and professor of Finance and trust me I’ll talk about finest today maybe more
I’ll talk about finest today maybe more
I’ll talk about finest today maybe more than most of you are hoping for but when
than most of you are hoping for but when
than most of you are hoping for but when I was young professor of Finance was not
I was young professor of Finance was not
I was young professor of Finance was not a mind warp most one at least now I was
a mind warp most one at least now I was
a mind warp most one at least now I was much more fascinated by sports any sport
much more fascinated by sports any sport
much more fascinated by sports any sport really but let me show you one sport
really but let me show you one sport
really but let me show you one sport that I found really cool but I was
that I found really cool but I was
that I found really cool but I was really bad so my wrestling well for
really bad so my wrestling well for
really bad so my wrestling well for obvious reasons I was never going to be
obvious reasons I was never going to be
obvious reasons I was never going to be very successful but sumo wrestling is a
very successful but sumo wrestling is a
very successful but sumo wrestling is a fascinating sport it has a tradition of
fascinating sport it has a tradition of
fascinating sport it has a tradition of over a thousand years and there’s a lot
over a thousand years and there’s a lot
over a thousand years and there’s a lot of ritual and honor in the sport so if
of ritual and honor in the sport so if
of ritual and honor in the sport so if you would ever watch a game you would
you would ever watch a game you would
you would ever watch a game you would see that before the match sumo wrestlers
see that before the match sumo wrestlers
see that before the match sumo wrestlers throw salt to purify the ring to get rid
throw salt to purify the ring to get rid
throw salt to purify the ring to get rid of evil on the ground and the daily
of evil on the ground and the daily
of evil on the ground and the daily lives of sumo wrestlers still follow
lives of sumo wrestlers still follow
lives of sumo wrestlers still follow strict addition so this is really a
strict addition so this is really a
strict addition so this is really a sport with a lot of honor and ritual
sport with a lot of honor and ritual
sport with a lot of honor and ritual well my topic today is academic
well my topic today is academic
well my topic today is academic crime-scene investigation and even in
crime-scene investigation and even in
crime-scene investigation and even in the honorable sports such as sumo
the honorable sports such as sumo
the honorable sports such as sumo wrestling there were rumors of
wrestling there were rumors of
wrestling there were rumors of match-fixing of wrestlers purposely
match-fixing of wrestlers purposely
match-fixing of wrestlers purposely losing matches well this is not easy to
losing matches well this is not easy to
losing matches well this is not easy to prove it turned out there was academic
prove it turned out there was academic
prove it turned out there was academic professors who made the attempt Mark
professors who made the attempt Mark
professors who made the attempt Mark Duggan and Steven Levitt they looked at
Duggan and Steven Levitt they looked at
Duggan and Steven Levitt they looked at potential fraud in sumo wrestling and I
potential fraud in sumo wrestling and I
potential fraud in sumo wrestling and I did this by looking at large data sets
did this by looking at large data sets
did this by looking at large data sets so before I’ll move to my own field if
so before I’ll move to my own field if
so before I’ll move to my own field if you’re financed let me talk you through
you’re financed let me talk you through
you’re financed let me talk you through what they did in the world of sumo
what they did in the world of sumo
what they did in the world of sumo wrestling they had loot huge set of data
wrestling they had loot huge set of data
wrestling they had loot huge set of data over ten years of data over 30,000
over ten years of data over 30,000
over ten years of data over 30,000 fights and I could see the match
fights and I could see the match
fights and I could see the match outcomes and this is what they used so
outcomes and this is what they used so
outcomes and this is what they used so they didn’t question wrestlers they
they didn’t question wrestlers they
they didn’t question wrestlers they didn’t go to matches or they looked at
didn’t go to matches or they looked at
didn’t go to matches or they looked at data in sumo wrestling in a tournament
data in sumo wrestling in a tournament
data in sumo wrestling in a tournament every wrestler fights 15 times and the
every wrestler fights 15 times and the
every wrestler fights 15 times and the eighth win is the most important so sure
eighth win is the most important so sure
eighth win is the most important so sure the more you win the better but the
the more you win the better but the
the more you win the better but the eighth win is four times more important
eighth win is four times more important
eighth win is four times more important for your for their salary for their
for your for their salary for their
for your for their salary for their status so if there’s any fraud you would
