This paper explains the size and value “anomalies†in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market’s future cash flows and one reflecting news about...

The Social capital literature documents a connection between social connection and economic outcomes of interest ranging from government quality to economic growth. Popular authors suggest that housing and architecture are important determinants of social connection. This paper examines the...

We present a model of succession in a firm controlled and managed by its founder. The founder decides between hiring a professional manager or leaving management to his heir, as well as on how much, if any, of the shares to float on the stock exchange. We assume that a professional is a better...

Many countries, especially developing ones, follow procyclical fiscal polices, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for...

Both agency- and non-agency-based interpretations have been proposed to explain the strong positive empirical relationship between corporate cash flow and corporate investment. In this paper, we attempt to distinguish between these different interpretations using project-level data in the oil...

Over the past 30 years, the share of adult populations with college degrees increased more in cities with higher initial schooling levels than in initially less educated places. This tendency appears to be driven by shifts in labor demand as there is an increasing wage premium for skilled people...

This paper proposes the solution concept of interim rationalizability, and shows that all type spaces that have the same hierarchies of beliefs have the same set of interim rationalizable outcomes. This solution concept characterizes common knowledge of rationality in the universal type space.

We use data on announced and actual exchange rate arrangements to ask which countries follow de facto regimes different from their de iure ones, that is, do not do what they say. Our results suggest that countries with poor institutional quality have difficulty in maintaining pegging and abandon...

Corporate governance disasters could often be averted had directors asked their CEOs questions, demanded answers, and blown whistles. Work in social psychology by Milgram (1974) and others shows human subjects to have an innate predisposition to obey legitimate authority. This may explain...

Using 550 million limit orders submitted in the Korea Stock Exchange, we estimate demand and supply elasticities of heterogeneous investor types and their changes around the Asian financial crisis. We find that domestic individuals have substantially more inelastic demand and supply curves than...