Fa c u lt y
SpotLight
Timing Is Everything
W
hen Rohan Williamson started his most recent research in 2005, he was unaware how relevant his topics would be today. How could he have known credit derivatives, corporate governance, and executive compensation would be on the tips of politicians’ tongues and journalists’ pens? “It’s a very interesting time to be a financial researcher,” says Williamson, associate professor and Holowesko Research Fellow at Georgetown University’s McDonough School of Business. “You don’t hope for things like this to happen, but when they do, you take advantage of it and see what you can learn.” Williamson’s research on credit default swaps, which he performed with two colleagues at Ohio State University, provides a particularly suitable example. The team’s paper, “How Much Do Banks Use Credit Derivatives to Hedge Loans?” was published in the October 2008 issue of Journal of Financial Services Research. The research started about three years ago, but the publication process went from acceptance to publication in only three months — an accelerated timeframe allowing them to get the paper out in the midst of the economic downturn. The working paper was timely back in early 2006, when Alan Greenspan mentioned it in a speech. However, it took on a whole new level of importance when the credit derivatives market quickly went downhill. The finished paper examines how many banks used this relatively new and somewhat risky financial tool. The results indicated only
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a small number of banks were using credit derivatives or credit default swaps, but they were doing so in large volume. “We think the market just grew too fast,” Williamson says. “It’s not that credit derivatives are a bad instrument; it’s just that monitoring the system and controlling growth were not done.” Williamson, a Washington, D.C., native who has been teaching and conducting research at Georgetown’s McDonough School of
Business since 1997, also sees his other scholarly work as particularly relevant to today’s economy. He has examined international corporate governance, along with Professor Reena Aggarwal (see page 40) and others. The group’s paper, to be published in a forthcoming issue of Review of Financial Studies, compares governance within United States firms to those in other countries. “The idea is that the U.S. has better governance than
Rohan Williamson
msb.georgetown.edu