status so if there’s any fraud you would
status so if there’s any fraud you would think well some new comes up for the
think well some new comes up for the
think well some new comes up for the eighth win
eighth win
eighth win maybe bribe somebody who already has
maybe bribe somebody who already has
maybe bribe somebody who already has more than eight wins to beat him yeah
more than eight wins to beat him yeah
more than eight wins to beat him yeah and that is what they found so many
and that is what they found so many
and that is what they found so many coming up for the eighth win was much
coming up for the eighth win was much
coming up for the eighth win was much more likely to win than you would
more likely to win than you would
more likely to win than you would otherwise
otherwise
otherwise and this was especially the case when
and this was especially the case when
and this was especially the case when the wrestlers knew each other well when
the wrestlers knew each other well when
the wrestlers knew each other well when they fought each other more often in the
they fought each other more often in the
they fought each other more often in the past so collusion might have been easier
past so collusion might have been easier
past so collusion might have been easier and what’s really cool is the next time
and what’s really cool is the next time
and what’s really cool is the next time these wrestlers meet it was the other
these wrestlers meet it was the other
these wrestlers meet it was the other guy who was more more likely to win some
guy who was more more likely to win some
guy who was more more likely to win some repayment some payment in kind and all
repayment some payment in kind and all
repayment some payment in kind and all these parents disappeared whenever
these parents disappeared whenever
these parents disappeared whenever rumors in the popular media so they show
rumors in the popular media so they show
rumors in the popular media so they show their estrade in sumo wrestling I can
their estrade in sumo wrestling I can
their estrade in sumo wrestling I can tell you’re not so surprised because yes
tell you’re not so surprised because yes
tell you’re not so surprised because yes we know there’s fraud in sports
we know there’s fraud in sports
we know there’s fraud in sports I notice there plenty of examples but I
I notice there plenty of examples but I
I notice there plenty of examples but I think the cool thing here is that you
think the cool thing here is that you
think the cool thing here is that you can show there is fraud just by looking
can show there is fraud just by looking
can show there is fraud just by looking at large data sets right without seeing
at large data sets right without seeing
at large data sets right without seeing potential bribes that are being paid
potential bribes that are being paid
potential bribes that are being paid authorities could then follow up so in
authorities could then follow up so in
authorities could then follow up so in the sumo wrestling example the police
the sumo wrestling example the police
the sumo wrestling example the police investigators started investigating
investigators started investigating
investigators started investigating cellphone text messages and indeed they
cellphone text messages and indeed they
cellphone text messages and indeed they found suspicious match messages
found suspicious match messages
found suspicious match messages indicating that messages were being sold
indicating that messages were being sold
indicating that messages were being sold and later several wrestlers admitted to
and later several wrestlers admitted to
and later several wrestlers admitted to to fraud so now it comes we should do
to fraud so now it comes we should do
to fraud so now it comes we should do the same in the world of finance in
the same in the world of finance in
the same in the world of finance in finance we are drowning in beta we have
finance we are drowning in beta we have
finance we are drowning in beta we have such a lot of data right
such a lot of data right
such a lot of data right we know the profits of companies we know
we know the profits of companies we know
we know the profits of companies we know how they’re financed you can track stock
how they’re financed you can track stock
how they’re financed you can track stock price at any point in time you can find
price at any point in time you can find
price at any point in time you can find press releases the information out there
press releases the information out there
press releases the information out there is huge and it’s getting better and
is huge and it’s getting better and
is huge and it’s getting better and better with increasing level of details
better with increasing level of details
better with increasing level of details so in finance we’re drowning in in data
so in finance we’re drowning in in data
so in finance we’re drowning in in data but we’re starving for wisdom the
but we’re starving for wisdom the
but we’re starving for wisdom the financial bill has a really poor
financial bill has a really poor
financial bill has a really poor reputation how do I know this well we
reputation how do I know this well we
reputation how do I know this well we asked people you can do a survey asking
asked people you can do a survey asking
