Lauren H. Cohen

Powerlifting Professor

HBS Professor brings world powerlifting championship back to HBS

What do free weights and academic research about patent trolls have in common? If you’re Lauren Cohen, the L.E. Simmons Professor of Business Administration at Harvard Business School, more than you’d think. Professor Cohen, a competitive powerlifter and strongman, recently won the IPF Powerlifting Masters World Championship as a part of Team USA, which made us curious about how he got into such a demanding sport and how it influences how he thinks about his career. His answers may surprise you.

Divestment or Engagement? New Research on Innovation in the Energy Sector

A Centre for the Study of Financial Innovation (CSFI) Debate

Why you should watch: A new and important NBER working paper, by Cohen, Gurun and Nguyen, takes a long hard look at innovation in the energy industry - and concludes that divestment campaigns targeted at fossil fuel companies may not just be ineffective. They may actually be penalizing companies that are making the biggest commitments to 'green' innovation. Using the number (and quality) of patents as a proxy, the paper concludes that 'the quantity and quality of green patenting is higher for energy firms' - even though 'those firms are precisely those to which capital is often restricted by mandates and campaigns'. Important - and counter-intuitive.

Moderators: Andrew Hilton (CSFI) and Jane Fuller (CSFI) Panellists: Lauren Cohen is LE Simmons Professor of Business Administration at Harvard Business School, and a research associate at the NBER. He is also an advisor to the SEC and to the US Patent and Trademark Office. He has a PhD from Chicago. Leslie Gent is a managing director and Head of Responsible Investment at Coutts in London. She is also a Trustee of the Coutts Foundation. Previously, she worked with Charles Schwab in San Francisco. She was educated at the University of Saskatchewan.

Launch of Nigeria's Central Bank Digital Currency (CBDC) - the eNaira

Stakeholders proffer options for digital currency success in Nigeria

Stakeholders including the Lagos Chamber of Commerce and Industry (LCCI) and Prof. Lauren Cohen, L. E Simmons, a Professor of Business Administration, Harvard Business School, United States of America, among others, yesterday, listed recommendations for the success of Nigeria’s Central Bank Digital Currency (CBDC).

Morningstar Misclassification

Widespread Misclassification of Bond Mutual Funds

We provide evidence that bond fund managers misclassify their holdings, and that these misclassifications have a real and significant impact on investor capital flows. The problem is widespread - resulting in up to 31.4% of funds being misclassified with safer profiles, when compared against their true, publicly reported holdings. “Misclassified funds” – i.e., those that hold risky bonds, but claim to hold safer bonds – appear to on-average outperform lower-risk funds in their peer-groups.  Within category groups, “Misclassified funds” receive more Morningstar Stars and higher investor flows. However, when we correctly classify them based on actual risk, these funds are mediocre performers.

December Drug Approvals

Internal Deadlines, Drug Approvals, and Safety Problems

Absent explicit quotas, incentives, reporting, or fiscal year-end motives, drugapprovals around the world surge in December, at month-ends, and before respectivemajor national holidays. Drugs approved before these informal deadlines areassociated with significantly more adverse effects, including more hospitalizations,life-threatening incidents, and deaths – particularly, drugs most rushed through theapproval process. These patterns are consistent with a model in which regulatorsrush to meet internal production benchmarks associated with salient calendarperiods: this “desk-clearing” behavior results in more lax review, leading both toincreased output and increased safety issues at particular—andpredictable—periodicities over the year.

Patent Trolls: Evidence and Proposed Solutions

 

The Growing Problem of Patent Trolling • SCIENCE • VIDEO

The last decade has seen a sharp rise in patent litigation in the U.S., with 2015 having one of the highest patent lawsuit counts on record. In theory, this could be a consequence of growth in the commercialization of technology and innovation – patent lawsuits increase as more firms turn to intellectual property (IP) protection to safeguard their competitive advantages. However, the majority of recent patent litigation is driven by nonpracticing entities (NPEs), firms that generate no products, but instead amass patent portfolios for the sake of enforcing IP rights afforded therein. We discuss new, large-sample evidence adding to a growing literature suggesting that NPEs – in particular, large patent aggregators – on average act as “patent trolls”, suing cash‐rich firms seemingly irrespective of actual patent infringement. This has a negative impact on future innovation activity at targeted firms. These results suggest a need to check the power of NPEs through changes in U.S. IP policy, in particular to screen out trolling early in the litigation process.

