Costello Research Market Efficiency

Boards with higher social capital enjoy more market freedom to engage in potentially risky strategic alliances — to the ultimate benefit of their firms.

Artificial intelligence can perform peer firm selection—a key task for investors—at least as accurately as well-established alternative algorithms and human experts, according to research by Costello profs Long Chen and Yi Cao.

Exceptions may prove the rule, but they must first be explained. That is why finance researchers are drawn to the distress anomaly-- a well-documented phenomenon that challenges the risk-return paradigm in equity markets. Generally, higher-risk investments are expected to yield higher returns than safer, more stable securities. In recent years, however, studies have shown that high-credit-risk securities for companies in distress – i.e. when their already-low credit rating is being downgraded -- realize abnormally low returns compared to non-distressed securities of the same or lower risk.  Academics have proposed a range of rationales for this puzzle. Alexander Philipov, finance area chair and associate professor at George Mason University, says they mainly fall into two categories.