What are the implications of rational inattention for the effects of public information on individual behavior and in turn welfare? I examine the impact of rational inattention to public information in the "beauty contest" model of Morris and Shin (2002). I show that with information processing...

We exploit heterogeneity in decreasing returns to scale parameters across funds to analyze their effects on capital allocation decisions in the mutual fund market. We find strong evidence that steeper decreasing returns to scale attenuate flow sensitivity to performance, which has a large effect...

Belief disagreement generates a fundamental tension between two desirable features of a resource allocation: Pareto optimality and risk sharing. While Pareto optimality generally opposes restrictions to trade, a growing literature rejects it in the presence of heterogeneous beliefs and proposes...

We estimate a model in which Bayesian investors learn about parameters governing mutual fund performance in real time and competitively allocate capital to funds, conditional on their current beliefs. The model-implied aggregate allocation of capital in response to the history of observed...

We analyze the impact of unanticipated monetary policy changes on equity returns and document that financially constrained firms earn a significantly lower return following rate increases as compared to unconstrained firms. Trading volume is significantly lower for constrained firms on FOMC...

I analyze the impact of a firm's environmental profile on its cost of equity and debt capital. Using implied cost of capital derived from analysts' earnings estimates, I find that investors demand significantly higher expected returns on stocks excluded by environmental screens (such as...

Using a comprehensive sample of 2,585 bankruptcies from 1990 to 2019, we benchmark the performance of various machine learning models in predicting financial distress of publicly traded U.S. firms. We find that gradient boosted trees outperform other models in one-year-ahead forecasts. Variable...