with Charles Cao, Bing Liang, and Lubomir Petrasek, Review of Asset Pricing Studies rax015 (2017)
We examine the relation between changes in hedge fund equity holdings and measures of informational efficiency of stock prices derived from intraday transactions as well as daily data. On average, hedge fund ownership of stocks leads to greater improvements in price efficiency than mutual fund or bank ownership, especially for stocks held by hedge funds with high portfolio turnover and superior security selection skills. However, stocks held by hedge funds experienced large declines in price efficiency in the last quarter of 2008, particularly if the funds were connected to Lehman Brothers as a prime broker and used leverage in combination with lenient redemption terms.
The Food and Drug Administration (FDA) is a remarkable agency, one of the crown jewels of the US government. Its staff and structure are dedicated to safeguarding American public health, and although we sometimes complain about its role as gatekeeper, we all sleep better knowing that our foods and drugs have passed the FDA’s careful scrutiny. Its regulatory scope and process reflect the technical demands of its responsibilities, and the FDA is one of the very few federal agencies that have taken a lead in defining and developing the new field of regulatory science
Journal of Investment Management 15 (2017), 17–38.
Breakthroughs in computing hardware, software, telecommunications, and data analytics have transformed the financial industry, enabling a host of new products and services such as automated trading algorithms, crypto-currencies, mobile banking, crowdfunding, and robo-advisors. However, the unintended consequences of technology-leveraged finance include firesales, flash crashes, botched initial public offerings, cybersecurity breaches, catastrophic algorithmic trading errors, and a technological arms race that has created new winners, losers, and systemic risk in the financial ecosystem. These challenges are an unavoidable aspect of the growing importance of finance in an increasingly digital society. Rather than fighting this trend or forswearing technology, the ultimate solution is to develop more robust technology capable of adapting to the foibles in human behavior so users can employ these tools safely, effectively, and effortlessly. Examples of such technology are provided.
In response to the senators January 21, 2016 request for comment on their Sovaldi report, February 27, 2016. On behalf of all patients and their family members and friends, thank you for conducting the study on the pricing strategy of Gilead Sciences and shining a spotlight on the issue of drug pricing. When access to life-saving therapies is limited by affordability, important moral and ethical issues must be considered in addition to economic and political ones. For too long, we in the United States have ignored these issues for fear of “death panels” and difficult end-of-life decisions. But the growing number of breakthrough therapies and the rising cost of healthcare will soon force us to confront these issues directly. Your report and is an important step in helping us to develop a rational, ethical approach to dealing with this looming challenge.
with Vahid Montazerhodjat and David Weinstock, Science Translational Medicine 8(2016), 327ps6
A crisis is building over the prices of new transformative therapies for cancer, hepatitis C virus infection, and rare diseases. The clinical imperative is to offer these therapies as broadly and rapidly as possible. We propose a practical way to increase drug affordability through health care loans (HCLs)—the equivalent of mortgages for large health care expenses. HCLs allow patients in both multipayer and single-payer markets to access a broader set of therapeutics, including expensive short-duration treatments that are curative. HCLs also link payment to clinical benefit and should help lower per-patient cost while incentivizing the development of transformative therapies rather than those that offer small incremental advances. Moreover, we propose the use of securitization—a well-known financial engineering method—to finance a large diversified pool of HCLs through both debt and equity. Numerical simulations suggest that securitization is viable for a wide range of economic environments and cost parameters, allowing a much broader patient population to access transformative therapies while also aligning the interests of patients, payers, and the pharmaceutical industry.
with Pablo D. Azar, Journal of Portfolio Management 42(2016), 123–134.
