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Finance Professor Keke Song won the Fama/DFA Second Prize for the Best Capital Markets and Asset Pricing research paper published in the Journal of Financial Economics in 2011. Co-authored with Professors Nadia Massoud of York University, Debarshi Nandy of Brandeis University and Anthony Saunders of NYU Stern, the article is entitled “Do Hedge Funds Trade on Private Information? Evidence from Syndicated Lending”. The authors investigate important contemporary issues relating to hedge fund involvement in the syndicated loan market, in particular, the potential conflicts of interest that arise because of the absence of regulations relating to hedge funds’ dual holdings of loans and short positions in the equity of borrowing firms. They find evidence of possible short-selling on private information in the equity of the hedge fund borrowers prior to the public announcements of both loan originations and loan renegotiations (amendments). In addition, results show that hedge funds are more likely to lend to highly leveraged, low credit quality firms, where access to private information is potentially most valuable and where trading on such information can lead to greater profits. Their results have important implications for the current debate regarding regulation of the hedge fund industry.

The Journal of Financial Economics is one of the top three journals in business finance in the world with an acceptance rate less than 10%. It provides a specialized forum for the publication of research in the area of financial economics and the theory of the firm, placing primary emphasis on the highest quality analytical, empirical and clinical contributions in the following major areas: capital markets, financial institutions, corporate finance, corporate governance and the economics of organizations.

The highly sought-after prize is not the first prestigious award earned by the authors for this research; an earlier version of the paper won the Outstanding Paper in Financial Institutions Award at the 2010 Annual Meeting of the Eastern Finance Association.

Dr Song’s research was also recognized at the 2010 Northern Finance Association Meeting where his co-authored paper, titled “Should Short-Selling be Restricted during a Financial Crisis?”, won the CFA Toronto Award for the Best Paper on Capital Markets.