A number of studies have identified patterns of positive correlation of returns, or comovement, among different traded securities. We distinguish three views of such co- movement. The traditional quot;fundamentalsquot; view explains the comovement of securities through positive correlations in...

We consider two broad views of return comovement: the traditional view, derived from frictionless economies with rational investors, which attributes it to comovement in news about fundamental value, and an alternative view, in which market frictions or noise-trader sentiment delink it from...

A number of studies have identified patterns of positive correlation of returns, orcomovement, among different traded securities. We distinguish three views of such comovement. The traditional \fundamentalsquot; view explains the comovement of securities through positive correlations in the...

The well-known weak empirical relationship between beta risk and the cost of equity--thebeta anomaly--generates a simple tradeoff theory: As firms lever up, the overall cost ofcapital falls as leverage increases equity beta, but as debt becomes riskier the marginalbenefit of increasing equity...

Traditional capital structure theory in frictionless and efficient markets predicts that reducing banks' leverage reduces the risk and cost of equity but does not change the overall weighted average cost of capital (and thus the rates for borrowers). We test these two predictions. We confirm...

We outline a dividend signaling model that features investors who are averse to dividend cuts. Managers with strong unobservable cash earnings pay high dividends but retain enough to be likely not to fall short next period. The model is consistent with a Lintner partial-adjustment model, modal...

Almost $10 trillion is benchmarked to Morgan Stanley Capital International's Developed, Emerging, Frontier, and standalone market indexes. Reclassifications from one index to another require thousands of investors to decide how to react. We study a comprehensive sample of past reclassifications...

Capital requirements for banks must balance a number of factors, including any effects on the cost of capital and in turn the rates available to borrowers. Standard theory predicts that, in perfect and efficient capital markets, reducing banks’ leverage would reduce the risk and cost of their...

Minimum capital requirements are a central tool of banking regulation. Setting them balances a number of factors, including any effects on the cost of capital and in turn the rates available to borrowers. Standard theory predicts that, in perfect and efficient capital markets, reducing banks'...

Many studies find that aggregate managerial decision variables, such as aggregate equity issuance, predict stock or bond market returns. Recent research argues that these findings may be driven by an aggregate time-series version of Schultz’s (2003, Journal of Finance 58, 483–517) pseudo...