I develop a model of statistical arbitrage trading in an environment with "fat-tailed" information. If risk-neutral arbitrageurs are uncertain about the variance of fat-tail shocks and if they implement max-min robust optimization, they will choose to ignore a wide range of pricing errors....

This paper rationalizes the LASSO algorithm based on uncertain fat-tail priors and max-min robust optimization. Our rationalization excludes heuristic learning or restrictive prior assumptions in the original interpretation of LASSO (Tibshirani (1996)). In our setting, economic agents...

Procurement control (PC) is a practice that the buyer controls the material procurement of the supplier and at the same time takes the inventory risk from the supplier. In this paper we compare PC with a decentralized contracting practice (DC) in the setting of a risk-neutral buyer cooperating...

This paper proposes that besides volatility, R&D can increase firms' distress risk through another channel. Unlike capital investment, R&D is more inflexible and subject to high adjustment costs. Moreover, R&D intensive firms face severe financial constraints and are more likely to...

This paper examines how online interaction between firm management and investors impacts stock price crash risk. Based on the previous literature, we postulate that online interaction constrains crash risk via two channels, i.e., deterring bad news hoarding activities of managers and decreasing...