Research Lab

From the publisher: From the "guru to Wall Street's gurus" comes the fundamental techniques of value investing and their applications. Bruce Greenwald is one of the leading authorities on value investing. Some of the savviest people on Wall Street have taken his Columbia Business School course on the subject. Now this dynamic and popular teacher, with some colleagues, reveals the fundamental principles of value investing, the one investment technique that has proven itself consistently over time.

Shareholders of a Regional Bell Operating Company (RBOC) tend to live in the area which it serves, and an RBOC's customers tend to hold its shares rather than other RBOCs' equity. The geographic bias of the RBOC investors is closely related to the general tendency of households' portfolios to be concentrated, of employees' tendency to own their employers' stocks in their retirement accounts, and to the home country bias in the international arena.

Most of the market microstructure literature focuses on the liquidity of individual securities, whereas much of the asset pricing literature examines the association between systematic risk and return. We document the presence of a systematic, time-varying component of liquidity. At the moment, neither the inventory nor the asymmetric information-based approach to liquidity explains the systematic, time-varying component of liquidity.

In this paper I use a principal-agnet framework to explore the relation between the hierarchical structure of firms and the accounting information technologies available to them. My analysis is related to that in Melumad, Mookherjee, and Reichelstein [1992] and Ziv [1993]. In this paper, I take an approach that allows the principal to choose the number of layers in the firm, the number of agents in each layer, and the quantity and quality of information in the firm (subject to the available information technology).

I survey and assess the development of continuous-time methods in finance during the last 30 years. The subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing, term structure theory, asset pricing, and optimal consumption and portfolio choices. During the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance.

In this article, the authors focus on impacts of tax rates and, in particular, tax progressivity on the decision to become an 'entrepreneur.' While a proportional tax with a full loss offset will not affect the entry decision for a risk-neutral individual, a progressive schedule with imperfect loss offsets can discourage entry. The authors find substantial evidence for this effect on entrepreneurship using variation in tax schedules faced by households in the Panel Study on Income Dynamics (PSID) over the period from 1979 to 1992.

Previous theories of financial market rationing focussed on a single market, either the credit or the equity market. An interesting question is whether credit and equity rationing are mutually compatible, and how they interact. We consider a model with two-dimensional asymmetric information, where entrepreneurs have private information about both the expected returns and the risk of their projects. We show that credit and equity rationing may occur individually or simultaneously.

In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.

In the immediate aftermath of the onset of the global financial crises, attention was focused on the weaknesses in the borrowing countries; the suggestion was that, by pursuing unsound policies and indulging in "crony capitalism" these countries had brought the ills upon themselves.