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University of Nebraska–Lincoln

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November 23, 2011

Dr. Donna Dudney Focuses on Practical Research Results

Dr. Donna Dudney has always made research a central part of her work at the UNL College of Business Administration. For Dudney, the practical implications of research are what motivate her most.

“I’ve always had an interest in fixed income markets -- particularly in the municipal bond area because I used to work in that field,” Dudney said.

Dudney recently co-authored a paper with Dr. Arthur Allen, associate professor of accountancy at CBA, which looked at whether or not small communities are wise in deciding not to buy credit ratings.

“Many smaller municipal issuers don’t buy credit ratings.  The conventional wisdom is that these issuers may be passing up interest savings if they don’t get rated. What we found is that for most of those issuers they don’t save enough in interest costs to justify the cost of the rating.  I like to look at financing issues that matter to practitioners and ask, ‘Does this make sense or not?’”

Dudney also worked with Dr. John Geppert, professor of finance at CBA, to research whether or not popularly promoted trading strategies might really allow investors to beat the market as they claim.

“Many times the performance of these trading strategies is compared with the results from just buying and holding some benchmark investment. To us, that is not a very good comparison because it tangles up two factors – what you’re invested in, which is your allocation decision, and when you’re invested in those assets, which is your timing decision. The strategies are usually timing decisions, but if part of your return comes from what you’re invested in, then you’re attributing to timing what is actually an allocation decision.”

Dudney and Geppert figured out a method that breaks those two pieces apart and holds the allocation piece constant to get a better look at how much timing benefit the particular strategy provides. They presented their findings at the Financial Management Association meetings in Denver this past October.

Another piece of research that Dudney has recently undertaken has major implications considering the nation’s recent recession.

Dudney is working with Dr. James Schmidt, James W. and Helen A. Hanson College Professor of Economics at CBA, and Dr. Marsha Weber, professor of finance and Dean of Business and Industry from Minnesota State University-Moorhead to look at whether internal liquidity at banks is more highly-valued since the recent financial crisis.

“We found that prior to the financial crisis, internal liquidity was negatively related to value for bank holding companies. Liquid investments tend to have very low yields, so holding lots of internal liquidity tends to depress earnings. Prior to the financial crisis, many banks reduced levels of internal liquidity and instead relied on obtaining liquidity as needed through external sources such as commercial paper or borrowed fed funds. During the financial crisis, many sources of external liquidity dried up and the importance of internal liquidity was highlighted. In 2008, after controlling for investment opportunities, size, regulatory requirements, and other factors, internal liquidity became positively related to value for bank holding companies.”  

Dudney hopes to have the study published in the near future.

Dr. Gordie Karels, chair of the department of finance at CBA, emphasized that in addition to her practical approach to research, Dudney's career both in the professional investment industry and in academia has been integral to her impact in the field of financial research.

"Donna's background in investment banking and securities analysis provides the practitioner insight related to questions of the cost of external certification and market timing," Karels said. "Her work is helpful as both a guide to both public policy and to investor decision-making."