The Fragility of Market Risk Insurance Insurers sell retail financial products called variable annuities that package mutual funds with minimum return guarantees over long horizons. Variable annuities accounted for $1.5 trillion or 34 percent of U.S. life insurer liabilities in 2015. Sales fell and fees increased after the 2008 financial…

Margin Requirements and Equity Option Returns. In equity option markets, traders face margin requirements both for the options themselves and for hedging-related positions in the underlying stock market. We show that these requirements carry a significant margin premium in the cross-section of equity option returns. The sign of the margin…

Deadlock on the Board We develop a dynamic model of board decision making. We show that directors may knowingly retain the policy they all think is the worst just because they fear they may disagree about what policy is best in the future --- the fear of deadlock begets deadlock.…

Risk-Adjusted Capital Allocation and Misallocation We develop a theory linking “misallocation,” i.e., dispersion in static marginal products of capital (MPK), to systematic investment risks. In our setup, firms differ in their exposure to these risks, which we show leads naturally to heterogeneity in firm-level risk premia and, more importantly, MPK.…

Corporate ESG Profiles and Investor Horizons We consider motivations for institutional investors to prefer firms with higher Environmental, Social and Governance (ESG) profiles. We find that such preferences depend critically on investor horizons: Investors with longer horizons tend to prefer higher ESG firms significantly more than do short-term investors. Consistent…

Product Life Cycles in Corporate Finance We develop a novel 10-K text-based model of product life-cycles and examine firm investment policies. Conditioning on the life cycle substantially improves the explanatory power of investment-Q models. The improved models reveal that investment follows a pecking order through the life cycle. Firms initially…

Production Networks and Stock Returns: The Role of Vertical Creative Destruction We study the relation between firms' risk and their upstreamness in a production network. Empirically, firms' average stock returns and productivity exposures increase monotonically with their upstreamness. We quantitatively explain these novel facts using a multi-layer general equilibrium model.…

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…