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Winter 2002 CalBusiness  
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Four Top Scholars in Finance and Manufacturing Join Haas Faculty

Terrence HendershottAn expert on electronic trading systems, Terrence Hendershott has joined the Haas faculty as an assistant professor of manufacturing and information technology.

Hendershott has created a theoretical model of how electronic trading systems compete with stock exchanges. The largest electronic trading systems are electronic communications networks (ECNs), which are used for 30 to 40% of NASDAQ trades each day.

Hendershott is now looking at the impact that ECNs have had on stock trading. This includes the expansion of trading outside the normal trading day, the cost of trading using ECNs, and how the use of ECNs affects price discovery. "While the use of ECNs has grown dramatically since the mid-90s, unless there is some structural change in trading behavior, I don't think we will see 24-hour trading anytime soon," says Hendershott.

As a sideline to this work, Hendershott collaborates with his father, Patric, who is a professor of property economics and finance at the University of Aberdeen in Scotland, and his brother, Robert, who is an associate professor of finance at Santa Clara University. "The papers we wrote combined our interests in how the Internet is affecting the economy by examining real estate (malls in particular)," says Hendershott.

Hendershott earned his bachelors in mathematics and statistics at Miami University. He spent several years in industry, first as a senior analyst at Andersen Consulting then as an associate at Cornerstone Research. He earned his Ph.D. in operations, information, and technology at the Graduate School of Business at Stanford University in 1999.

Christopher HennessyChristopher Hennessy joined the Finance Group faculty this fall fresh from Princeton University where he received his Ph.D. and served as a lecturer in fall 2000. His research interests include how businesses are financed and how this affects decision making.

In his dissertation Hennessy discussed the way in which the choice of financing for a business (debt, equity, convertible debt, or equity warrants) affects investment policy. "I deal with two issues, the amount of investment and the riskiness of investment," says Hennessy.

Hennessy believes that understanding what determines the investment policy of businesses is essential to fostering economic growth. "A major part of the reason why the US enjoys its high standard of living is that capital is plentiful," says Hennessy. The US has given investors superior protection in terms of stability of property rights and guarantees against managers running off with funds. Russia offers a clear demonstration of what happens if you do not anticipate and protect against perverse managerial incentives."

In addition to his Ph.D. in economics, Hennessy has a Masters of Public Administration from Princeton University. His BA is from Swarthmore College in economics and political science. Prior to pursuing his doctoral degree, he was a senior consultant in the Barents Group of KPMG Peat Marwick.

Terry OdeanTerry Odean, Ph.D. 97, has returned to the Haas School after four years as an assistant professor at the Graduate School of Management at UC Davis. He received extensive national press coverage for this research because it shows that individual investors don't make rational decisions about their investments.

Odean's work in behavioral finance started as theoretical work early in his graduate career here at Haas. His dissertation included empirical analysis of trading records for 10,000 randomly selected accounts given to him by an anonymous firm. In this data he saw patterns that challenged conventional ideas about investors' behavior. The traditional model assumes that investors are rational when they make decisions. Odean has shown that many investors consistently make sub-optimal investment decisions. On average, the stocks individual investors buy underperform those they sell, and the investors who trade most actively earn the lowest average returns.

"Doing research that shows people buy and sell too frequently has taken the fun out of trading for me," says Odean. "When I consider selling or buying, I end up saying to myself, 'This probably isn't as smart as I think it is.'"

Candace YanoUC Berkeley Professor Candace Yano has joined the Manufacturing and Information Technology Group at the Haas School this fall while still maintaining her ties to the depart-ment of Industrial Engineering and Operations Research in the College of Engineering (IEOR).

"Candi Yano is a first-rate scholar and teacher who will also provide leadership for our efforts to enhance and improve the operations management parts of our curriculum," says Ben Hermalin, dean.

Yano has been with IEOR since 1993 and served as chair of the department for the last six years. She holds a Ph.D. and a MS in industrial engineering, a MS in operations research, and an AB in economics, all from Stanford University.

In her research, Yano studies inventory control, production planning, distribution systems planning, integrated production-quality models, and integrated manufacturing-marketing models. Her work on integrated manufacturing-marketing models is concerned with determining the degree of product variety that best balances the marketing benefits of product differentiation with the associated manufacturing design and operations costs. Yano holds editorial positions at several journals including IIE Transactions on Scheduling and Logistics and the Journal of Manufacturing and Service Operations Management.

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