U.S. Innovators Dogged by Money-grubbing ‘Patent Trolls’

PBS News Hour Interview

The U.S. economy is driven by innovation, but unwelcome “patent trolls” are gunking up the system. Patent reform bills sit idle in Congress as the “trolls” set up companies for the sole purpose, critics say, of shaking down inventors while never creating anything. “We just have to write 'em a check so they'll go away,” says one disgusted app maker. Economics correspondent Paul Solman reports.

Lazy Prices - Follow the Filings

The Subtle information in Firm Behavior Changes

Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995-2014, Professor Lauren Cohen shows that when firms make an active change in their reporting practices, this conveys an important signal about future firm operations.

Lazy Prices

QuantCon NYC 2018 Quantitative Investing Confernece - Interview Video

 Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995-2014, we show that when firms make an active change in their reporting practices, this conveys an important signal about future firm operations. Changes to the language and construction of financial reports also have strong implications for firms’ future returns: a portfolio that shorts “changers” and buys “non-changers” earns up to 188 basis points in monthly alphas (over 22% per year) in the future. Changes in language referring to the executive (CEO and CFO) team, regarding litigation, or in the risk factor section of the documents are especially informative for future returns. We show that changes to the 10-Ks predict future earnings, profitability, future news announcements, and even future firm-level bankruptcies. Unlike typical underreaction patterns in asset prices, we find no announcement effect associated with these changes—with returns only accruing when the information is later revealed through news, events, or earnings—suggesting that investors are inattentive to these simple changes across the universe of public firms.

Patent Trolls

We develop a theoretical model of, and provide the first large-sample evidence on, the behavior and impact of non-practicing entities (NPEs) in the intellectual property space. Our model shows that NPE litigation can reduce infringement and support small inventors. However, the model also shows that as NPEs become effective at bringing frivolous lawsuits, the resulting defense costs inefficiently crowd out some firms that, absent NPEs, would produce welfare-enhancing innovations without engaging in infringement. Our empirical analysis shows that on average, NPEs appear to behave as opportunistic patent trolls. NPEs sue cash-rich firms ― a one standard deviation increase in cash holdings roughly doubles a firm's chance of being targeted by NPE litigation. We find moreover that NPEs target cash unrelated to the alleged infringement at essentially the same frequency as they target cash related to the alleged infringement. By contrast, cash is neither a key driver of intellectual property lawsuits by practicing entities (e.g., IBM and Intel), nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism, such as forum shopping and targeting of firms that may have reduced ability to defend themselves against litigation. We find that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Moreover, we neither find any markers of significant NPE pass-through to end innovators, nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent.

Complicated Firms

We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices.  We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month.  Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability.  In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyze firms predict their future revisions of more complicated firms.

Do Powerful Politicians Cause Corporate Downsizing?

This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. This retrenchment follows both Senate and House committee chair changes, occurs in large and small firms and within large and small states, and is most pronounced among geographically-concentrated firms. The effects are economically meaningful and the mechanism - entirely distinct from the more traditional interest rate and tax channels - suggests new considerations in assessing the impact of government spending on private sector economic activity.

Overview

For Professor Cohen's recent articles and working papers, please visit his personal website.

Overview

Family Enterprises - Family Offices - FinTech - Innovation - Patent Landscape - Asset Pricing - Behavioral Finance - Asset Management

Winner of a National Science Foundation Faculty Early Career Development (CAREER) Award for for work on Relationships in Finance, 2009–2014.

Won the 2007 Smith Breeden Distinguished Paper Prize for the Best Paper in the Journal of Finance for his paper with Karl Diether and Christopher Malloy, “Supply and Demand Shifts in the Shorting Market” (October 2007).

Won the 2008 Smith Breeden Prize for a distinguished paper in the Journal of Finance for his paper with Andrea Frazzini, “Economic Links and Predictable Returns” (Journal of Finance, August 2008).

Won the 2010 Smith Breeden Distinguished Paper Honor for the Best Paper in the Journal of Finance for his paper with Christopher Malloy and Andrea Frazzini, “Sell-Side School Ties” (August 2010).

Presented testimony on the “Impacts of Government Spending” to the Committee on Transportation and Infrastructure, United States House of Representatives, Sept 29, 2010.

