We study how information disclosure concerns shape the choice of limited partners (LPs) by venture capitalists (VCs). Late-2002 court rulings prevented public LPs from providing confidentiality to investment managers. The best-performing VCs, but not other managers, responded by excluding public LPs from their new funds. Lost access reduced public LP returns by $1.6 billion relative to $14 billion

This paper studies the role of trust in incumbent lenders (banks) as an entry barrier to emerging FinTech lenders in credit markets. The empirical setting exploits the outbreak of the Wells Fargo scandal as a negative shock to borrowers’ trust in banks. Using a difference-in-differences framework, I find that increased exposure to the Wells Fargo scandal leads to an increase in the probability of borrowers

When lenders screen borrowers using a menu, they generate a contractual externality by rendering the composition of their competitors’ borrowers worse. Using data from the UK mortgage market and a structural model of screening with endogenous menus, this paper quantifies the impact of asymmetric information on equilibrium contracts and welfare. Counterfactual simulations show that, because of the externality

What explains cross-sectional dispersion in stock valuation ratios? We find that 75% of dispersion in price–earnings ratios is reflected in differences in future returns, while only 25% is reflected in differences in future earnings growth. This holds at both the portfolio-level and the firm-level. We reconcile these conclusions with previous literature which has found a strong relation between prices

Houses with higher value uncertainty receive less mortgage credit: mortgages backed by these houses are more likely to be rejected, have higher interest rates, and have lower loan-to-price ratios. The relationship between house value uncertainty and credit availability is driven partly by a classic channel in which uncertainty lowers debt recovery rates, and partly by a novel channel where more uncertain

We propose a model of lending, payments choice, and privacy in the digital economy. While digital payments enable merchants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient offline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents

We explore indicators of market power in a data market. Markups cannot measure competition, because most data products’ marginal cost is zero, making the markup infinite. Yet, data monopolists may not exert monopoly power because they cannot commit to restricting data sales to future customers. This limited commitment and strategic substitutability of data undermine sellers’ monopoly power. But data

We study capital regulation in a dynamic model for bank deposits. Capital regulation addresses banks’ incentive for excessive leverage that dilutes depositors, but preserves some dilution to reduce bank defaults. We show theoretically that capital regulation is subject to a time inconsistency problem. In a model with non-maturing deposits where optimal withdrawals make deposits endogenously long-term

Open banking (OB) empowers bank customers to share their financial transaction data with fintechs and other banks. New cross-country data shows 49 countries adopted OB policies, privacy preferences predict policy adoption, and adoption spurs fintech entry. UK microdata shows that OB enables: (i) consumers to access both financial advice and credit; (ii) SMEs to establish new lending relationships.

We model the competition between digital forms of fiat money and private digital money. Countries digitize their currencies–by upgrading existing or launching new payment systems (including CBDCs)–to compete with foreign fiat currencies and private digital money. A pecking order emerges: less dominant currencies digitize earlier, reflecting a first-mover advantage; dominant currencies delay digitization

We document that the reallocation of central bank reserves towards banks with higher liquidity needs fosters credit supply. Exploiting the ECB's tiered reserve remuneration system for identification, we show that this system encouraged banks with low reserve holdings to obtain more reserves through the money market. Concomitantly, these banks reduced their securities holdings and extended more credit

The literature has documented “reaching for yield”—the phenomenon of investing more in risky assets when interest rates drop—among institutional investors. We analyze detailed transaction data from a large brokerage firm to provide direct field evidence that individual investors also exhibit this behavior. Consistent with models of portfolio choice with labor income, reaching for yield is more pronounced

We attribute variation in the strength of the U.S. dollar and its covariance with other currencies to economic primitives using a global asset demand system. We take global investor savings, asset supply, and monetary policy as exogenous primitives, and show how these variables explain dollar exchange rate behavior. Prior to the global financial crisis, global savings and demand shifts explain dollar

We demonstrate that off-exchange (wholesaler) executions provide significant cost savings to retail investors. Wholesaler concentration has raised regulatory concerns; however, we show that the largest wholesalers offer the lowest costs due to economies of scale. The entry of a new large wholesaler reduces incumbent scale economies, resulting in higher execution costs. Most retail brokers route to

