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Forensic Finance

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  • Jay R. Ritter

Abstract

During popular prime-time television shows, forensic investigators use specialized but wide-ranging scientific knowledge of chemical trace evidence, bacteria, DNA, teeth, insects, and other specialties to collect and sift evidence of possible crimes. In economics and finance, forensic investigators apply their own specialized knowledge of prices, quantities, timing, and market institutions -- and sometimes discover or substantiate evidence that is used by regulatory or criminal enforcement agencies. In this article, I will discuss four recent topics in forensic finance, all of which have attracted media attention: 1) the late trading of mutual funds, 2) stock option backdating, 3) the allocation of underpriced initial public offerings to corporate executives, and 4) changes in the records of stock analyst recommendations. In most of these cases, once certain practices or patterns have been publicized, financial industry practice has changed.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 22 (2008)
Issue (Month): 3 (Summer)
Pages: 127-47

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Handle: RePEc:aea:jecper:v:22:y:2008:i:3:p:127-47

Note: DOI: 10.1257/jep.22.3.127
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References

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  1. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, Financial Management Association, vol. 33(3), Fall.
  2. Heron, Randall A. & Lie, Erik, 2007. "Does backdating explain the stock price pattern around executive stock option grants?," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(2), pages 271-295, February.
  3. Alexander Ljungqvist & Christopher Malloy & Felicia Marston, 2009. "Rewriting History," Journal of Finance, American Finance Association, American Finance Association, vol. 64(4), pages 1935-1960, 08.
  4. Zitzewitz, Eric, 2003. "How Widespread Is Late Trading in Mutual Funds?," Research Papers, Stanford University, Graduate School of Business 1817, Stanford University, Graduate School of Business.
  5. Zitzewitz, Eric, 2002. "Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds," Research Papers, Stanford University, Graduate School of Business 1749, Stanford University, Graduate School of Business.
  6. Goetzmann, William N. & Ivković, Zoran & Rouwenhorst, K. Geert, 2001. "Day Trading International Mutual Funds: Evidence and Policy Solutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 36(03), pages 287-309, September.
  7. David Yermack, 1996. "Good Timing: CEO Stock Option Awards and Company News Announcements," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 96-41, New York University, Leonard N. Stern School of Business-.
  8. Rahul Bhargava & Ann Bose & David A. Dubofsky, 1998. "Exploiting International Stock Market Correlations with Open-end International Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 25(5&6), pages 765-773.
  9. William G. Christie & Paul H. Schultz, 1995. "Policy Watch: Did Nasdaq Market Makers Implicitly Collude?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 199-208, Summer.
  10. Zitzewitz Eric W, 2009. "Prosecutorial Discretion in Mutual Fund Settlement Negotiations, 2003-7," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-42, June.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Generalized fraud on Wall Street
    by Economic Logician in Economic Logic on 2008-10-20 13:38:00
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Cited by:
  1. Goergen, Marc & Renneboog, Luc, 2011. "Managerial compensation," Journal of Corporate Finance, Elsevier, Elsevier, vol. 17(4), pages 1068-1077, September.
  2. Henk Berkman & Michael McKenzie & Patrick Verwijmeren, 2013. "Hole in the Wall: Informed Short Selling ahead of Private Placements," Tinbergen Institute Discussion Papers 13-153/IV/62, Tinbergen Institute.
  3. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics, University of Munich, Department of Economics 16179, University of Munich, Department of Economics.
  4. Officer, Micah S. & Ozbas, Oguzhan & Sensoy, Berk A., 2010. "Club deals in leveraged buyouts," Journal of Financial Economics, Elsevier, Elsevier, vol. 98(2), pages 214-240, November.
  5. Ivashina, Victoria & Sun, Zheng, 2011. "Institutional stock trading on loan market information," Journal of Financial Economics, Elsevier, Elsevier, vol. 100(2), pages 284-303, May.

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