESTMENT MANAGEMENT

This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., indexfund) and active (e.g., hedgefund, longshort) strategies, mutual funds, performance evaluation, longhorizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").

FNCE399 INDEPENDENT STUDY

Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.

FNCE720 INVESTMENT MANAGEMENT

This course studies the concepts and evidence relevant to the management of investment portfolios. Topics include diversification, asset allocation, portfolio optimization, factor models, the relation between risk and return, trading, passive (e.g., indexfund) and active (e.g., hedgefund, longshort) strategies, mutual funds, perfermance evaluation, longhorizon investing and simulation. The course deals very little with individual security valuation and discretionary investing (i.e., "equity research" or "stock picking").

FNCE754 IMPACT INVESTING

This course explores Impact Investing, a discipline that seeks to generate social benefits as well as financial returns. From tiny beginnings, the Impact Investment space has expanded and now commands significant attention from policymakers, wealthy and publicspirited individuals, academia and, not least, the world's largest asset managers and philanthropic foundations. Evangelists believe it may be the key to freeing the world from poverty. Skeptics think it will remain confined to the boutique. Regardless, Impact Investing is becoming a distinct career specialization for finance professionals despite the diverse skillset each must have and the uncertainty of the new field's growth.

FNCE899 INDEPENDENT STUDY

Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. At a minimum, we need a description of the methodology you intend to employ, a bibliography and description of the data that you will use as well as a list of interim deliverables and dates to ensure that you complete the project within the semester. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. You must submit your Finance ISP request using the Finance Department's ISP form located at https://fnce.wharton.upenn.edu under the Course ISP section

Best Paper Award, Annual Conference on Market Structure and Market Integrity, 2006 Best Elective Course Teaching Award, Wharton West, Executive MBA Program, 2006 Caesarea Prize for the Best Paper on Risk Management, Western Finance Association, for ”Taking a View: On Corporate Speculation and Governance”, 2004 Weiss Center for International Financial Research research grant, 2004 Moskowitz Prize (Honorable Mention) for ”Investing in Socially Responsible Mutual Funds”, 2003 The Bank of Canada Award for ”The Limits to Dividend Arbitrage: Implications for CrossBorder Investment”, 2003 Zicklin Center Research Grant for “The Performance of Socially Screened Mutual Funds and the Convictions of Investors”, 2002 Q Group Research Grant for ”Stocks are Special, Too”, 2000 Nominated for the Smith Breeden Prize for the best paper in the Journal of Finance for “Why Firms Use Currency Derivatives”, 1997 Rodney L. White Center (Wharton) research grants, 1997 (1), 1999 (2), 2001(1), 2002(2), 2003, 2004, 1997 Center for Research in Security Prices Research Grant, 1993

Knowledge @ Wharton

The Retirement Problem: What Will You Do With All That Time?, Knowledge @ Wharton 01/14/2016 Has the Hedge Fund Industry Lost Its Way?, Knowledge @ Wharton 11/06/2015 Of Unicorns and ‘Decacorns’: Is a Tech Startup Bubble Forming?, Knowledge @ Wharton 06/22/2015 Does Social Impact Demand Financial Sacrifice?, Knowledge @ Wharton 12/02/2014

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