Financial benchmarks such as LIBOR underpin the pricing of trillions of dollars of contracts around the world. We evaluate the quality of benchmark prices using a state-space model to separate information from noise. Applying the method to LIBOR benchmarks and their replacements, we find that alternative reference rates (ARRs) are less noisy in four of the five currencies. However, the USD ARR is considerably

We provide a spatial framework to study competition between banks and fintechs in the lending market and examine the impact on investment and welfare. Based on the key differences between banks and fintechs, we derive results consistent with the empirical evidence available. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing

Fluctuations in investor demand significantly affect firms’ valuation and access to capital. To quantify their real effects, we develop a dynamic investment model, incorporating both the demand and supply sides of capital. Strong investor demand relaxes financial constraints and facilitates equity issuance and investment, while weak demand encourages opportunistic share repurchases, crowding out investment

We document large racial disparities in the ability of homeowners to access their accumulated housing wealth. Minority homeowners are significantly more likely to have their mortgage equity withdrawal (MEW) product applications rejected than White homeowners, and the unconditional disparities are significantly larger than those found in prior studies that focused on purchase and rate/term refinance

We propose a fiscal policy expectations mechanism. When bad macro news arrives (in our study, when initial jobless claims (IJC) are higher than expected), investors may expect more generous government spending and drive up aggregate stock prices through the expected cash flow channel. Using a time-series sample from January 2013 to March 2021, we find that this phenomenon emerges when newspapers mention

This paper shows that supply shock uncertainty interacts with the monetary policy rule to drive bond risks in a New Keynesian asset pricing model. In my model, positive nominal bond-stock betas emerge as the result of volatile supply shocks but only if the monetary policy rule features a high inflation weight. Habit formation preferences generate endogenously time-varying risk premia, explaining the

We devise a simple model of liquidity demand and supply to study dealers’ liquidity provision in currency markets. Drawing on a globally representative data set of currency trading volumes, we show that at times when dealers’ intermediation capacity is constrained the cost of liquidity provision increases disproportionately relative to dealer-intermediated volume. Consequently, the otherwise strong

Intermediaries reduce agency problems through monitoring, but credible monitoring requires sufficient retention until the loan matures. We study credit markets when intermediaries cannot commit to retention. Two structures are examined: investors lending alongside an all-equity bank and investors lending through the bank via short-term debt. With a commitment to retention, they are equivalent. Without

Corporate earnings announcements unpack large bundles of public information that should, in efficient markets, trigger jumps in stock prices. Testing this implication is difficult in practice, as it requires noisy high-frequency data from after-hours markets, where most earnings announcements are released. Using a unique dataset and a new microstructure noise-robust jump test, we show that earnings

Distributed ledgers promise to enable the classical vision of money as a universal transaction record. But is it ever optimal to update a ledger through decentralized consensus? Analyzing an exchange economy with credit, we show that centralized updating is optimal when long-term rewards are more valued, minimizing redundant validation costs and maximizing economic surplus. Decentralization becomes

We use close to 80 million daily returns for more than 19,000 CRSP listed firms to establish the best forecasting model for realized idiosyncratic variances. Comparing forecasts from multiple models, we find that the popular martingale model performs worst. Using the root-mean-squared-error (RMSE) to judge model performance, ARMA(1,1) models perform the best for about 46% of the firms in out-of-sample

We introduce a new class of tree-based models, P-Trees, for analyzing (unbalanced) panel of individual asset returns, generalizing high-dimensional sorting with economic guidance and interpretability. Under the mean–variance efficient framework, P-Trees construct test assets that significantly advance the efficient frontier compared to commonly used test assets, with alphas unexplained by benchmark

Do federal tax incentives for banks investing in municipal bonds support local governments during recessions? This paper exploits a change in tax benefits for banks purchasing municipal bonds and finds that expanding access to bank financing during recessions increases local governments’ debt issuance and employment growth. The estimated job multiplier is 22 jobs per million dollars of spending. There

Lenders can exploit households’ payment data to infer their creditworthiness. When households value privacy, they then face a tradeoff between protecting such privacy and attaining better credit conditions. We study how introducing an informationally more intrusive digital payment vehicle affects households’ cash use, credit access, and welfare. A tech monopolist controls the intrusiveness of the new

