On March 9, 2016 Peking University HSBC Business School invited Dr. Bo Zhao, a Ph.D. in Economics from the University of Hong Kong. Dr. Zhao presented his work entitled “Does Financial Regulation Matter? The Case of the U.S. 1934 Securities Exchange Act.” Dr. Zhao has a BS in Mathematics from Nanjing University and a MS in Economics from Xiamen University. His research interests focus on political economy, law and economics, financial economics and statistical learning.
Dr. Zhao’s presentation related to his research focused on The Securities and Exchange Acts of 1933/1934 (research focuses on returns) the first nationwide public laws of financial regulation in the world. The laws were implemented with the aims of making information disclosure mandatory and market manipulation illegal. Subsequent financial regulations all over the world followed the principles embedded in these two laws. However, 80 years later, the effects of these laws on financial markets are still under debate and continue to have deep implications on law and financial development at a global scale. Prominent researchers have found that the laws are at best ineffective in the aspects of increasing stock returns. Some researchers discovered minimal evidence proving that the laws improve the market by reducing information asymmetry. Others found that mandatory disclosure requirements in the 1964 Securities Acts Amendments improved OTC firms’ returns, but their positive effects on exchange listed firms have yet to be directly proven.
In his study Dr. Zhao and his colleagues examined the impact of the 1934 Act in reducing stock idiosyncratic volatility and found that Volatility significantly reduced after the enforcement of the 1934 Exchange Act and firms disclosing less before the Act were deeply affected than firms disclosing more before the Act. Moreover, the Act was successful in reducing stock volatilities due to which Market manipulation was reduced. The seminar concluded with a brief Q&A session.
Reported by Fayeza Yahya
