To dig into big questions about how our nation’s financial markets function, you have to be willing to dig into big data sets. Data have been key to analyzing the historic volatility in the $4 trillion municipal securities market triggered by the COVID-19 pandemic. It is helping us understand how states and municipalities of all sizes are grappling with the impact of the pandemic on their revenues and ability to finance essential public services.
The municipal market’s regulator provides free public access to data and information about the more than 50,000 state and local governments that borrow money from investors through the municipal market. This information is accessible to investors, state and local officials, and the general public through a website called EMMA — the Electronic Municipal Market Access system — and as a bulk feed for data-hungry academics like me.
The Municipal Securities Rulemaking Board (MSRB) operates the EMMA website as the centralized, completely free-to-use database for municipal market trade data and disclosure documents. Retail investors count on EMMA to quickly get their hands on state and local government financial documents, understand the features and risks of individual municipal bonds, and compare prices when buying or selling bonds.
The same trade data and disclosure documents that help investors make informed decisions can help academics better understand the structure of the municipal market, identify systemic and idiosyncratic risks, and ultimately inform public policy, including emergency federal relief programs to help state and local governments recover from the pandemic’s financial effects. Especially helpful is the MSRB’s weekly report aggregating disclosures made to the EMMA website that describe the impact of COVID-19 on state and local governments’ financial condition and operating status.
It is a real joy to introduce PhD students, and other professors, to the questions that can be addressed through MSRB-provided market trading data. Academics explore trade data to identify patterns that help us understand and improve the efficiency of the municipal market, which ultimately lowers the cost of borrowing for states, counties, cities and small towns around the country.
Municipal market data sets have not always been easy to come by. When the MSRB first launched the EMMA system a decade ago, the website was designed for retail “mom and pop” investors to easily navigate to information about any municipal bonds they might be considering for their individual investment portfolios. Academics, however, need that information not just for a handful of bonds but for the entire market, and in a structured, machine-readable format.
The MSRB offers the same data that is available on EMMA as a subscription product, for a fee, so that Wall Street firms and other market professionals can consume the data in bulk for their proprietary internal systems and for-profit data products. When I joined the MSRB’s Board of Directors in 2012 as a public representative, I advocated for easy access to these bulk feeds for pure academic research.
I continue to believe that simply making the data available on a website is not sufficient – you need researchers in the academic community to frame theoretical questions for testing with the latest data. It’s been said that we poke and prod the data into yielding insights. The MSRB recognizes that academics are in a position to enhance everyone’s understanding of the market and improve efficiency. To support external research, the MSRB provides data to universities and think tanks looking to conduct research about the municipal securities market. For example, the MSRB makes trade data available through an agreement with Wharton Research Data Services (WRDS), a service of the Wharton School of the University of Pennsylvania, which provides electronic access to data across finance, marketing and economic disciplines to over 400 institutions globally. The MSRB also offers a unique opportunity for a “visiting scholar” to conduct research with support from MSRB staff.
The MSRB’s sustained support for academic research has helped close the gap between our understanding of the municipal securities market and the more heavily studied corporate finance market, which had the benefit of earlier access to trade data and structured corporate filings. Since the MSRB began making its data more accessible to academics, there has been a true boom in municipal securities research published in the top academic journals in finance and conducted by business finance and accounting professors in business schools and economics and budget scholars in policy and public affairs schools. An annual public finance research conference hosted by the Brookings Institution each summer highlights some of the best new research with academic researchers and market professionals probing the results.
Although my term on the MSRB’s Board has ended, I still watch with interest as the organization works to evolve the EMMA website beyond transparency to facilitate the use of municipal market data for dynamic comparison, regulatory compliance and deeper market analysis. I know that individual researchers without university backing may still find municipal market data out of reach. I am encouraged that the MSRB has created a new Market Transparency Advisory Group to help the organization explore how the EMMA website and its underlying systems can leverage the opportunities of cloud computing, machine-learning and artificial intelligence to expand the availability and utility of municipal market data. The bigger the data, the smaller the gap in our understanding of this important market that connects communities in need of capital with investors seeking reliable, long-term income.
