The two main stylized facts in the mutual fund literature are that funds exhibit little ability to persistently outperform their peers, but that new money flows into funds with the highest past returns. The traditional interpretation is that fund managers are unskilled and fund investors are unsophisticated. Berk and Green (2004) offer an alternative, arguing that more-skilled managers will man...

Using a unique daily database, we investigate the short-run dynamic relation between institutional trades and stock price volatility in an individual investor dominated emerging market. We document a significant negative volatility-institutional trading relation in the emerging Chinese market. This negative relation is more pronounced for unexpected institutional imbalance and buy. Institutiona...

To measure the causal impact of broker recommendations on their clients portfolios, we exploit time-series variation in access to brokers in a defined contribution retirement plan. When brokers are available, we predict demand for brokers using administrative data on plan participants. The observed correlations with age, income, and educational attainment suggest that brokers are chosen by part...

Two separate strands of the literature on capital structure under asymmetric information consider the relationship between a firm's financial leverage and cash flow. Signalling theory suggests a positive relationship, while pecking order behavior implies a negative relationship. These contrasting theoretical implications appear contradictory. However, both are supported in different bodies of e...

This paper proposes a collateral view of financial innovation: Many innovations are partly motivated by alleviating collateral constraints for trading (speculation or hedging). We analyze a model of investors with disagreement. The trading need motivates them to introduce derivatives, which are endogenously determined in equilibrium. In the presence of a collateral friction in cross-netting, th...

Investors in 401(k) plans violate basic principles of diversification by holding a significant fraction of their savings in the form of their employers’ equity. This paper characterizes investors’ active changes to their company stock investment over time by analyzing new inflows and transfers. Investors seem to base active changes on salient information, paying attention to past returns, volat...

We study the choice of disclosure and share repurchase strategies of informed managers. Using a model that captures how direct disclosures and share repurchases differentially impact short and long-term stock value, we ask when will they choose disclosure, or repurchases, or both. We find that both direct disclosure and share repurchase policies emerge in equilibrium in different regions of fir...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper examines the role of financial development and fin...

The financial crisis has fueled interest in alternatives to traditional asset classes that might be less affected by large market gyrations and, thus, provide for a less volatile development of a portfolio. One attempt at selecting stocks that are less prone to extreme risks, is obeyance of Islamic Sharia rules. In this light, we investigate the statistical properties of the Dow Jones Islamic S...

We estimate values-at-risk (VaR) in the accumulation phase of defined-contribution pension plans. We examine a range of asset-return models (including stationary moments, regime-switching and fundamentals models) and a range of asset-allocation strategies (both static and with simple dynamic forms, such as lifestyle, threshold and constant proportion portfolio insurance). We draw four conclusio...