Craig Holden

Areas of Expertise

Market Microstructure, International Finance

Academic Degrees

• PhD, UCLA, 1990
• MBA, UCLA, 1984
• BA, U.C. Davis, 1977

Professional Experience

• Indiana University, 1990 - present
• Home Savings of America, 1984-1985
• First Interstate Bank, 1983
• Best Products Co., Inc., 1980-1982
• Hilti, Inc., 1979-1980
• California State Senator James Nielsen, 1977-1979

Awards, Honors & Certificates

• Fama/DFA Prize, Second Prize for Best Paper in Capital Markets/Asset Pricing published in the Journal of Financial Economics in 2009
• Associate Editor, Journal of Financial Markets, 1997 - Present
• Secretary-Treasurer, Society of Financial Studies, 2012 - Present
• Program Committee, Western Finance Association, 1999 - Present
• Program Committee, European Finance Association, 2013 - Present
• Chair of 22 Dissertation Committees
• Member or Chair of 62 Dissertation Committees
• Member, School Faculty Review Committee, 2014 - 2015
• Member, Campus Tenure Advisory Committee, 2011-2014
• Chair, School Teaching and Service Excellence Committee, 1997-2000, 2016 - 2017
• Chair, Finance Dept. Undergraduate Commitee, 1994-2005, 2010-2012, 2013-2014
• Chair, Finance Dept. Doctoral Committee, 2006-2010
• Chair, Dean''s Task Force on Science, Engineering, and Technology, 1995
• Morgan Stanley Equity Market Microstructure Research Grant, 2003
• Two-Year Curriculum Development Grant, NASDAQ Educational Foundation, 2002
• Doctoral Students Association Exceptional Inspiration and Guidance Award, Winner: 1996, Nominee: 2002, 2006
• Doctoral Students Association Distinguished Teaching Award, Nominee: 2004-2006, 2008
• Harry C. Suavain Teaching Award, Nominee: 1996, 1997, 2008
• Teaching Excellence Recognition Award, 2000
• Innovative Teaching Award for Ph.D. Curriculum Innovation, Winner: 1999, Nominee: 1998
• Innovative Teaching Award for Undergraduate Curriculum Innovation, Nominee: 1998, 2001
• Alumni Association Award for Outstanding Research, Winner: 1994, 1995, 1997
• Peterson Faculty Fellowship for Outstanding Research, Winner: 1994, 1995

Selected Publications

• Holden, C.W., and Nam, J. (2018), "Do the LCAPM Predictiosn Hold?,"  Replicaton and Extension Evidence.  Critical Finance Review, forthcoming.

Abstract First, we replicate the Liquidity-adjusted Capital Asset Pricing Model (LCAPM) tests of Acharya and Pedersen (2005) using their original methodology and covering both their original time period and a more recent period. We successfully qualitatively replicate the descriptive and the first-stage tables and figures, but are not successful in replicating the second-stage tables that perform cross-sectional tests. In the large majority of cases, our replication evidence rejects that the main LCAPM predictions all hold simultaneously. Next, we extend tests of the LCAPM following the Lee (2011) methodology and expanding to: (1) three different time periods spanning 90 years, (2) add NASDAQ stocks, (3) use four alternative liquidity measures, and (4) add risk or characteristic factors. Our extension evidence always rejects that the main predictions of the Lee two-beta LCAPM and of the four-beta LCAPM hold at the same time. We make publicly available our SAS code.  

• Holden, Craig W. (2017), "Do Acceptance and Publication Times Differ Across Finance Journals?" Review of Corporate Finance Studies, 6, 102-126?.

Abstract For articles eventually published in the top twenty academic finance journals and top-tier academic business journals, I examine the acceptance time (the time from first-round submission to final-round acceptance) and online/print publication times (the time from first-round submission to online/print publication). I find that the median acceptance times of the top five general-interest finance journals are: Journal of Financial Economics (9.9 months), Journal of Financial and Quantitative Analysis (10.6 months), Review of Finance (11.7 months), Review of Financial Studies (15.5 months), and Journal of Finance (19.8 months). The three fastest in finance are Review of Corporate Finance Studies, Review of Asset Pricing Studies, and Financial Management. Journal of Finance is one of the slowest top-tier business journals. Large and significant time differences support the editorial differences hypothesis.