asked people you can do a survey asking people how to rank all the different
people how to rank all the different
people how to rank all the different industries in an economy based from best
industries in an economy based from best
industries in an economy based from best reputation to worst reputation or
reputation to worst reputation or
reputation to worst reputation or recently finance is typically at the
recently finance is typically at the
recently finance is typically at the bottom also mr. Becker it’s a lack of
bottom also mr. Becker it’s a lack of
bottom also mr. Becker it’s a lack of industry but then finance is really
industry but then finance is really
industry but then finance is really close to being at the bottom social
close to being at the bottom social
close to being at the bottom social media tells the same story if you look
media tells the same story if you look
media tells the same story if you look at tweets it turns out that almost 90%
at tweets it turns out that almost 90%
at tweets it turns out that almost 90% of those tweets of our banks are
of those tweets of our banks are
of those tweets of our banks are negative so the financial world has a
negative so the financial world has a
negative so the financial world has a problem with trust and this is
problem with trust and this is
problem with trust and this is troublesome in a way over
troublesome in a way over
troublesome in a way over selling in finance is is trust are you
selling in finance is is trust are you
selling in finance is is trust are you invest in a stock for the promise of
invest in a stock for the promise of
invest in a stock for the promise of getting a future return so if people
getting a future return so if people
getting a future return so if people don’t trust financial markets they stop
don’t trust financial markets they stop
don’t trust financial markets they stop investing in financial markets which
investing in financial markets which
investing in financial markets which means it’s much harder for companies to
means it’s much harder for companies to
means it’s much harder for companies to get financing which means there’s less
get financing which means there’s less
get financing which means there’s less investment there’s less innovation
investment there’s less innovation
investment there’s less innovation there’s less employment lower economic
there’s less employment lower economic
there’s less employment lower economic growth so this stuff is important to us
growth so this stuff is important to us
growth so this stuff is important to us all so I’m professor of Finance I study
all so I’m professor of Finance I study
all so I’m professor of Finance I study numbers a lot of numbers big financial
numbers a lot of numbers big financial
numbers a lot of numbers big financial data and I can tell you you’re starting
data and I can tell you you’re starting
data and I can tell you you’re starting to feel sorry for me about how boring my
to feel sorry for me about how boring my
to feel sorry for me about how boring my life is but I’m here to tell you that is
life is but I’m here to tell you that is
life is but I’m here to tell you that is actually crucial it’s vital that
actually crucial it’s vital that
actually crucial it’s vital that somebody looks at these big financial
somebody looks at these big financial
somebody looks at these big financial they’re one big problem in the financial
they’re one big problem in the financial
they’re one big problem in the financial world is insider trading insider trading
world is insider trading insider trading
world is insider trading insider trading we really reduces trust in financial
we really reduces trust in financial
we really reduces trust in financial markets and this is something I’ve
markets and this is something I’ve
markets and this is something I’ve looked at so in insider trading it’s
looked at so in insider trading it’s
looked at so in insider trading it’s somebody with private information
somebody with private information
somebody with private information trading on this to make a profit right
trading on this to make a profit right
trading on this to make a profit right if the privileged few making a profit at
if the privileged few making a profit at
if the privileged few making a profit at the expense of the outsiders of ordinary
the expense of the outsiders of ordinary
the expense of the outsiders of ordinary investors I think this has sparked a
investors I think this has sparked a
investors I think this has sparked a popular outrage about the excesses of
popular outrage about the excesses of
popular outrage about the excesses of Wall Street it’s one of the most common
Wall Street it’s one of the most common
Wall Street it’s one of the most common white-collar crime these days so instead
white-collar crime these days so instead
white-collar crime these days so instead of trading problematic
of trading problematic
of trading problematic what if finance professors could reduce
what if finance professors could reduce
what if finance professors could reduce insider trading well I think we can I
insider trading well I think we can I
insider trading well I think we can I just as you can study some fraud in sumo
just as you can study some fraud in sumo
