Research

The Finance Department at Ross is one of the world's leading research groups in financial economics. We have maintained its leadership by recruiting top scholars and graduate students and by fostering a research culture that encourages collaboration and cross-disciplinary work. We also provide material support for research through fellowships beyond the usual summer support that allow faculty to reduce their teaching responsibilities and work on resource intensive research projects. The result has been innovative work that cuts across boundaries within finance as well as crosses business disciplinary boundaries.

The research culture of our area has also had an enormous impact on our graduate students who are inculcated into this culture from the time of their arrival at Ross. The collaborative atmosphere has resulted in several joint papers with faculty and with other graduate students. Many of these papers have been published or accepted in top journals.

Our faculty have been leading contributors to the field of Finance. During the last three decades, we have been consistently ranked as one of the leading contributors to the top finance journals.

Many recent examples of our cross disciplinary work, collaborative atmosphere, and productivity can be found in our publications and working papers.

While we seek to make fundamental contributions to finance, our research also has significant implications for finance and business practitioners. For instance, 

• Our faculty members have often received prestigious awards for their studies. For instance:
   

  • Professor Tyler Shumway received the prestigious Smith-Breeden Prize for the best paper in the Journal of Finance for 2005. His paper shows that professional futures traders trade more aggressively in the afternoon when they have lost money in the morning, which is probably an irrational way for them to behave. The paper finds that traders that are behaving irrationally affect prices in the short run, but in the long run more rational traders trade against them and their behavior does not affect prices.
     

  • Professor E. Han Kim and coauthors received the prestigious Jensen Price (second place) for the best papers in the Journal of Financial Economics in the areas of Corporate Finance and Organizations for 2009. Their paper demonstrates that elite universities had favorable effects on individual research productivity in the 1970s but the effects disappeared in the 1990s due to the internet, which gives scholars in remote places access to the forefront of research. This sheds light on how the internet revolution has made physical firm boundaries fuzzier in knowledge-based industries.
     
    

• The research of Professors M. P. Narayanan and Nejat Seyhun has been instrumental in uncovering the practice of options backdating. Their first research paper that suggested backdating might be going on was circulated in January 2005, well before the scandal came to limelight. Their work has been extensively cited in major media outlets such as New York Times, Wall Street Journal, Financial Times, Times of London and MSNBC. In a recent work they estimate the economic loss to shareholders of firms implicated in the scandal to be more than $400 million per firm while the executives of these firms benefited less than $3 million on average. For details, see http://sitemaker.umich.edu/optionsdating/.
  
  

• Professor E. Han Kim and coauthor have examined conflicts of interest in proxy voting by mutual funds. The paper finds that funds are no more likely to vote with management at client firms than non-clients. At the policy level, however, the paper finds a positive relation between the volume of pension business a fund's parent does and its propensity to vote with management. This work has been cited extensively, including the recent BusinessWeek article "Fidelity’s Divided Loyalty."