Won the 2007 Society of Quantitative Analysts Award for Best Paper in Quantitative Investments from the Western Finance Association for the paper with Breno Schmidt, “Attracting Flows by Attracting Big Clients” (Journal of Finance, October 2009).

Won the 2006 Barclays Global Investors Best Paper Prize, Asset Allocation Symposium, European Finance Association, for the paper with Breno Schmidt, “Attracting Flows by Attracting Big Clients” (Journal of Finance, October 2009).

Won the 2007 Barclays Global Investors Best Paper Prize, Asset Allocation Symposium, European Finance Association, for the paper with Andrea Frazzini and Christopher Malloy, “The Small World of Investing: Board Connections and Mutual Fund Returns” (Journal of Political Economy, October 2008).

Winner of the 2010 Best Paper Prize from the Center for Research in Security Prices Forum for "Complicated Firms" (with Dong Lou, Journal of Financial Economics, May 2012).

Won the 2011 Richard A. Crowell Memorial Award, First Prize, from PanAgora Asset Management’s Quantitative Research Institute for the best paper in the field of quantitative investment for his paper with Dong Lou, “Complicated Firms” (Journal of Financial Economics, May 2012).

Winner of the 2010 First Prize in the Istanbul Stock Exchange 25th Anniversary Best Paper Competition for "Complicated Firms" (with Dong Lou, Journal of Financial Economics, May 2012).

Won the 2006 First Prize in the Chicago Quantitative Alliance Academic Paper Competition for the paper (with Andrea Frazzini) "Economic Links and Predictable Returns" (Journal of Finance, August 2008).

Won the 2010 First Prize Chicago Quantitative Alliance Academic Paper Competition with Christopher Malloy for their paper with Lukasz Pomorski, "Decoding Inside Information" (NBER Working Paper Series, No. 16454, October 2010).

Winner of an Institute for Quantitative Investment Research (INQUIRE) Grant in 2009 for "Decoding Inside Information" (NBER Working Paper Series, No. 16454, October 2010) with Christopher Malloy and Lukasz Pomorski.

Winner of an Institute for Quantitative Investment Research (INQUIRE) Grant in 2010 for "Complicated Firms" (with Dong Lou, Journal of Financial Economics, May 2012).

Winner of a Paul Woolley Centre Academic Grant in 2010 for "Complicated Firms" (with Dong Lou, Journal of Financial Economics, May 2012).

Won the 2006 BSI Gamma Foundation Grant, Firm Characteristics and Investment Management for the paper (with Andrea Frazzini) "Economic Links and Predictable Returns" (Journal of Finance, August 2008).

Won a 2006 Whitebox Grant for Research in the Behavioral Sciences.

Received a 2009 Emerald Management Reviews Citation of Excellence Award for his paper with Andrea Frazzini, “Economic Links and Predictable Returns” (Journal of Finance, August 2008).

Winner of a Simon Kuznets Fellowship, Outstanding Undergraduate in Economics, Penn Institute for Economic Research, 2000.

Winner of the 2014 Crowell Memorial Prize for Best Paper on Quantitative Investing from PanAgora Asset Management for "Playing Favorites: How Firms Prevent the Revelation of Bad News" (with Dong Lou and Christopher J. Malloy, 2014).

Winner of the 2013 Fama-DFA Second Place Prize for the Best Paper Published in the Journal of Financial Economics in the Areas of Capital Markets and Asset Pricing for "Legislating Stock Prices" (with Karl Diether and Christopher Malloy, December 2013).

Winner of the 2016 First Prize in the Chicago Quantitative Alliance Academic Paper Competition for "Lazy Prices" with Christopher J. Malloy and Quoc Nguyen.

Winner of the 2016 Jack Treynor Prize from The Institute for Quantitative Research in Finance (Q-Group) for "Lazy Prices" with Christopher J. Malloy and Quoc Nguyen.

Winner of the 2016 Hillcrest Behavioral Finance Award for "Lazy Prices" with Christopher J. Malloy and Quoc Nguyen.

Winner of the 2016 Best Paper Prize of the Journal of Investment Consulting Academic Paper Competition for "Cloaked Trading" with Dong Lou and Christopher J. Malloy.

Winner of the 2020 Best Paper Prize at the University of Cambridge Consortium on Asset Management with Huaizhi Chen and Umit Gurun for "Don't Take Their Word for It: The Misclassification of Bond Mutual Funds" (Journal of Finance, forthcoming).