just as you can study some fraud in sumo wrestling by looking at a large set of
wrestling by looking at a large set of
wrestling by looking at a large set of data you can do the same with insider
data you can do the same with insider
data you can do the same with insider trading looking at a lot of information
trading looking at a lot of information
trading looking at a lot of information I people might lie but these beta they
I people might lie but these beta they
I people might lie but these beta they tell the truth so let me show you a
tell the truth so let me show you a
tell the truth so let me show you a graph from study that I’ve done with two
graph from study that I’ve done with two
graph from study that I’ve done with two co-authors and we we look at insider
co-authors and we we look at insider
co-authors and we we look at insider trading so I’ll show you the trading
trading so I’ll show you the trading
trading so I’ll show you the trading pattern later in a second but what the
pattern later in a second but what the
pattern later in a second but what the graph currently shows on the horizontal
graph currently shows on the horizontal
graph currently shows on the horizontal axis is the number of days compared to
axis is the number of days compared to
axis is the number of days compared to the announcement day so they 0 is an
the announcement day so they 0 is an
the announcement day so they 0 is an announcement day when news comes out 10
announcement day when news comes out 10
announcement day when news comes out 10 means 10 days after the announcement
means 10 days after the announcement
means 10 days after the announcement minus 10 means 10 days before the
minus 10 means 10 days before the
minus 10 means 10 days before the announcement so insider trading is
announcement so insider trading is
announcement so insider trading is you’re the boss of a big company and
you’re the boss of a big company and
you’re the boss of a big company and there’s been a disaster in one of your
there’s been a disaster in one of your
there’s been a disaster in one of your factories I watch it but you should do
factories I watch it but you should do
factories I watch it but you should do them it’s announced there’s been a
them it’s announced there’s been a
them it’s announced there’s been a disaster and then you can trade in your
disaster and then you can trade in your
disaster and then you can trade in your own stock that’s fine what is not
own stock that’s fine what is not
own stock that’s fine what is not allowed it’s a first sell all your stock
allowed it’s a first sell all your stock
allowed it’s a first sell all your stock and then disclose there’s been a
and then disclose there’s been a
and then disclose there’s been a disaster in one of your factories all
disaster in one of your factories all
disaster in one of your factories all right what we look at it’s short
right what we look at it’s short
right what we look at it’s short interest around the announcement for
interest around the announcement for
interest around the announcement for private placement be comfortable issues
private placement be comfortable issues
private placement be comfortable issues in the United States so it’s not about
in the United States so it’s not about
in the United States so it’s not about disasters but the idea is the same it’s
disasters but the idea is the same it’s
disasters but the idea is the same it’s allowed to trade afterwards it’s not
allowed to trade afterwards it’s not
allowed to trade afterwards it’s not allowed to trade before they zero so
allowed to trade before they zero so
allowed to trade before they zero so what do we see when the short interest
what do we see when the short interest
what do we see when the short interest go up well there’s a pretty big increase
go up well there’s a pretty big increase
go up well there’s a pretty big increase about four days before the announcement
about four days before the announcement
about four days before the announcement so clearly before it’s legal to trade we
so clearly before it’s legal to trade we
so clearly before it’s legal to trade we do see there’s a lot of trading there’s
do see there’s a lot of trading there’s
do see there’s a lot of trading there’s much more information in the study that
much more information in the study that
much more information in the study that I have time for to tell you so you sort
I have time for to tell you so you sort
I have time for to tell you so you sort of have to trust me there let me show
of have to trust me there let me show
of have to trust me there let me show you this is insider trading and for
you this is insider trading and for
you this is insider trading and for example we show that this pattern is
example we show that this pattern is
example we show that this pattern is much stronger when we know if more
much stronger when we know if more
much stronger when we know if more people have inside information and we
people have inside information and we
people have inside information and we also know that these people that trade
also know that these people that trade
also know that these people that trade before the announcement are not simply
before the announcement are not simply
before the announcement are not simply guessing no they’re making huge profits
guessing no they’re making huge profits
