Compensating Wage Differentials for Schooling Risk in Denmark ∗ In this paper we test for risk compensation in wages using Danish panel data. With the conviction that the type of education is as important as the education length, we use a very detailed description of the type of education reached by the Danish population to calculate different measures of earnings risk by education. Our long pa...

Artificial neural networks are used in conjunction with the Sharpe-Linter form of the Capital Asset Pricing Method (CAPM) to predict when the returns on U.S. stocks will be greater than financial risk models would predict. The advantage of using a nonlinear approach is to model the financial system more accurately than linear techniques. The Sharpe-Lintner form is used to control for risk and d...

Should Old-Age Benefits Be Earnings-Tested? We study the welfare effects of earnings testing flat-rate old-age benefits in a quantitative overlapping generations model with idiosyncratic labor income risk. In our model economy, even a moderate earnings testing reduces individuals’ expected lifetime utility, whenever other taxes are taken into account. Moreover, it also lowers the realized lifet...

Moody’s analysts and sell-side equity analysts adjust GAAP earnings as part of their research. We show that adjusted earnings definitions of Moody’s analysts are significantly lower than those of equity analysts when companies exhibit higher downside risk, as measured by volatility in idiosyncratic stock returns, volatility in negative market returns, poor earnings, and loss status. Relative to...

This study examines how takeover decisions are influenced by the quality of information in target firms’ earnings. We find that bidders are more likely to prefer negotiations in deals involving targets with poor earnings quality. Moreover, in such deals, earnings quality and takeover premiums are negatively related, suggesting that bidders obtain valuable private information through negotiation...

The earnings replacement rates of retired couples, which take into account the earnings and benefits of wives, are important for assessing the adequacy of social security benefits. Using data from the Social Security Administration’s longitudinal Retirement History Study, this article presents the first view of replacement rates for couples. The findings show that, though about half the wives c...

Temporary workers make up a sizeable part of the labor force in many countries, including Korea. This paper uses an extension of a standard efficiency wage model to explain the wage gap between temporary and permanent workers. Temporary workers have a chance to become permanent; this possibility – combined with the existence of an employment rent for permanent workers – gives short-term workers...

Price-earnings (P/E) ratios should be positively related to growth and negatively related to interest rates and risk. Whereas earlier investigations of the determinants of P/E ratios find these links to be weak, results of recent research estimating the cost of capital imply stronger links. The two sets of research employ different sets of proxies for P/E ratios (trailing vs. forward ratios), g...

We generalize the CAPM to a setting where a regulator requires firms to report earnings before their shares are publicly traded but does not specify the reporting system that maps economic income into reported earnings. We show that under fairly mild conditions, a riskaverse entrepreneur (as representative of the initial owners of the firm) will endogenously choose a reporting system where repo...