Winner of the 2020 Best Paper Prize in Quantitative Investments at the Annual Meeting of the Financial Management Association with Huaizhi Chen and Umit Gurun for "Don't Take Their Word for It: The Misclassification of Bond Mutual Funds" (Journal of Finance, 2021).

Winner of the 2022 Best Paper Award on Finance in Management Science from the Finance Section of the Institute for Operations Research and the Management Sciences (INFORMS) for "Patent Trolls: Evidence from Targeted Firms” (December 2019) with Umit Gurun and Scott Duke Kominers.

Winner of the 2022 First Prize in the Chicago Quantitative Alliance Academic Paper Competition for "Hidden Alpha" with Manuel Ammann, Alexander Cochardt, and Stephan Heller.

Winner of a National Science Foundation Science of Science & Innovation Policy (Sci-SIP) Award for Assessing the Impact of Non-Practicing Entities on U.S. Innovation with Umit Gurun, Scott Kominers, 2015–2021.

Winner of the 2021 John L. Weinberg/IRRCI Research Paper Award Competition for “The ESG-Innovation Disconnect: Evidence from Green Patenting” with Umit Gurun and Quoc Nguyen.

Winner of the 2020 Global Thought Leadership Grant on Corporate Social Responsibility (CSR) from Fordham University Gabelli School of Business and PVH Corp. for “The ESG-Innovation Disconnect: Evidence from Green Patenting” with Umit Gurun and Quoc Nguyen.

Winner of the 2018 Crowell Memorial Prize For the Best Paper on Quantitative Investing from PanAgora Asset Management for “IQ from IP: Simplifying Search in Portfolio Choice” (with Huaizhi Chen, Umit Gurun, Dong Lou, and Christopher J. Malloy).

Winner of the 2019 Best Paper Award in Investments at the Center for Financial Planning Academic Research Conference for “Lazy Prices” with Christopher Malloy and Quoc Nguyen.

“AQR’s Momentum Funds (A)” (HBS Case 211-025) with Daniel Bergstresser, Randolph Cohen, and Christopher Malloy was selected as a Case Centre Bestselling Finance, Accounting and Control Case in 2021.

Recipient of a 2020 Top Cited Article Award from Wiley Publishing for Lazy Prices (Journal of Finance, June 2020) with Christopher Malloy and Quoc Nguyen.

Recipient of a 2021 Top Cited Article Award from Wiley Publishing for Lazy Prices (Journal of Finance, June 2020) with Christopher Malloy and Quoc Nguyen.

Invited to give a keynote address at the launch of the eNaira, Nigeria’s Central Bank Digital Currency (CBDC), 2021.

Winner of an Institute for Quantitative Investment Research (INQUIRE) Grant in 2014 for “Cloaked Trading” with Dong Lou and Christopher Malloy.

Winner of an Institute for Quantitative Investment Research (INQUIRE) Grant in 2022 for “Hidden Alpha” with Manuel Amman, Alexander Cochardt, and Stephan Heller.

Winner of the Columbia Millstein Center & Investor Responsibility Research Center Grant, 2013.

Invited to brief the United States Congress on innovation policy, 2020.

Winner of the Inaugural Hakan Orbay Research First Prize Award in 2015 for “Resident Networks and Corporate Connections: Evidence from World War II Internment Camps” with Umit Gurun and Christopher Malloy (Journal of Finance, 2017).

Named a Poets & Quants Favorite MBA Professor of 2017.

Named a Top 40 Under 40 Business School Professor Globally by Poets & Quants in 2017.

Named one of Harvard Business School’s Best Teachers - CNBC, 2017.

Named a 2008 Cutting Edge Academic, Smart Money, Pensions & Investments, 2008.

Winner of the 2022 International Powerlifting Federation (IPF) Master's World Powerlifting Competition Championship (83kg).

Competitor in the 2017 World's Strongest Man competition (80KG).

Set the All-Time World Record in the Squat in the 181 lb. drug-tested division of the United States Powerlifting Association (USPA) with a squat of 630 lbs in December 2014.

Set the All-Time World Record in the Squat in the 165 lb. drug-tested division of the United States Powerlifting Association (USPA) with a squat of 583 lbs in December 2016.