With the rise of social media, investors have a new tool for measuring sentiment in real time. However, the nature of these data sources raises serious questions about its quality. Because anyone on social media can participate in a conversation about markets—whether the individual is informed or not—these data may have very little information about future asset prices. In this article, the authors show that this is not the case. They analyze a recurring event that has a high impact on asset prices—Federal Open Market Committee (FOMC) meetings—and exploit a new dataset of tweets referencing the Federal Reserve. The authors show that the content of tweets can be used to predict future returns, even after controlling for common asset pricing factors. To gauge the economic magnitude of these predictions, the authors construct a simple hypothetical trading strategy based on this data. They find that a tweet-based asset allocation strategy outperforms several benchmarks—including a strategy that buys and holds a market index, as well as a comparable dynamic asset allocation strategy that does not use Twitter information.
with Roger Stein, Journal of Alternative Investment 18(2016), 52–67.
The authors introduce a new approach to identifying and monitoring systemic risk that combines network analysis and tail risk contribution (TRC). Network analysis provides great flexibility in representing and exploring linkages between institutions, but it can be overly general in describing the risk exposures of one entity to another. TRC provides a more focused view of key systemic risks and richer financial intuition, but it may miss important linkages between financial institutions. Integrating these two methods can provide information on key relationships between institutions that may become relevant during periods of systemic stress. The authors demonstrate this approach using the exposures of money market funds to major financial institutions during July 2011. The results for their example suggest that TRC networks can highlight both institutions and funds that may become distressed during a financial crisis.
with Tomas Philipson and Andrew von Eschenbach, JAMA Oncology 2(2016), 17–18.
Americans are increasingly apprehensive about our future, so it is inspiring when Congress produces legislation intended to both enhance our health and expand our economy. The 21st Century Cures Act, recently passed by the House with an impressive bipartisan majority vote of 344 to 77, intends to accelerate the many-step process of drug discovery and development, from basic scientific research to clinical development to delivery, distribution, and ongoing monitoring. Among other things, the legislation boosts National Institute of Health funding, dramatically speeds up the US Food and Drug Administration (FDA) approval process, and aims to make use of new information technology to better monitor the performance of medical products after they reach the market. This landmark bill now awaits a comparable piece of legislation being developed by the Senate Health Education, Labor, and Pensions Committee. Together, they will transform the biomedical ecosystem and provide the foundation for the next several decades of innovative life-saving and health-enhancing solutions for our nation and the world.
with Tito Fojo , Lancet Oncology 17(2016), 3–5.
The reports by Wim van Harten and colleagues and Sabine Vogler and colleagues in The Lancet Oncology on the costs of cancer drugs in European countries deserve special attention from all oncology and biopharmaceutical stakeholders. van Harten identified that, in 15 European countries, list prices can be up to 92% lower than the highest reported, with actual prices paid up to 58% lower. These findings are backed up by Vogler and colleagues' study 2 in 16 European countries, Australia, and New Zealand, which documented that highest-minus-lowest list price differences ranged from 28% to 388% for cancer drugs. Such variability argues strongly for greater transparency in drug pricing and the circumstances leading to such differences. But most importantly, it underscores the need to establish the true value of cancer therapies, and those who have championed this cause have been handed unequivocal evidence confirming what they have long suspected: drug prices are typically driven by what the market will bear.
with Esther Kim, Journal of Investment Management 14(2016), 87–101.
Duchenne muscular dystrophy (DMD) is a rare genetic disorder affecting thousands of individuals, mainly young males, worldwide. Currently, the disease has no cure, and is fatal in all cases. Advances in our understanding of the disease and innovations in basic science have recently allowed biotechnology companies to pursue promising treatment candidates for the disease, but so far, only one drug with limited application has achieved FDA approval. In this case study, we profile the work of an early-stage life sciences company, Solid Biosciences, founded by a father of a young boy with DMD. In particular,
we discuss Solid’s one-disease focus and its strategy to treat the disease with a diversified portfolio of approaches. The company is currently building a product pipeline consisting of genetic interventions, small molecules and biologics, and assistive devices, each aimed at addressing a different aspect of DMD. We highlight the potential for Solid’s business model and portfolio to achieve breakthrough treatments for the DMD patient community.