Equity Term Structure Response to FOMC Announcements Abstract We study the response of the equity term structure to FOMC announcements using a high-frequency event study approach. We find that monetary policy surprises have opposite effects on short-term dividend strips and the long-term equity market. Following an unanticipated cut in the…

Inflation and Disintermediation Abstract We test a bank credit channel through which unexpected increases in inflation lead to short-run macroeconomic fluctuations. For identification, we study an unexpected U.S. inflation increase in early 1977 and exploit differences in state-level reserve requirements for Federal Reserve nonmember banks, which create differences in banks’…

Are Banks Really Informed? Evidence From Their Private Credit Assessments Mehdi Beyhaghi, Cooper Howes, Gregory Weitzner Abstract In classic theories of financial intermediation, banks mitigate information frictions by monitoring and producing information about borrowers. However, it is difficult to test these theories without being able to observe banks’ private information.…

Growth-promoting Bonuses and Mergers and Acquisitions Abstract Approximately one-third of U.S. top executives receive bonuses explicitly tied to firm size measures like sales growth. We study how such “growth-promoting bonuses” influence firms’ mergers and acquisitions (M&A) activities. We find that firms with such bonus structures are more prone to make…

Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies Abstract We study the consequences of state-level price (rate) regulation for U.S. homeowners’ insurance, a $15 trillion market that provides households protection against climate losses. Using two distinct identification strategies and novel data on regulatory filings and ZIP code level rates, we…

An Anatomy of Retail Option Trading Abstract The recent surge in retail option trading has sparked concerns about gambling and significant losses. We study a novel account-level dataset of about $20 billion in retail trades over 2020 to 2022 to show that these concerns may be exaggerated. Option trades account…

Uncertainty Creates Zombie Firms: Implications for Industry Dynamics and Creative Destruction Abstract We show how the threat of “uncertainty-induced zombification” — creditors’ willingness to keep their distressed borrowers alive when faced with uncertainty — shapes various industry  dynamics. Under a real options framework, we demonstrate that unlevered firms become reluctant…