Does the early-career exposure of bank CEOs to the 1980s savings and loans (S&L) crisis affect the outcomes of banks they subsequently managed? We measure the S&L crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. Armed with this measure, we find that banks managed by CEOs with higher S&L crisis exposure took on less risk and that these banks better survived

We leverage the capabilities of GPT-3 to generate historical business descriptions for over 63,000 global firms. Utilizing these descriptions and advanced embedding models from OpenAI, we construct time-varying business networks that represent business links across the globe. We showcase the performance of these networks by studying the lead–lag effect for global stocks and predicting target firms

The Tax Cuts and Jobs Act unlocked as much as $1.7 trillion of U.S. multinationals’ foreign cash. We examine the real and financial response to this liquidity shock and find that firms did not increase capital expenditures, employment, R&D, or M&A, regardless of financial constraints. On the financial side, firms paid out only about one-third of the new liquidity to shareholders and retained half as

We study retirement and bank account participation for the universe of U.S. households with a member aged 50 to 59 in the administrative tax data. ZCTA-level average income, income inequality, and racial composition predict retirement account participation for low-income households, conditional on household income and regional price parities. Income inequality also predicts bank account participation

We propose a model in which arbitrageurs act strategically in markets with entry costs. In a repeated game, arbitrageurs choose to specialize in some markets, which leads to the highest combined profits. We present evidence consistent with our theory from the options market, in which suboptimally unexercised options create arbitrage opportunities for intermediaries. We use transaction-level data to

We explore whether Quantitative Easing (QE) negatively affected the functioning of the treasury market. Focusing on the arbitrage between European sovereign bonds and their futures contracts, we show that the scarcity of treasuries created by QE led to a disconnect between the prices of identical assets. We identify three channels: reduced bond market liquidity, increased funding costs in the repo

Should policymakers adapt their macroprudential and monetary policies when the financial sector is vulnerable to belief-driven boom-bust cycles? I develop a model in which financial intermediaries are subject to collateral constraints, and that features a general class of deviations from rational expectations. I show that distinguishing between the drivers of behavioral biases matters for the precise

This paper shows that leading theories of the beta anomaly fail to explain the anomaly’s conditional performance. Abnormal returns and Sharpe ratios of betting-against-beta (BAB) factors rise following months with below-median realized volatility, even controlling for mispricing, limits to arbitrage, lottery preferences, analyst disagreement, and sentiment. Moreover, the leverage constraints theory

We study the equilibrium effects of the “S” dimension of ESG under imperfect competition. ESG policies are pledges made by firms that constrain managers to treat their stakeholders better than market conditions alone dictate. Moderate policies limit market power and prompt managers to be more competitive; aggressive polices backfire, both for adopting firms and intended beneficiaries. In contrast to

We study debt and equity valuation when investors have private information and may exhibit differences of opinion. Our model generates several predictions that are consistent with empirical evidence but difficult to reconcile with traditional models. Belief dispersion relates to expected equity and debt returns in opposite directions. Similarly, expected debt (equity) returns typically increase (decrease)

We study the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias with naive beliefs. The government chooses mandatory contributions to accounts, each with a different pre-retirement withdrawal penalty. Collected penalties are rebated lump sum. When households have homogeneous present bias, β, the social optimum is well approximated by a single

Do investors interpret central bank target rate decisions as signals about the current state of the economy? We study this question using a short-term equity asset that entitles the owner to the near-term dividends of the aggregate stock market. We develop a stylized model of monetary policy and the equity term structure and derive tests of Fed information effects using the short-term asset announcement

UK government bond yields tend to drift upwards before scheduled news such as monetary policy announcements and labour market data releases. This effect is particularly pronounced during periods of UK bond issuance and is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows following issuance. The composition of liquidity

We document that the increasing polarization in Tobin’s Q within industries is closely connected to the growing divergence in rents and the emergence of superstar firms over the past four decades, while discount rates and growth rates did not exhibit the same increasing dispersion. We explain these industry polarization trends in an estimated general equilibrium model where each industry consists of

Using a panel of self-declared benchmarks, we examine funds’ use of mismatched benchmarks over time. Mismatching is high at the beginning of our sample (45 % of TNA in 2008), consistent with prior studies, but declines significantly over time (27 % in 2020), driven by existing specialized funds changing benchmarks to match their style. Market forces including investor learning, institutional governance