• Fong, K., C. W. Holden, and C. A. Trzcinka (2017), "What Are The Best Liquidity Proxies For Global Research?" Review of Finance, 21 (4), 1355-1401.
• Holden, Craig W., and Daniel S. Kim (2017), "Performance Share Plans: Valuation and Empirical Tests," Journal of Corporate Finance, 44, 99-125?.

Abstract Performance share plans are an increasingly important component of executive compensation. They are equity-based, long-term incentive plans where the number of shares to be awarded is a quasi-linear function of a performance result over a fixed time period. We derive closed-form formulas for the value of a performance share plan when the performance measure is: (1) a non-traded measure following an Arithmetic Brownian Motion (e.g., earnings per share), (2) a non-traded measure following a Geometric Brownian Motion (e.g., revenue), or (3) a rank-order tournament of traded asset returns that are following Arithmetic Brownian Motions (e.g., percentile of ranked stock returns). Then we empirically test our valuation formulas. We find that our valuation formulas are more accurate for performance share plans based on earnings per share when forecasting using analyst consensus prior to the grant date. We also find that the efficiency of our valuation model greatly depends on the method used to forecast future firm performance. The policy implication is that FASB should consider requiring that grant date fair value be estimated using valuation formulas such as ours.

• Holden, C. (2014), Excel Modeling in Investments, Fifth Edition, Prentice Hall.
• Holden, C. (2014), Excel Modeling in Corporate Finance, Fifth Edition, Prentice Hall.
• Craig W. Holden and Stacey Jacobsen, 2014, “Liquidity Measurement Problems in Fast, Competitive Markets: Expensive and Cheap Solutions,” Journal of Finance 69, 1747-1785.

Abstract Do fast, competitive markets yield liquidity measurement problems when using the popular Monthly Trade and Quote (MTAQ) database? Yes. MTAQ yields distorted measures of spreads, trade location, and price impact compared with the expensive Daily Trade and Quote (DTAQ) database. These problems are driven by (1) withdrawn quotes, (2) second (versus millisecond) timestamps, and (3) other causes, including cancelled quotes. The expensive solution, using DTAQ, is first-best. For financially constrained researchers, the cheap solution – using MTAQ with our new Interpolated Time technique, adjusting for withdrawn quotes, and deleting economically nonsensical states – is second-best. These solutions change research inferences.

• Bhattacharya, Utpal, Craig Holden and Stacey Jacobsen (2012), “Penny Wise, Dollar Foolish: Buy-Sell Imbalances On and Around Round Numbers,” Management Science (Special Issue On Behavioral Economics and Finance), Vol 58(2): 413-431.
• Holden, Craig W. (2011), Excel Modeling in Corporation Finance (Fourth Edition), Pearson/Prentice Hall.
• Holden, Craig W. (2011), Excel Modeling in Investments (Fourth Edition), Pearson/Prentice Hall. 
• Holden, Craig W. (2009), “New Low-Frequency Spread Measures,” Journal of Financial Markets, Vol. 12, pp. 778-813.

Abstract I develop new spread proxies that pick up on three attributes of the low-frequency (daily) data: (1) price clustering,(2)serial price covariance accounting for midpoint prices on no-trade days, and (3) the quoted spread that is available on no-trade days. I develop and empirically test two different approaches: an integrated model and combined models. I test both new and existing low-frequency spread measures relative to two high-frequency benchmarks (percent effective spread and percent quoted spread) on three performance dimensions: (1) higher individual firm correlation with the benchmarks, (2) higher portfolio correlation with the benchmarks, and (3) lower distance relative to the benchmarks. I find that on all three performance dimensions the new integrated model and the new combined model do significantly better than existing low-frequency spread proxies.

• Holden, Craig W. and Leonard L. Lundstrum (2009), “Costly Trading, Managerial Myopia, and Long-Term Investment,” Journal of Empirical Finance, Vol. 16, pp. 126-135.

Abstract The costly trade theory predicts that it is much more difficult to exploit long-term private information than short-term. Thus, there is less long-term information impounded in prices. The managerial myopia theory predicts that a variety of short-term pressures, including inadequate information on long-term projects, cause asymmetrically-informed corporate managers to underinvest in long-term projects. The introduction of long-term options called LEAPS providesa natural experiment to jointly test both theories, which are otherwise difficult to test. We conduct an event study around the introduction of LEAPS for a given stock and test whether corporate investment in long-term R&D/sales increases in the years following the introduction. We find that over a two year period of time LEAPS firms increase their R&D/sales between 23% and 28% ($125–$152 million annually) compared to matching non-LEAPS firms. The differencedepends on the matching technique used. Two other proxies for long-term investment find similar increases. We find that the increase is positively related to LEAPS volume. We also find that the increase is larger in firms where R&D plays a larger and more strategic role.We test if a firm becomes less likely to beat analyst''s quarterly earnings forecasts after LEAPS are introduced and find support for the hypothesis. These results provide both statistically and economicallysignificant support for the costly trade and managerial myopia theories.

