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Journal of Economic Perspectives: Vol. 22 No. 3 (Summer 2008)

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Forensic Finance

Article Citation

Ritter, Jay R. 2008. "Forensic Finance." Journal of Economic Perspectives, 22(3): 127-47.

DOI: 10.1257/jep.22.3.127

Abstract

During popular prime-time television shows, forensic investigators use specialized but wide-ranging scientific knowledge of chemical trace evidence, bacteria, DNA, teeth, insects, and other specialties to collect and sift evidence of possible crimes. In economics and finance, forensic investigators apply their own specialized knowledge of prices, quantities, timing, and market institutions -- and sometimes discover or substantiate evidence that is used by regulatory or criminal enforcement agencies. In this article, I will discuss four recent topics in forensic finance, all of which have attracted media attention: 1) the late trading of mutual funds, 2) stock option backdating, 3) the allocation of underpriced initial public offerings to corporate executives, and 4) changes in the records of stock analyst recommendations. In most of these cases, once certain practices or patterns have been publicized, financial industry practice has changed.

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Authors

Ritter, Jay R. (U FL)

JEL Classifications

G10: General Financial Markets: General (includes Measurement and Data)
G18: General Financial Markets: Government Policy and Regulation
K22: Corporation and Securities Law

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