Miracle-dz/UniFAR-FTUs huggingface dataset:
Consumption of traded goods, exchange rate dynamics, and risk sharing.

The paper analyzes the consumption-real exchange rate anomaly in a multi-country model with complete markets under various preference specifications: (i) standard time-additive preferences; (ii) recursive preferences of Epstein and Zin; and (iii) habit formation preferences of Campbell and Cochrane. Recent research indicates that non-standard preferences can successfully replicate the low correlation between consumption and real exchange rates as in the data, thus resolving the anomaly. Optimal consumption risk sharing requires a reallocation of traded goods across countries. I show that such an optimal reallocation in this class of models links bilateral real exchange rate dynamics to consumption in both countries and to the ratio of domestic consumption of home endowment relative to exports of domestic goods to the foreign country. This implication finds little empirical support with data for 9 OECD economies.
The Relationship between Chief Risk Officers and Firm Value: Its Complicated

We study the relationship between enterprise risk management and firm value. We analyze how the influence and reporting of the chief risk officer (CRO) and the incentives to compensate him or her contribute to firm value. We use U.S. publicly traded insurers data between 2009 and 2017 and find that the participation of a CRO is insufficient for value creation in insurers. Our results present a negative relationship between a CRO and firm value. However, we find empirical evidence of a positive relationship between firm value and the incentives related to the compensation of the CRO, specifically including the CRO in the compensation committee of the board and providing the CRO with an equity-based compensation plan.
Relative Performance Feedback in Education: Evidence From a Randomized Controlled Trial

In a 1-year randomized controlled trial involving thousands of university students, we provide real-time private feedback on relative performance in a semester-long online assignment. Within this setup, our experimental design cleanly identifies the behavioral response to rank incentives (i.e., the incentives stemming from an inherent preference for high rank). We find that rank incentives not only boost performance in the related course assignment, but also increase the average grade across all exams taken in the (intervention) course by 0.21 standard deviations. These beneficial effects remain sizeable across all quantiles and extend beyond the time of the intervention. Furthermore, relative performance feedback seems to stimulate social learning, i.e., rank incentives make students engage more in peer interactions. Finally, we explore the virtues of real-time feedback by analyzing a number of alternative variations in the way it is provided. <br>
Quantifying the Federal Reserve’s Objectives Using a Structural Vector Autoregressive Model

The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient for inferring its underlying preference. We quantify Fed’s objective—the targeting rule—relying on a conditional estimator (Galí and Gambetti 2018) that is free of the classical simultaneity problem. We discover that Fed’s targeting rule remained stable during the pre- and post-Volcker periods—the opposite of what is implied through a Taylor rule estimation.
The Real Effects of Small-Firm Credit Guarantees during Recessions

We estimate the real effects of UK guarantees introduced during 2009 by exploiting firm-size eligibility restrictions and rich administrative data. Relative to matched non-eligible firms, eligible businesses had higher 5-year debt and performance, yet similar repayment and interest rates. Employment, wages, and productivity also increased, yet there was no impact on pledgeable asset investment, even for capital-dependent firms. The evidence suggests that the guarantees relaxed credit constraints by enabling firms to access loans they could not obtain otherwise at any rate, especially for financing workers. We find no evidence supporting other mechanisms like debt-cost decreases, changes in incentives, or externalities.
Government Credit and International Trade

Using transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze how government-subsidized credit affects trade activities. We find that CDB credit to strategic industries at the top of the supply chain leads to lower prices, higher volumes, and more product varieties and destinations of exports for firms in downstream industries. Overall, the increased export amount caused by CDB loans is estimated to account for 1.14% of China’s GDP. We further document two essential mechanisms underlying such CDB credit positive spillovers across the supply chain. First, CDB loans to upstream industries significantly lower the prices of intermediate goods sold by upstream firms, which, in turn, reduces downstream firms’ costs of goods. Second, CDB loans to upstream industries increase accounts receivable of upstream firms and accounts payable of downstream firms. To identify these positive spillover effects, we use predetermined local politician turnover cycles as instrumental variables to exploit exogenous variations of CDB credit. We find that local politicians borrow significantly more from the CDB to fund local focal industries in the early years of their 5-year terms. The turnover cycles are not associated with other local government activities, such as land sales, subsidies, fiscal transfer, tax policies, foreign investments, and loans from other banks. JEL: E51, F30, G21, G28
Managing Expectations and Corporate Financial Policy