• Goyenko, Ruslan Y., Craig W. Holden, and Charles A. Trzcinka (2009), "Do Liquidity Measures Measure Liquidity?," Journal of Financial Economics, Vol. 92, No. 2, May, pp. 153-181.

Abstract Given the key role of liquidity in finance research, identifying high quality proxies based on daily (as opposed to intraday) data would permit liquidity to be studied over relatively long time frames and across many countries. Using new measures and widely employed measures in the literature, we run horse races of annual and monthly estimates of each measure against liquidity benchmarks. Our benchmarks are effective spread, realized spread, and price impact based on both Trade and Quote (TAQ) and Rule 605 data.We find that the new effective/realized spread measures win the majority of horse races, while the Amihud [2002. Illiquidity and stock returns: cross-section andtime-series effects. Journal of Financial Markets 5,31–56] measure does well measuring price impact.

• Craig W. Holden (2008), Excel Modeling and Estimation in Investments (Third Edition), Pearson/Prentice Hall.
• Holden, Craig W. and Pamela S. Stuerke (2008), “The Frequency of Financial Analysts’ Forecast Revisions: Theory and Evidence about Determinants of Demand for Predisclosure Information,” Journal of Business Finance and Accounting, Vol. 35, pp. 860-888.

Abstract A fundamental property of a financial market is its degree of price informativeness. A major determinant of price informativeness is predisclosure information collected by financial analysts and then privately disseminated to clients, who make the recommended trades. We develop a dynamic model of the analyst’s optimal strategy of forecast revision frequency with endogenous analysts and endogenous traders. We then empirically test the model’s predictions. We find that forecast revision frequency is positively associated with earnings variability, trading volume, and earnings response coefficients, and negatively associated with skewness of trading volume. Thus, we find strong empirical support for our dynamic model.

• Craig W. Holden (2008), Excel Modeling and Estimation in Corporate Finance (Third Edition), Pearson/Prentice Hall.
• Ellul, Andrew, Craig W. Holden, Pankaj Jain, and Robert Jennings (2007), “Order Dynamics: Recent Evidence from the NYSE,” Journal of Empirical Finance, Vol. 14, pp. 636-661.

Abstract We examine investor order choices using evidence from a recent period when the NYSE trades in decimals and allows automatic executions. We analyze the decision to submit or cancel an order or to take no action. For submitted orders, we distinguish order type (market vs. limit), order side (buy vs. sell), execution method (auction vs. automatic), and pricing aggressiveness. We find that the NYSE exhibits positive serial correlation in order type on an order-by-order basis, which suggests that follow-on order strategies dominate adverse selection or liquidity considerations at a moment in time. Aggregated levels of order flow also exhibit positive serial correlation in order type, but appear to be non-stationary processes. Overall, changes in aggregated order flow have an order-type serial correlation that is close to zero at short aggregation intervals, but becomes increasingly negative at longer intervals. This implies a liquidity exhaustion–replenishment cycle. We find that small orders routed to the NYSE''s floor auction process are sensitive to the quoted spread, but that small orders routed to the automatic execution system are not. Thus, in addition to foregoing price improvement, traders selecting the speed of automatic executions on the NYSE do so with little regard for the quoted cost of immediacy. As quoted depth increases, traders respond by competing on price via limit orders that undercut existing bid and ask prices. Limit orders are more likely and market sells are less likely late in the trading day. These results are helpful in understanding the order arrival process at the NYSE and have potential applications in academics and industry for optimizing order submission strategies.

• Holden, Craig W. and Avanidhar Subrahmanyam (2002), "News Events, Information Acquisition, and Serial Correlation," Journal of Business, Vol. 1, pp. 1-32.

Abstract We develop a model that accounts for medium term continuation (momentum) in asset returns by analyzing informationacquisition about news events (such as earnings announcements) in a multi-period setting. As more and more agentsbecome informed about news events, temporal uncertainty is resolved endogenously through market prices over time,which leads to positive autocorrelations in asset returns. We empirically estimate serial correlations over medium-termhorizons for portfolios sorted by firm size and past stock performance and find that calibration of serial correlations inour model spans the range of empirically estimated correlations.

