Contracting for Financial Execution Financial contracts often specify reference prices whose values are undetermined at the time of contracting, which makes them prone to manipulation. To study such situations, we introduce a stylized model of financial contracting between a client, who wishes to trade a large position, and her broker.…

Managerial Control Benefits and Takeover Market Efficiency How and to what extent do managerial control benefits shape the efficiency of the takeover market? We revisit this question by estimating both the dark and bright sides of managerial control benefits in an industry equilibrium model. On the dark side, managers’ private…

Removing the Fine Print: Standardization, Disclosure, and Consumer Outcomes Consumers face a choice when evaluating financial contracts: study the fine print and incur a cognitive cost or ignore it and risk costly surprises in future. We use a pair of policy changes in Chile to contrast two measures to protect…

What Drives Anomaly Returns? We decompose the returns of …five well-known anomalies into cash fl‡ow and discount rate news. Common patterns emerge across all factor portfolios and their mean-variance efficient combination. The main source of anomaly return variation is news about cash ‡flows. Anomaly cash ‡ow and discount rate components…

International R&D Spillovers and Asset Prices We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing…

Do Short-Term Incentives Affect Long-Term Productivity? Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity.…

Pension Overhang and Corporate Investment We exploit an exogenous, universal increase (decrease) in discount rates (pension liability) mandated by the Moving Ahead for Progress in the 21st Century Act (MAP-21) to identify the impact of pension overhang on investment. We find that firms with large unfunded pension liabilities increase investment…

What Do Mutual Fund Investors Really Care About?

Are Intermediary Constraints Priced? Violations of no-arbitrage conditions measure the shadow cost of constraints on intermediaries, and the risk that these constraints tighten is priced. We demonstrate in an intermediary-based asset pricing model that violations of no-arbitrage such as covered interest rate parity (CIP) violations, along with intermediary wealth returns,…

Volatility Risk Pass-Through We develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country's output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50%…

Foreign Sentiment We construct a direct measure of U.S. based foreign sentiment using flow shifts between U.S. and international mutual funds. Foreign sentiment predicts return reversals in international markets, while local sentiments predict reversals in local markets. Exploring this segmentation, we find that foreign sentiment predictability is driven by overreaction…

Fearing the Fed: How Wall Street Reads Main Street We document a countercyclical sensitivity of the stock market to major macroeconomic news announcements. Stock prices react more to (either good or bad) announcement surprises when the economy is below its potential trend with the expectation of easing policy. Based on…