We present a dynamic model of the decision to pursue a college degree in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After matriculating and taking some exams, students reevaluate their...

This paper presents a dynamic model of the decision to pursue a college education in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After students matriculate and start taking exams, they...

This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal,...

After a long period of loose monetary policy triggered by the Great Recession, some central banks are signaling that they will raise their policy rates soon. Previous research, for example, Bernanke and Kuttner (2005) and Ozdagli (2014), has shown that asset prices react more strongly to...

This paper presents a dynamic model of the firm with risk-free debt contracts, investment irreversibility, and debt restructuring costs. The model fits several stylized facts of corporate finance and asset pricing: First, book leverage is constant across different book-to-market portfolios,...

Over the last decade, it has become increasingly popular to use event studies with intraday asset pricing data to study the effect of macroeconomic events on the economy. The proponents of this approach argue that asset prices react to macroeconomic events very quickly and that if we know the...

Fama and French (1992) suggest that the positive value premium results from risk of financial distress. However, recent empirical research has found that financially distressed firms have lower stock returns, using empirical estimates of default probabilities. This paper reconciles the positive...