We develop a novel measure of job-worker allocation quality (JAQ) by exploiting employer-employee data with machine learning techniques. Based on our measure, the quality of job-worker matching correlates positively with individual labor earnings and firm productivity, as well as with market competition, non-family firm status, and employees’ human capital. Management plays a key role in job-worker

We propose a latent-variables approach to recover extrapolative beliefs from asset prices. We estimate a present-value model of the price–dividend ratio of the market that embeds both return extrapolation and cash-flow extrapolation, alongside discount rates and rational expectations of dividend growth. This approach allows us to measure extrapolation bias without having to rely on survey data, and

We study the impact of disclosure and inattention on the decision to retain fee-based financial advice using a two-tiered natural regulatory experiment. Increased salience in fee disclosure raises the drop rate for advice, implying improved attention — particularly for relatively sophisticated investors. However, a novel auto-drop requirement for inattentive investors generates far more drops, implying

We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. The survey elicits investors’ expectations of long-term ESG equity returns and asks about their motivations, if any, to invest in ESG assets. We document four facts. First, investors generally expected ESG investments to underperform the market. Between

We study biodiversity finance—the use of private capital to finance biodiversity conservation and restoration—which is a new practice in sustainable finance. First, we provide a conceptual framework that lays out how biodiversity can be financed by pure private capital and blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk

This paper uses hand-collected historical data to provide empirical evidence on the strategic trading behavior of insiders and its consequences for outsiders. Specifically, we collect all equity trades of all insiders and outsiders in an era without legal restrictions on insider trading and a market where trading is non-anonymous. We find that access to private information creates a significant gap

Rising interest rates can create “mortgage rate lock” for homeowners with fixed rate mortgages, who can hold onto their low rates as long as they stay in their homes but would have to take on new mortgages with higher rates if they moved. We show mobility rates fell in 2022 and 2023 for homeowners with mortgages, as market rates rose. We observe both absolute declines and declines relative to homeowners

The change in the cost of capital that results from a divestiture strategy can be closely approximated by a simple function of three parameters: (1) the fraction of socially conscious capital, (2) the fraction of targeted firms in the economy and (3) the return correlation between the targeted firms and the rest of the stock market. When calibrated to current data, we demonstrate that the impact on

This paper analyzes the reputational effects of forced CEO turnovers on outside directors. We find that directors interlocked to a forced CEO turnover experience large and persistent increases in withheld votes at subsequent re-elections relative to non-turnover-interlocked directors. Directors are not penalized for an involvement in a turnover per se but for forced CEO turnovers that are related to

A nationwide panic forced President Roosevelt to declare a banking holiday in March 1933. The government reopened banks sequentially using a process that sent noisy signals about banks’ health. New microdata reveals that the public responded to these signals. Deposits at rapidly reopened banks rebounded quicker than at comparable or stronger banks that reopened even a few days later. The stigma of

We explore the extent to which aspirations – such as those forged in the course of social interactions – explain ‘puzzling’ behavioral patterns in investment decisions. We motivate an aspirational utility, reminiscent of Friedman and Savage (1948), where social considerations (e.g., status concerns) provide an economic foundation for aspirations. We show this utility can explain a range of observed

We develop a novel recovery theorem based on no-arbitrage principles. To implement our Arbitrage-Based Recovery Theorem empirically, one needs to observe the Arrow–Debreu prices only for one single maturity. We perform several different density tests and mean prediction tests using more than 26 years of S&P 500 options data, and we find evidence that our method can correctly recover the probability

Using administrative data on credit profiles matched with unemployment insurance (UI) for individuals in the U.S., we show that laid-off workers with access to Uber rely less on household debt, experience fewer delinquencies, and are less likely to apply for UI benefits. Our empirical strategy exploits both the staggered market entry of Uber across cities and the differential benefit of its entry across

We study information sharing between strategic investors who are informed about asset fundamentals. We demonstrate that a coarsely informed investor optimally chooses to share information if his counterparty investor is well informed. By doing so, the coarsely informed investor invites the other investor to trade against his information, thereby reducing his price impact. Paradoxically, the well informed