Research Lab

Pricing greenhouse-gas (GHG) emissions involves making tradeoffs between consumption today and unknown damages in the (distant) future. While decision making under risk and uncertainty is the forte of financial economics, important insights from pricing financial assets do not typically inform standard climate–economy models. Here, we introduce EZ-Climate, a simple recursive dynamic asset pricing model that allows for a calibration of the carbon dioxide (CO2) price path based on probabilistic assumptions around climate damages.

We study the association between human capital and rollovers into Individual Retirement Accounts (IRAs), using administrative records from the defined contribution savings plan for U.S. government employees: the Thrift Savings Plan (TSP). Employees who separate from government employment have the option to leave balances in the TSP, where fees are currently under 4 basis points. However, we estimate that more than a third of the TSP balances end up being rolled over into IRA accounts, which are very likely to have much higher fees.

We propose the standard neoclassical model of investment under uncertainty with short-run adjustment frictions as a benchmark for earnings-return patterns absent accounting influences. We show that our proposed benchmark generates a wide range of earnings-return patterns documented in prior accounting research. Notably, our model generates a concave earnings-return relation, similar to that of Basu [1997], and predicts that the earnings-return concavity increases in the volatility of firms' underlying shock processes and decreases in investment levels.

This paper investigates how book rate of return under GAAP relates to risk and the required return for investing. A standard view sees the book rate of return as a measure of profitability to be compared to the required return to evaluate the success of an investment. A contrasting view sees the book rate of return as indicative of the required return, consistent with the standard risk-return tradeoff. There clearly is some sorting out to do.

Corporate support has not kept pace with realities of family life.

We develop an empirical model of exchange rate returns, applied separately to samples of developed (DM) and developing (EM) economies’ currencies against the dollar. Monetary policy stance of the global central banks, measured via a natural-language-based approach, has a large effect on exchange rate returns over the ensuing year, is closely linked to the VIX, and becomes increasingly important in the post-crisis era.

The psycho-cultural barriers women face are hard to overcome because they are not obvious.

This appendix provides a contrast to the variance decomposition approach for identifying the two types of news in accounting data. This approach, explained in Callen (2009), assumes the Vuolteenaho (2002) model, implemented in a vector autoregressive (VAR) scheme to capture the linear dependencies among multiple time series of indicator variables.

The authors present empirical evidence that borrowers, consciously or not, leave traces of their intentions, circumstances, and personality traits in the text they write when applying for a loan. This textual information has a substantial and significant ability to predict whether borrowers will pay back the loan above and beyond the financial and demographic variables commonly used in models predicting default.