David Musto

• Christopher Geczy, Jessica Jeffers, David Musto, Anne M. Tucker (2021), Contracts with (Social) Benefits: The Implementation of Impact Investing, Journal of Financial Economics, 142 (2), pp. 697-718. 10.1016/j.jfineco.2021.01.006 Abstract

  We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts like governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals. We propose an explanatory framework in which this feature results from hidden differences between agents’ preferences over impact.

• Krista Schwarz, David Musto, Greg Nini (2018), Notes on Bonds: Illiquidity Feedback During the Financial Crisis, Review of Financial Studies , 31 (8), pp. 2983-3018. Abstract
  We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis.
• Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2017), In Pursuit of Good & Gold: Data Observations of Employee Ownership & Impact Investment, Seattle University Law Review, 40 ().
• David Erickson and David Musto Alcoa Deals with the Financial Crisis – Wharton Case 98. Description
  Alcoa, Inc. (Alcoa), an S&P 500 Index constituent and Dow Jones Industrial Average (DJIA) component, has just announced its fourth quarter 2008 earnings. In the midst of the Global Financial Crisis, Alcoa reported a net loss of US$1.19 billion for the quarter. With aluminum prices off by 56 percent in the last five months and a sharp drop in demand from its end markets, Alcoa announced a major restructuring including a workforce reduction of 15,000 jobs. Joan Davidson, a managing director at Pinnacle Capital (a fictitious investment bank), is scheduled to meet with Alcoa management and needs to strategize to give the company her recommendations on what actions Alcoa should take. The case examines Alcoa's history, current situation, and the potential alternatives it can take.

   

  To use this case, please contact coursematerials@wharton.upenn.edu.

   
• David Erickson and David Musto Elliott Management Goes After Riverbed Technology – Wharton Case 97. Description

  The case follows Elliott Management, one of the world’s largest activist investors, in its campaign in 2014 to buy out Riverbed Technology, a formerly high-flying technology firm.  The campaign involves a sequence of moves by Elliott and countermoves by Riverbed.  The narrative includes communications between the parties; Riverbed’s earnings announcements and other corporate actions; and the impact on Riverbed’s stock price.

  To use this case, please contact coursematerials@wharton.upenn.edu.

• Christopher Geczy, David Musto, Jessica Jeffers, Anne M. Tucker (2015), Institutional Investing When Shareholders Are Not Supreme, Harvard Business Law Review , 5:1 ().
• David Erickson and David Musto The Alibaba IPO – Wharton Case 96. Description

  Alibaba Group Holding Limited (Alibaba) is finishing up its IPO roadshow. James Miller, an associate at Dragon Fund (a fictitious financial institution), is asked to prepare a recommendation on Alibaba for its upcoming Investment Committee meeting. The case examines Alibaba's history; business model; opportunity in China (and globally); governance structure; valuation (versus potential comparable companies); and the forms of securities it is offering.

  To use this case, please contact coursematerials@wharton.upenn.edu. 

• David Erickson and David Musto EMC: The Carve-out of VMware – Wharton Case 95. Description

  This case focuses on the strategic decision EMC made to carve out its high-growth subsidiary, VMware. The case examines some of the factors companies use to determine whether or not to carve out a subsidiary and the potential implications. It also examines the valuation impact on both EMC and VMware at IPO.

  To use this case, please contact coursematerials@wharton.upenn.edu.

• 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, 22 (5). https://doi.org/10.1093/rfs/hhm083 Abstract

  Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hard-to-borrow 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.

• Philip Bond, David Musto, Bilge Yilmaz (2008), Predatory Mortgage Lending, Journal of Financial Economics, (2009), 94, 412-427. Abstract

  Regulators express growing concern over predatory loans, which the authors take to mean loans that borrowers should decline. Using a model of consumer credit in which such lending is possible, they identify the circumstances in which it arises both with and without competition. The authors find that predatory lending is associated with highly collateralized loans, inefficient refinancing of subprime loans, lending without due regard to ability to pay, prepayment penalties, balloon payments, and poorly informed borrowers. Under most circumstances competition among lenders attenuates predatory lending. They use their model to analyze the effects of legislative interventions.

• All Research from David Musto »

Current Courses

• FNCE0002 - Essentials Of Personal Finance

  This course introduces students to the key financial concepts through the lens of personal financial decisions, centering on financing one's education, culminating in a capstone project evaluating student loan offers.

  FNCE0002001 ( Syllabus )

Past Courses

• FNCE0002 - Essentials of Finance

  This course introduces students to the key financial concepts through the lens of personal financial decisions, centering on financing one's education, culminating in a capstone project evaluating student loan offers.

• FNCE2380 - Capital Markets

  The objective of this course is to give you a broad understanding of the framework and evolution of U.S. capital markets, the instruments that are traded, the mechanisms that facilitate their trading and issuance, and the motivations of issuers and investors across different asset classes. The course will highlight the problems that capital market participants are seeking to solve, which you can use in your post-Wharton careers to evaluate future market innovations. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another and the associated economic and financial stability issues. We will draw from events in the aftermath of the recent financial crisis, which illustrate financing innovations and associated risks, as well as policy responses that can change the nature of these markets. In addition to course prerequisites, FNCE 1010 is recommended.

• FNCE2830 - Strategic Equity Finance

  This course discusses actual situations where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues This half-semester course combines lectures and cases, and will go through actual situation where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues such as investor activism, governance and regulatory and valuation impact.

• FNCE3990 - Independent Study

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

• FNCE7380 - Capital Markets

  The objective of this course is to give you a broad understanding of the instruments traded in modern financial markets, the mechanisms that facilitate their trading and issuance, as well as, the motivations of issuers and investors across different asset classes. The course will balance functional and institutional perspectives by highlighting the problems capital markets participants are seeking to solve, as well as, the existing assets and markets which have arisen to accomplish these goals. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another, and the associated economic and financial stability issues. The course is taught in lecture format, and illustrates key concepts by drawing on a collection of case studies and visits from industry experts. FNCE 6130 is recommended but not required.

• FNCE7830 - Strategic Equity Finance

  This course discusses actual situations where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues. This half-semester course combines lectures and cases, and will go through actual situation where companies need to make strategic decisions on raising equity capital. We will address different phases of a company's life cycle. Through these cases, from the decision-makers perspective, we will explore the different paths that can be taken and consider issues such as investor activism, governance and regulatory and valuation impact.

• FNCE8950 - Global Business Week

  The Global Business Week (GBW) is set of classes offered annually to WEMBA second years. They are often repeated, but try to accommodate student interest along with faculty expertise and willingness, so can change with some regularity.

• FNCE8960 - Global Modular Course

  Open to MBA, Executive MBA and Undergraduate students, these modular courses are intended to provide unique educational experiences to students in a regional context that has particular resonance with the topic. Taught around the globe, the modular courses help us enrich the curriculum and research on our own campuses in Philadelphia and San Francisco.

• FNCE8990 - 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. Applications for FNCE 8990 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.

• PPE3999 - Independent Study

  Student arranges with a faculty member to pursue a research project on a suitable topic. For more information about research and setting up independent studies, visit: https://ppe.sas.upenn.edu/study/curriculum/independent-studies

• What is naked short selling?, CNNMoney.com - 05/19/2010

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