guessing no they’re making huge profits they know the type of information that
they know the type of information that
they know the type of information that comes out later so this is forensic
comes out later so this is forensic
comes out later so this is forensic finance and I think these studies
finance and I think these studies
finance and I think these studies matters for regulators for example
matters for regulators for example
matters for regulators for example finance academics we’re good at looking
finance academics we’re good at looking
finance academics we’re good at looking at large data sets it’s what we’re
at large data sets it’s what we’re
at large data sets it’s what we’re trained to do now this is harder for
trained to do now this is harder for
trained to do now this is harder for regulators who often claimed to be
regulators who often claimed to be
regulators who often claimed to be understaffed underfunded finance
understaffed underfunded finance
understaffed underfunded finance academics I can do a careful structured
academics I can do a careful structured
academics I can do a careful structured analysis of big financial data
analysis of big financial data
analysis of big financial data controlling for a lot of other factors
controlling for a lot of other factors
controlling for a lot of other factors and ruling out all kinds of alternative
and ruling out all kinds of alternative
and ruling out all kinds of alternative explanations right before we draw
explanations right before we draw
explanations right before we draw conclusions and here we can show
conclusions and here we can show
conclusions and here we can show regulators and prosecutors where to look
regulators and prosecutors where to look
regulators and prosecutors where to look in which markets around which
in which markets around which
in which markets around which transactions is their suspicious
transactions is their suspicious
transactions is their suspicious behavior but in our case this is when
behavior but in our case this is when
behavior but in our case this is when there’s a lot of insiders involved and
there’s a lot of insiders involved and
there’s a lot of insiders involved and really large negative announcement
really large negative announcement
really large negative announcement effects
to be clear I don’t think we should use
to be clear I don’t think we should use general data to accuse particular people
general data to accuse particular people
general data to accuse particular people of committing fraud we really have to
of committing fraud we really have to
of committing fraud we really have to work together with regulators and
work together with regulators and
work together with regulators and prosecutors that we can tell them where
prosecutors that we can tell them where
prosecutors that we can tell them where to look
to look
to look on which transactions which markets and
on which transactions which markets and
on which transactions which markets and they can follow up just as what happened
they can follow up just as what happened
they can follow up just as what happened in the sumo-wrestling example it’s about
in the sumo-wrestling example it’s about
in the sumo-wrestling example it’s about working together
sunlight is often said to be the best
sunlight is often said to be the best disinfectant and this is highly relevant
disinfectant and this is highly relevant
disinfectant and this is highly relevant here
here
here we need sunlight we need to shine some
we need sunlight we need to shine some
we need sunlight we need to shine some light on the financial world if people
light on the financial world if people
light on the financial world if people know that they’re being watched the
know that they’re being watched the
know that they’re being watched the problem might already reduce right if
problem might already reduce right if
problem might already reduce right if people know that forensic finance is a
people know that forensic finance is a
people know that forensic finance is a big thing the people who are thinking of
big thing the people who are thinking of
big thing the people who are thinking of committing financial fraud might be
committing financial fraud might be
committing financial fraud might be framed from doing so so we can make
framed from doing so so we can make
framed from doing so so we can make markets fairer just by knowing as
markets fairer just by knowing as
markets fairer just by knowing as forensic finance is a big thing for me
forensic finance is a big thing for me
forensic finance is a big thing for me forensic science really provides an
forensic science really provides an
forensic science really provides an opportunity to do research about things
opportunity to do research about things
opportunity to do research about things that people care about so let’s have
that people care about so let’s have
that people care about so let’s have finance academics help ID regulators
finance academics help ID regulators
finance academics help ID regulators let’s make markets fair and let’s
let’s make markets fair and let’s
let’s make markets fair and let’s increase the trust in the financial
increase the trust in the financial
increase the trust in the financial world thank you
”
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