We compare public managerial forecasts with internal forecasts collected by a large-scale government survey. Although both forecasts are mandatory, predict corporate investment, and are overoptimistic on average relative to realizations, public forecasts tend to be pessimistic relative to internal forecasts. Managers under more shareholder pressure and with higher pay-performance sensitivity are more publicly pessimistic. The relative pessimism predicts higher stock returns, positive earnings surprises, and more executive compensation. However, managers decrease pessimism when issuing secondary equity offerings and become publicly optimistic when they are financially constrained, consistent with an inter-temporal trade-off between beating managerial targets versus maintaining financial flexibility.
Dynamic ESG Preferences and Asset Prices

This paper shows that shifts in investor preferences for Environmental, Social, and Governance (ESG) attributes affect asset prices. Using Internet search volume to capture ESG sentiment shifts, we propose a novel firm-level measure of return sensitivity to ESG sentiment (i.e., ESG beta). We find that ESG beta does not predict firm profits but stocks with more positive ESG beta earn higher abnormal returns and attract more investor demand. This predictability is stronger among firms headquartered in regions with high Republican concentration and stronger beliefs against ESG issues. Overall, these results suggest that financial markets misprice firm-level ESG attributes.
Micro Uncertainty and Asset Prices

At low frequencies, we document that size and value premia exhibit strong positive co-movement, but are both negatively related to the equity premium. These patterns are explained in an investment-based asset pricing model featuring persistent micro and macro uncertainty. Micro uncertainty generates size and value premia waves, while macroeconomic uncertainty produces equity premium waves. The negative relation between micro and macro uncertainty at low frequencies accounts for the negative relation of the market with size and value premia. The higher sensitivity of size-sorted portfolios to micro uncertainty can explain the observed instability of the size strategy.
Finance and Income inequality retraced

We show the translation of income inequality into wealth inequality, arguably via the channel of corporate financing. For 15,812 publicly listed firms operating in 41 developed and developing countries, we find robust empirical evidence of a positive impact of national income inequality on corporate wealth concentration via firm ownership concentration. This is also a contribution, through a new explanatory factor identification, to the literature on firm ownership concentration.
Information search, attention distribution and biased performance evaluations: Evidence from students and executive managers

Prior research has found that managers rely more on common measures than on unique measures when evaluating multiple subordinate managers’ performance. We examine the effects of the exhaustiveness of information search and attention distribution across performance measures on this ‘common measure bias’. Using a mouse cursor-tracking experiment, we observe that superior managers’ pre-decisional information search processes are largely unrelated to their performance evaluation judgments. Instead, our data suggest that even when superiors devote equal attention to common and unique measures, they put greater weight on common measures in subjective ratings. We also find that a more exhaustive information search leads to more lenient performance evaluations. These results hold for a student and an executive manager sample. Our results suggest that the common measure bias is not the result of a biased or limited information search but of explicitly putting more weight on common measures.
Risk Taking, Preferences, and Beliefs: Evidence from Wuhan

We study risk taking in a panel of subjects in Wuhan, China - before, during the COVID-19 crisis, and after the country reopened. Subjects in our sample traveled for semester break in January, generating variation in exposure to the virus and quarantine in Wuhan. Higher exposure leads subjects to reduce planned risk taking, risky investments, and optimism. Our findings help unify existing studies by showing that aggregate shocks affect general preferences for risk and economic expectations, while heterogeneity in experience further affect risk taking through beliefs about individuals’ own outcomes such as luck and sense of control.
More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses

Using a novel setting in which retailers receive bonuses when selling jackpot winning lottery tickets, we show that large windfalls not only increase the revenue and employment of existing businesses but also spur serial entrepreneurship. Serial ventures occur mainly in nonretail industries. We document a pecking order in entrepreneurs' responses: small windfalls increase revenue, whereas windfalls larger than \$100,000 trigger business creation and employment growth. Consistent with wealth effects as an indispensable mechanism, the effects become larger still when cash windfalls far surpass the amount required to start new businesses. Finally, cash windfalls do not lead to financial distress.
Earnings Management and Stock Price Crashes Post U.S. Cross-Delistings

We examine whether cross-delisted firms from the major U.S. stock exchanges experience an increase in crash risk associated with earnings management. Consistent with our prediction, we find that earnings management has a greater positive impact on stock price crash risk post cross-delisting when compared to a control group of firms that remain cross-listed. More importantly, we find that this effect is more pronounced for cross-delisted firms from countries with weaker investor protection, poorer quality of their information environment and less conservative accounting practices. Our findings are robust to the potential endogenous nature of the cross-delisting decision, alternative measures of stock price crash risk and information asymmetry. We interpret our results as evidence of a “reverse bonding effect” following cross-delistings from U.S. stock exchanges.
Choice of Policy Instruments with Endogenous Quality: Per-passenger and Per-flight Airport Charges in Japan

