We derive a closed-form solution for the optimal portfolio of a nonmyopic utility maximizer who has incomplete information about the alphas or abnormal returns of risky securities. We show that the hedging component induced by learning about the expected return can be a substantial part of the...

We provide new insights that link compensation structure terms to credit spreads by modeling the dynamic risk choice of a risk-averse manager paid with performance insensitive pay (cash) and performance sensitive pay (stock). The model predicts that credit spreads are increasing in the ratio of...