A fund’s performance is usually compared to the performance of an index or other funds. If a fund trails the benchmark, the fund manager is often replaced. We argue that this may lead to excessive risk-taking if fund managers differ in ability and have the opportunity to take excessive risk. To match the benchmark, fund managers may increase the risk of their portfolio even if this decreases th...

This paper derives and analyzes dynamic timing strategies of a fund manager with private information. Endogenous timing strategies generated by various information structures and skills, and associated fund styles, are identified. Endogenous fund returns are characterized in the public information of an uninformed observer. Timing components are identified. The paper provides foundations for re...

Owner-managers of private companies are often highly underdiversified. We investigate the consequences of underdiversification at the company level. There is a strong positive relationship between underdiversification, measured as the share of personal net worth invested in the company, and profitability, measured as the return on equity. The analysis identifies two causes for this underdiversi...

An information transaction entails the purchase of information. Formally, it consists of an information structure together with a price. We develop an index of the appeal of information transactions, which is derived as a dual to the agent’s preferences for information. The index of information transactions has a simple analytic characterization in terms of the relative entropy from priors to p...

This note explores the link between anticipated information and a preference for liquidity in investment choices. Given a subjective ordering of investment portfolios by their liquidity, we identify a sufficient condition under which the prospect of finer resolution of uncertainty creates a preference for more liquid positions. We then show how this condition might arise naturally in some stand...

PATRICK S. MOORE,* SHOU-JIANG GAO, GERALDINA DOMINGUEZ, ETHEL CESARMAN, OCTAVIAN LUNGU, DANIEL M. KNOWLES, RICHARD GARBER, PHILIP E. PELLETT, DUNCAN J. MCGEOCH, AND YUAN CHANG Division of Epidemiology, Department of Microbiology, and Department of Pathology, Columbia University, New York, New York 10032; Centers for Disease Control and Prevention, Atlanta, Georgia 30333; Department of Pathology...

The negative relationship between market P/E ratios and government bond yields seems to have become conventional wisdom among practitioners. Both (limited) empirical evidence and a (misleading) suggestion that the model originated in the Fed are used to support the model’s plausibility. The evidence in this note, from 20 international markets, seriously questions the wide acceptance and use of ...

We present a unified model of infrared (IR), optical, ultraviolet (UV), and X-ray light curves for the 1983 outburst of GQ Muscae (Nova Muscae 1983) and estimate its white dwarf (WD) mass. Based on an optically thick wind model of nova outbursts, we model the optical and IR light curves with free-free emission, and the UV 1455 Å and supersoft X-ray light curves with blackbody emission. The best...

In the U.S. business income is taxed several times at different sources, including corporate income, dividends, capital gains, and interest payments. We investigate how the different rates above affect firm investment and the allocation of capital in the economy. To do so, we construct and calibrate a model with heterogeneous firms, borrowing constraints, costly equity issuance and endogenous e...