Brett W. Myers

Assistant Professor of Finance
Rawls College of Business
Texas Tech University
Finance W308
703 Flint Avenue
Mail Stop 2101
Lubbock, TX 79409-2101

Email: brett.myers <at> ttu.edu
Telephone: 806.834.5274

Publications

1.	Myers, Brett W., and Alessio Saretto, "Does Capital Structure Affect the Behavior of Non-Financial Stakeholders? An Empirical Investigation into Leverage and Union Strikes," Management Science, forthcoming. We use contract negotiation data to study how leverage affects the interaction between firms and an important non-financial stakeholder, labor unions. Consistent with the idea that leverage diminishes the bargaining position of labor, we find that unions are less likely to strike when a firm has high leverage or increases leverage prior to a contract negotiation. Consistent with the idea that firms intentionally use leverage to improve their bargaining position, we find that firms facing a high likelihood of a strike increase their leverage, as do firms that have recently experienced a strike.
2.	Hsu, Jason C., Brett W. Myers, and Ryan Whitby, 2016, "Timing Poorly: A Guide to Generating Poor Returns while Investing in Successful Strategies," Journal of Portfolio Management, Vol. 42, No. 2. The persistence and magnitude of the value premium run counter to the behavioral explanation of the value anomaly. How can investors continue to make the same widely recognized mistake? By examining the difference between mutual fund's reported but-and-hold or time-weighted returns and the average dollar-weighted returns or IRRS earned by end investors, we quantify the consistently negative impact of value investors' market timing decisions. Over the 1991-2013 period, value mutual fund investors underperformed the funds they invest in by 131 basis points. Our analysis also reveals that investors in growth, large cap, and small cap funds are similarly prone to unproductive allocation timing. We additionally find that less sophisticated investors tend to make poorer timing decisions: investors who hold funds with high expense ratios had larger return gaps than those who chose less costly funds, and investors in retail funds underperformed by a greater margin than those who qualified for institutional share class funds. We suggest that, by giving away the excess return, value investors themselves finance the value premium and ensure its continuance. Financial education may help individual investors refrain from trading their funds in a counterproductive fashion.
3.	Longstaff, Francis A., and Brett W. Myers, 2014, "How Does the Market Value Toxic Assets?," Journal of Financial and Quantitative Analysis, Vol. 49, No. 2. Lead Article, Winner of 2014 JFQA William F. Sharpe Award. How does the market value complex structured-credit securities? This issue is central to understanding the current financial crisis and identifying effective policy measures. We study this issue from a novel perspective by contrasting the valuation of CDO equity with that of bank stocks. This is possible because both CDO equity and bank stock represent levered first-loss residual claims on an underlying portfolio of debt. There are strong similarities in the two types of equity investments. Using an extensive data set of CDX index tranche prices, we find that the discount rates applied by the market to bank and CDO equity are very comparable. In addition, a single factor explains more than 64 percent of the variation in bank and CDO equity returns. Although banks are presumably active credit-portfolio managers, we find that bank alphas are significantly negative during the sample period and comparable in magnitude to those of more-passively-managed CDO equity. Both banks and CDO equity display significant sensitivity to "shadow banking" factors such as counterparty credit risk, the availability of collateralized financing for debt securities, and the liquidity of the derivatives market. A key implication is that we may be able to value "toxic" assets using readily-available stock market information.
4.	Hsu, Jason C., Vitali Kalesnik, and Brett W. Myers, 2010, "Performance Attribution: Measuring Dynamic Allocation Skill," Financial Analysts Journal, Vol. 66, No. 6, 17-26. Lead Article. Classical performance attribution methods decompose manager alpha into factor allocation and stock selection components. A manager can produce alpha through factor tilts relative to a benchmark and by stock selection within each factor. However, traditional attribution methods do not explicitly assess a manager’s dynamic allocation skill in the factor domain. We propose a generalized framework for performance attribution that decomposes the allocation effect into value-added from both static and dynamic factor exposures and thus yields additional insight into sources of manager alpha. Such a decomposition can assist investors in identifying and quantifying manager skill, provide insight into a managers investment approach, style, and biases, as well as aid in benchmark selection and creation.

Working Papers

1.	Hsu, Jason C., Vitali Kalesnik, Brett W. Myers, and Ryan Whitby, "Dynamic Segment Timing and the Predictability of Actively Managed Mutual Fund Returns." We use a holdings-based attribution model to disaggregate the benchmark-adjusted returns to U.S. equity mutual funds into components that reflect persistent segment tilts, the timing of segment returns, and stock selection relative to their benchmarks. We find that large-cap funds add value by timing segment returns, while small-cap funds add value by picking stocks. Overall, we find that active managers underperform their benchmarks when it comes to allocating to market segments (based along size, style, and industry dimensions). Further, we find that managers who have successfully timed market segment returns in the past generate higher benchmark-adjusted returns and factor alphas in the future, and that this is especially true for funds with a high active share measure. We argue that dynamic segment timing represents a type of manager skill that is not easily replicable.
2.	Marquardt, Blair B., Brett W. Myers, and Xu Niu, "Strategic Voting and Insider Ownership." How do outsider shareholders vote if they understand that the insider shares are committed with management proposals? In this paper, we show that the simple model of sincere voting is not sufficient in explaining shareholder voting behavior, and develop an alternative model of strategic voting. We demonstrate its superiority in mitigating shareholder welfare loss. Furthermore, voting results in the U.S. from 1994 to 2014 are better explained by the strategic model than the sincere model, evidencing voter activism to counter bias introduced by management-owned shares.
3.	Cardella, Laura & Brett W. Myers, "Firms, Politicians, and Capital Structure." The political environment in which a firm operates affects a firm's optimal capital structure. Politicians frequently derive a political benefit from imposing costs on firms. Nevertheless, politicians do not want firms to become financially distressed or enter bankruptcy as this affects their electoral prospects. Firms are therefore able to use debt to limit the impositions placed on them by politicians. As the marginal benefit that accrues to politicians of imposing costs on firms decreases, firms optimally decrease their debt levels. Using U.S. data, I show that large firms lower their debt levels on the order of 3% when friendly politicians chair senate committees that are relevant to their industry.

Works in Progress

1.	Gulen, Huseyin and Brett W. Myers, "Political Risk? Stock Returns in Battleground States."
2.	Gulen, Huseyin and Brett W. Myers, "The Selective Enforcement of Government Regulation: Battleground States and the EPA."
3.	Hsu, Jason C., and Brett W. Myers, "How Good Can It Be? ‘Crystal Ball’ Portfolios and the Upper Limits of Active Management."