Research Lab

I quantitatively measure the interactions between the media and the stock market using daily content from a popular Wall Street Journal column. I find that high media pessimism predicts downward pressure on market prices followed by a reversion to fundamentals, and unusually high or low pessimism predicts high market trading volume.

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. The Committee is pleased to respond to the Financial Accounting and Standards Board (FASB) Exposure Draft, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115," issued in January 2006.

This paper addresses the issues that confront the FASB and IASB in developing a new conceptual framework document. First, we suggest characteristics that a conceptual framework ought to exhibit. Most of these suggestions are based on our critique of the existing framework and the FASB-IASB work in progress. Second, we present a model framework that exhibits these characteristics. We emphasize up front that this framework is quite explicit. It goes to the heart of what a framework document should do: it places specific restrictions on what constitutes admissible accounting standards.

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. This paper summarizes the Committee's response to the Financial Accounting Standards Board's Exposure Draft, "Employers' Accounting for Defined Benefit Pension and Other Post-retirement Plans: An Amendment of FASB Statements No. 87, 88, 106, and 132(R)."

This paper develops numerical approximations for pricing collateralized debt obligations (CDOs) and other portfolio credit derivatives in the multifactor Normal Copula model. A key aspect of pricing portfolio credit derivatives is capturing dependence between the defaults of the elements of the portfolio. But, compared with an independent-obligor model, pricing in a model with correlated defaults is more challenging. Our approach strikes a balance by reducing the problem of pricing in a model with correlated defaults to calculations involving only independent defaults.

This paper lays out a decomposition of book-to-price (B/P) that derives from the accounting for book value and that articulates precisely how B/P "absorbs" leverage. The B/P ratio can be decomposed into an enterprise book-to-price (that pertains to operations and potentially reflects operating risk) and a leverage component (that reflects financing risk).

The article shows that two measures of the amount of private information in stock price — price nonsynchronicity and probability of informed trading (PIN) — have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover, the effect is robust to the inclusion of controls for managerial information and for other information-related variables. The results suggest that firm managers learn from the private information in stock price about their own firms’ fundamentals and incorporate this information in the corporate investment decisions.

Contrary to the common perception that operating cash flows are better than accounting earnings at explaining equity valuations, recent studies suggest that valuations derived from industry multiples based on reported earnings are closer to traded prices than those based on reported operating cash flows.

Public/private partnerships have become a favored strategy for implementing complex urban developments in the United States and Western Europe, but the large volume of literature on the topic falls short of providing city planners, development experts, and policy analysts the knowledge needed for either teaching or practice. In the late 1970s, the blurring of lines between public and private action spurred significant intellectual debate in the U.S.