We provide a simple argument that suggests that better-informed hedge funds choose to have less exposure to factor risk. Consistent with this argument, we find that hedge funds that exhibit lower R-squareds with respect to systematic factors have higher Sharpe ratios, higher information ratios,...

We develop a parsimonious model in which frictions in the labor market may turn small, continuous labor productivity declines into large drops in employment, endogenously causing disasters. Assuming one state variable and CRRA agents, we solve for prices in closed form, calibrate the model using...

This article studies the determinants of the success of industry consolidations using a unique sample of firms established at the time of their initial public offering: roll-up IPOs. In these transactions, small, private firms merge into a shell company, which goes public at the same time. These...

We develop a model for an investor with multiple priors and aversion to ambiguity. We characterize the multiple priors by a "confidence interval" around the estimated expected returns and we model ambiguity aversion via a minimization over the priors. Our model has several attractive features:...

We evaluate the out-of-sample performance of the sample-based mean-variance model, and its extensions designed to reduce estimation error, relative to the naive 1-N portfolio. Of the 14 models we evaluate across seven empirical datasets, none is consistently better than the 1-N rule in terms of...

This paper examines the relationship between default probability and stock returns. Using the Expected Default Frequency (EDF) of Moody's KMV, we document that higher default probabilities are not associated with higher expected stock returns. Within a model of bargaining between equity holders...

We develop a new solution method for a broad class of discrete-time dynamic portfolio choice problems. The method efficiently approximates conditional expectations of the value function by using (i) a decomposition of the state variables into a component observable by the investor and a...