Research Lab

This paper investigates financial attention using novel panel data on daily investor online account logins. We find support for selective attention to portfolio information. Account logins fall by 9.5% after market declines. Investors also pay less attention when the VIX volatility index is high. The level of attention and the attention/return correlation are strongly related to investor demographics (gender, age) and financial position (wealth, holdings). Using a new statistical decomposition, we show how aggregate and individual household trading are related to investor attention.

Under accounting principles, the recognition of earnings is path-dependent and the path depends on risk and its resolution: under the so-called realization principle, earnings are not booked until uncertainty is resolved. In asset pricing terms, the principle means that earnings cannot be recognized until the firm can book a low-beta asset such as cash or a near-cash discounted receivable. If the risk to which this accounting responds is priced risk, the accounting indicates the expected return.

Buildings have a major impact on the environment through excessive use of resources, such as energy and water, and large carbon dioxide emissions. In this paper we revisit the study of Eichholtz et al. (2010) about the economics of environmentally sustainable buildings and estimate the effect of green building practices on market rents. For this, we use new matching methods that take advantage of the clustered structure of the buildings data.

Regulatory changes are transforming the multitrillion dollar swaps market from a network of bilateral contracts to one in which swaps are cleared through central counterparties (CCPs). The stability of the new framework depends on the CCPs’ resilience. Margin requirements are a CCP’s first line of defense against the default of a counterparty. To capture liquidity costs at default, margin requirements need to increase superlinearly in position size.

Hedge fund activism emerged as a major force of corporate governance in the 2000s. By the mid-2000s, there were between 150 and 200 activist hedge funds in action each year, advocating for changes in 200–300 publicly listed companies in the United States. In this article, we review the evolution and major characteristics of hedge fund activism, as well as the short- and long-term impacts of the performance and governance of targeted companies.

We document that contractual disclosures by intermediaries during the sale of mortgages contained false information about the borrower's housing equity in 7–14% of loans. The rate of misrepresented loan default was 70% higher than for similar loans. These misrepresentations likely occurred late in the intermediation and exist among securities sold by all reputable intermediaries. Investors — including large institutions — holding securities with misrepresented collateral suffered severe losses due to loan defaults, price declines, and ratings downgrades.

We examine contagion in earnings management using 2,376 restatements announced during the years 1997-2008. Controlling for industry and firm characteristics, firms are more likely to begin managing earnings after the public announcement of a restatement by another firm in their industry or neighborhood. Such contagion is absent when the restating firm is disciplined by the SEC or class action lawsuits, suggesting deterrent effects of enforcement activity.