• Battalio, Robert and Craig W. Holden (2001), “A Simple Model of Payment For Order Flow, Internalization, and Total Trading Costs,” Journal of Financial Markets, Vol. 4, pp. 33-71.

Abstract We show that externally-verifiable characteristics (inexpensive for a third-party to verify) of traders or orders allow pro"table purchasing of order flow and internalization. We introduce total trading cost, defined as the effective half spread plus the broker''s per share commission, as a measure of execution quality. We use this measure to reinterpret prior empirical studies of: (1) execution quality across trading venues and (2) cream-skimming by purchasers of order flow. Finally, we show brokers can use their direct relationships with customers to assess internally-verifiable characteristics (inexpensive for direct verification) in order to increase profits extracted from customer orders.

• Bagnoli, Mark, S. Viswanathan, and Craig W. Holden (2001), “On The Existence of Linear Equilibria in Models of Market Making,” Mathematical Finance, Vol. 11, pp. 1-31.

Abstract We derive the necessary and sufficient conditions for a linear equilibrium in three types of competitive market making models: Kyle type models (when market makers only observe aggressive net order flow), Glosten-Milgrom and Easley-O''Hara type models (when market makers observe and trade one order at a time), and call markets models (individual orders models when market makers observe a number of orders before pricing and executing any of them). We study two cases: when privately informed (strategic) traders are symmetrically informed and when they have differential information. We derive necessary and sufficient conditions on the distribution of the random variables for a linear equilibrium. We also explore those features of the equilibrium that depend on linearity as opposed to the particular distributional assumptions and we provide a large number of examples of linear equilibria for each of the models.

• Holden, Craig W. and Avanidhar Subrahmanyam (1996), “Risk Aversion, Liquidity, and Endogenous Short Horizons,” The Review of Financial Studies, Vol. 9, pp. 691-722.

Abstract We analyze a competitive model in which different information signals get reflected in value at different points in time. If investors are sufficiently risk averse, we obtain an equilibrium in which all investors focus exclusively on the short term. In addition, we show that increasing the variance of informationless trading increases market depth but causes a greater proportion of investors to focus on the short-term signal, which decreases the informativeness of prices about the long run. Finally, we also explore parameter spaces under which long-term informed agents wish to voluntarily disclose their information.

• Chakravarty, Sugato and Craig W. Holden (1995), “An Integrated Model Of Market And Limit Orders,” Journal of Financial Intermediation, Vol. 4, pp. 213-241.

Abstract We develop an integrated model in which a risk-neutral informed trader optimally chooses any combination of a market buy, a market sell, a limit buy including limit buy price, and a limit sell including limit sell price. Limit orders undercut the market maker and generate transactions inside the bid-ask spread. The informed traders exploits limit orders buy submitting market orders even when the terminal value is inside the spread. When the terminal value is above the bid, a combined market buy-limit sell is more profitable than a market buy only. We obtain an analytic solution.

• Holden, Craig W. (1995), “Index Arbitrage As Cross-Sectional Market Making,” The Journal of Futures Markets,  Vol. 15, pp. 423-455.
• Holden, Craig W. and Avanidhar Subrahmanyam (1994), “Risk Aversion, Imperfect Competition, and Long-Lived Private Information,” Economics Letters, Vol. 44, pp. 181-190.

Abstract This paper presents a methodology for characterizing the optimal dynamic behavior of risk-averse, strategic agents withprivate information, by building on Kyle (Econometrica, 1985, 53, 1315-1335). It is shown that both monopolistic andcompeting informed traders choose to exploit rents rapidly, causing market depth to be low in the initial periods and high in later periods, and causing information to be revealed rapidly, unlike in the case of a risk-neutral monopolist considered by Kyle.

• Holden, Craig W. and Avanidhar Subrahmanyam (1992), “Long-Lived Private Information and Imperfect Competition,” The Journal of Finance, Vol. 47, pp. 247-270.

Abstract We develop a multi-period auction model in which multiple privately informed agents strategically exploit their long-lived information. We show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly. In the limit as the interval between auctions approaches zero, market depth becomes infinite and all private information is revealed immediately. These results are in contrast to those of Kyle (1985) in which the monopolistic informed trader causes his information to be incorporated into prices gradually, and, when the interval between auctions is vanishingly small, market depth is constant over time.