Jiro E. Kondo PhD Candidate in Financial Economics *** Job Market Candidate *** MIT Sloan School of Management 50 Memorial Drive, E52-416 Cambridge, MA 02139 Phone: (617) 324-6709 Fax: (617) 258-6855 jekondo[at]mit[dot]edu

JOB MARKET PAPER: Self-Regulation and Enforcement: Evidence from Investor-Broker Disputes at NASD       This paper investigates whether self-regulation in financial markets leads to greater industry bias and expertise in enforcement. Using hand-collected data on securities arbitration disputes from the National Association of Securities Dealers (NASD), I document that pro-industry arbitrators are selected more often to arbitration panels than pro-investor ones (selection on bias) and that experts are also selected more frequently to cases (selection on expertise). Moreover, both patterns vary substantially across cases. Selection on bias is strongest when large brokerage firms are sued and when cases are more important to firms while selection on expertise increases with case complexity. This suggests that arbitrators are assigned to cases in ways that lead to higher industry bias and expertise. To assess whether the NASD is responsible for these patterns, I examine the impact of a change in regulation that greatly reduced NASD control over the selection of arbitrators. Following this change, the allocation of expertise to cases declined and there is some evidence that selection on bias increased. These results suggest that the NASD is not responsible for selection on bias but that it increases selection on expertise. Thus, concerns about favoritism at the NASD may be misplaced and, more generally, self-regulation may increase expertise and even lower industry bias in enforcement. Home  ||  Curriculum Vitae  ||  Research  ||  Teaching  ||  Sloan PhDs

(c) Jiro E. Kondo