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Finance Professor Keke Song received the award for Best Paper in Risk Management, Banking, and Financial Services at the Global Finance Conference 2014 held recently in Dubai. Co-authored with Michael King from the Ivey Business School and Nadia Massoud from the Schulich School of Business, the article is entitled “How Does Bank Trading Activity Affect Performance? An Investigation Before and After Crisis”.

Motivated by the current debate on the impact of proposed rules to ban or limit proprietary trading activities (e.g. Volcker Rule, Vickers and Liikanen reports), the authors decided to examine whether the exposure of U.S. bank holding companies (BHCs) to trading assets has an adverse impact on their risk, profitability and stock return. The literature provides conflicting evidence on how diversifying into different business lines may affect a BHC’s performance. Dr. Song and his co-authors find that a BHC’s trading activities are positively correlated with its riskiness and negatively correlated with profitability and stock returns during and after the 2007-2009 crisis. These results hold when they control for changes in traditional lending activities and off-balance-sheet activities. They also find that BHCs with a higher market share of trading assets make a greater contribution to systemic risk. These results suggest that limiting proprietary trading may improve BHC performance while reducing systemic risk, especially during economic downturns.

This is not the first award for Professor Song, who with Professors Nadia Massoud of York University, Debarshi Nandy of Brandeis and Anthony Saunders of NYU Stern, won the prestigious Fama/DFA Second Prize for the Best Capital Markets and Asset Pricing research paper published in the Journal of Financial Economics in 2011. This is one of the top three journals in business finance in the world with an acceptance rate less than 10%. An earlier version of the paper has also previously won the Outstanding Paper in Financial Institutions Award at the 2010 Annual Meeting of the Eastern Finance Association.

Dr. Song’s research has also been 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.