Past and Current
Research Agenda --2010
Christophe Faugère, Ph.D.
My main areas of research are asset/stock (market) valuation and
institutional investors’ behavior. My articles appear in Advances in
Investment Analysis and Portfolio Management, Journal of Applied Finance,
Journal of Portfolio Management, Journal of Investing and Advances in
Financial Planning and Forecasting.
I am also involved in cross-disciplinary research in the areas of
Information Economics and Corporate Governance/Management.
I.
Asset Valuation and Returns
·
C. Faugère and H. A. Shawky, “A
Valuation Formula for High Technology Firms that are in the Early Stage of
their Lifecycle”, Advances in Financial Planning and Forecasting, New series
2005, 1, 101-130. This article develops
a model to value the stock of technology companies that have zero or negative
earnings early in their lifecycle.
·
I have also developed models (with co-authors) to explain the behavior
of a stock market index (S&P 500) returns and valuation, based on
macroeconomic variables such as inflation and productivity growth, and a new
understanding of the P/E ratio.
o
C. Faugère and H. A. Shawky, 2002, “Endogenous Growth and
Stock Returns Volatility in the Long-Run”, Advances in Investment Analysis and Portfolio
Management, 9, 1-20. This article attempts to explain S&P 500 stock
returns based on a current macroeconomic growth model.
o
C. Faugère and J. Van Erlach, 2009, “A Required Yield Theory of Stock Market
Valuation and Treasury Yield Determination”, Financial
Markets, Institutions and Instruments, 18 (1), 27-88. This article introduces our Required Yield Theory (RYT) and applies it to the valuation of the
S&P 500 and Treasuries.
·
C. Faugère and J. Van Erlach, “The Equity Premium: Consistent with
GDP Growth and Portfolio Insurance”, The Financial Review, 41(4), 547-564. In
this paper, we analyze the equity premium (S&P 500 return minus Treasury
yield), and find that it is fully consistent with historic GDP growth and
option pricing due to a portfolio insurance motive.
·
C. Faugère and J. Van Erlach, “The Price of
Gold: A Global Required Yield Theory”, Journal of Investing, 14 (1), Spring 2005,
99-111. Required Yield Theory is applied to price Gold in this paper.
II.
Institutional Investor Behavior
·
C. Faugère and H. A. Shawky, “Volatility and
Institutional Investors Holdings During a Declining Market: A Case Study of NASDAQ
During the Year 2000”, Journal of Applied Finance, Winter/Spring 2003, 13 (2),
32-42. This article studies the behavior of institutional investors (mutual
funds, pension funds) around a market downturn and documented the comparative
advantage that institutional investors have over individual investors
performance-wise.
· C. Faugère, H. A. Shawky, and D. M. Smith, “Sell Discipline and Institutional Money Management”, The Journal of Portfolio Management, 30 (3), Spring 2004, 95-105. This article studies and characterizes the successful sell strategies employed by a large sample of institutional portfolio managers in bear and bull market periods.
o
This article was featured in the New
York Times
May 30th, 2004.
·
C. Faugère, H. A. Shawky, and D. M. Smith, “Characterizing
Value and Growth Investing in Institutional Portfolios”, submitted to The Journal of Economics and
Finance, Spring 2006. This article characterizes the differences between
Value and Growth funds and identifies some new findings about the stocks picked
by portfolio managers adhering to these styles.
III.
Inter-Disciplinary Research
·
C. Faugère and G. Tayi, “Strategies for
Designing Free Software: A Game-Theoretic Approach”, forthcoming in ITEM.
An interest of mine has been Information Economics. I developed (with Giri K.
Tayi) a model to explain the best marketing strategies for designing free
software samples.
·
In another vein, I am co-authoring a study (with Janet Marler) that
examines the corporate governance issue from the standpoint of how shareholder
activism shapes compensation structures for middle and upper management. We
received a grant from the Center for Institutional Investment Management for
this study. The paper is “The
Effect of Institutional Activism on the Incentive Structure of Managerial
Compensation”.
IV.
Monetary Economics
· C. Faugère, “Macrofoundations for a (Near) 2% Inflation Target”, UAlbany, May 2010.