Research Lab

The US government has a massive footprint on any US company that goes way beyond just the impact of tariffs. How the government chooses to use that influence can make or break the company. Read the full article on Forbes.com

We provide evidence that banks classify fixed-rate debt investment securities as held to maturity (HTM) rather than as available for sale (AFS) when HTM classification provides preferred financial accounting and regulatory capital treatments, not because they have a distinct economically motivated intent and ability to hold the securities to maturity.

Earnings management involves actions by managers to influence reported financial results, often to present a more favorable view of company performance. In this chapter, we discuss the tools available to managers for earnings management. We first consider manipulation of net income through accruals and real earnings management. Then, we disaggregate earnings management along the income statement, comparing manipulation of revenue, expenses, and gains and losses.

How do venture capital investors react to social movements, especially those that relate to historical underrepresentation in their funding decisions? We use image and name algorithms combined with clerical review to classify race for 150,000 founders and 30,000 investors. Our new data allow us to assess the impact of George Floyd's murder on VC funding of Black entrepreneurs and identify which VCs were most responsive. Although VCs responded swiftly, investment in Black-owned startups reverted to prior levels within two years.

We propose and test a simple model of the equity premium implied by stock index options, assuming frictionless and complete markets for the index and index options. The model’s forecasts are more accurate than forecasting benchmarks, especially when arbitrage costs are low. They closely match real market behavior, with an average equity premium of 7.9% and an implied Sharpe ratio of 0.36.

Insurance and macro models, increased capital risk results in higher risk free asset prices often attributed to precautionary saving. However at the demand level, even assuming the same preferences as in the equilibrium analysis, precautionary saving need not always hold. Assuming CES time and CRRA risk preferences, we derive conditions such that the consumer exhibits precautionary savng. Absent these conditions, a concrete example demonstrates that the consumer fails to exhibit precautionary saving.

The government budget constraint ties the market value of government debt to the expected present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no‐arbitrage restriction in the United States. Both cyclical and long‐run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasuries may be overpriced.