Fundamental Investment Analysis

We study qualitative information disclosure by mutual funds when investors learn from these disclosures in addition to past performance. We show theoretically that fund managers with specialized strategies optimally choose to disclose detailed strategy descriptions, while managers with standardized strategies provide generic descriptions. Generic descriptions lead to errors in benchmarking by investors and thus higher volatility in capital flows.

A two-factor model explains returns for a variety of test portfolios, including those based of CAPM beta and those underlying factors in extant pricing models. The two-factor model involves the market factor and a factor based on firms’ fundamentals that has the feature of providing a hedge in down markets and a reverse-hedge in up markets. For a wide range of test portfolios, returns are described by sensitivity to the market factor with a beta of one and positions in the hedging factor.

We follow a representative panel of millions of consumers in the U.S. from 2007 to 2017 and document several facts on the long-term effects of the Great Recession. There were about six million foreclosures in the ten-year period after Lehman's collapse. Owners of multiple homes accounted for 25% of these foreclosures, while comprising only 13% of the market. Foreclosures displaced homeowners, with most of them moving at least once. Only a quarter of foreclosed households regained homeownership, taking an average four years to do so.

We propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, using cash-flows on various listed equity and fixed income instruments. The second step values the replicating portfolio using a flexible asset pricing model that accurately prices the systematic risk in listed equity and fixed income instruments of different horizons.

Turning around distressed operations is an alternative response to underperformance — as contrasted with using transactions such as divestitures or resource redeployment to deal with troublesome assets during corporate renewal. Taking the perspective of private-equity owners whose interests are primarily financial, we explain how their approach to turnarounds of troubled companies may differ from that of managers within publicly traded firms who may envision the realization of longer-term sources of operating synergy among their firms' lines of business.

Day trading coverage perpetuates myths about the ‘real job’ of investment management.

Current market pricing of risk is evidence of late-cycle behaviour.

We develop a dynamic model of platform economy where tokens serve as a means of payments among platform users and are issued to finance investment in platform productivity. Tokens are optimally issued to reward platform owners when the productivity-normalized token supply is low and burnt to boost the franchise value when the productivity-normalized normalized supply is high.

We explore the landscape of public company auditing around the introduction of the Securities and Exchange Commission (SEC) in 1934. Using a broad sample of historical annual reports spanning several decades, we document that most public companies obtained audits even before the SEC’s audit mandate, which limited the mandate’s impact on audit rates. We further document that these companies selected their auditors based on characteristics reflecting independence and competence, even before the SEC’s mandate.