This study empirically investigates how two types of airport charges (per-passenger and per-flight) differentially affect airfares, service quality (flight frequency), and welfare. A structural model endogenizing airfares and flight frequency is estimated with data on Japanese domestic routes and then used for simulation analyses. The results reveal that per-passenger charges significantly raise airfares, with an average pass-through rate of 97.5 percent, and reduce flight frequency. Per-flight charges decrease flight frequency but have little effect on airfares. On nearly 80 percent of the routes in the sample, per-flight charges are socially preferred to per-passenger charges. The small portion (approximately 20 percent) of routes on which per-passenger charges are preferred include the largest routes. Consequently, per-passenger charges become socially preferred from the perspective of total surplus aggregated over all routes. It is also found that when flight frequency is treated as exogenous, the preferred form of charge could be reversed.
Efficiency of dynamic portfolio choices: An experiment

We study the efficiency of dynamic portfolio choices using the nonparametric methods of Dybvig (1988) and Post (2003). We compare a dynamic portfolio task against an equivalent static Arrow-Debreu problem under two alternative environments: (1) nonpooled with $$2^T$$ terminal states and (2) pooled with $$T+1$$ unique terminal states. The results suggest that, within each environment, efficiency is lower in a static format and when the number of final states is larger. In the nonpooled dynamic task, which allows for path dependent strategies, we find that a form of stop-loss strategy drives efficiency losses.
Power Outages, Firm Productivity, and Generator Ownership in East Africa

ABSTRACT Unreliable electricity supply is a widespread problem in developing countries. This paper examines the impact of power outages on firm productivity in East Africa, considering the effect of generator ownership in general and during blackouts. The results show large negative effects of power outages on productivity and a mitigating effect of self-generating during power outages of approximately the same size. However, self-generation is also found to generally reduce productivity due to the idle capital effect of unused generators during blackout-free times. This finding highlights that self-generation is only profitable for firms if the experienced power outages are severe enough.
The Effect of U.S. Tax Reform on Foreign Acquisitions

The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in U.S. international tax policy, altering the tax costs associated with U.S. ownership of foreign assets. We examine the pattern of foreign acquisitions by U.S. firms, both before and after the TCJA, emphasizing the key tax reform provisions that alter incentives for outbound investment. We find considerable cross-sectional variation across target and acquirer characteristics in changes to the probability of foreign acquisition. Notably, we find a decrease in the likelihood that a highly profitable foreign target in a low-tax jurisdiction will be acquired by a U.S. firm, as the TCJA’s Global Intangible Low-Taxed Income (GILTI) regime imposes an immediate U.S. tax on these foreign earnings. Our findings are important in light of the current U.S. administration’s intention to make GILTI more burdensome. A stated intention of the TCJA was to improve the competitiveness of U.S. firms. Our study cautions that, through GILTI, the reform reduces U.S. firms’ ability to compete in global M&amp;A markets and that this situation would worsen if current proposals were adopted.
High-dimensional realized covariance estimation: a parametric approach

We introduce a parametric dynamic factor specification for high-frequency financial data that simplifies considerably the estimation of the realized covariance matrix in high dimensions. The estimation method is tested in an empirical setting that emphasizes the effect of the curse of dimensionality. Compared to standard parametric approaches, our factor specification is computationally less demanding and provides statistically indistinguishable performances in standard risk management applications. The method is also assessed on Monte-Carlo simulations under several forms of misspecification.
Risk Pooling, Leverage, and the Business Cycle

This paper studies the impact of financial sector size and leverage on the business cycle and risk-free rates dynamics. We develop a general equilibrium model of a productive economy where financial intermediaries provide costly risk mitigation to households by pooling the idiosyncratic risks of their investment activities. In contrast to previous studies, we show that intermediaries not only amplify the variations of relative wealth between sectors, but may also mitigate business cycle fluctuations, while providing households with a risk-free asset whose real return is pro-cyclical and possibly negative. Households benefit the most when the financial sector is neither too small, thus avoiding high consumption fluctuations and costly risk mitigation, nor too big, so that fewer resources are lost after intermediation costs. JEL-Codes: E130, E320, E690, G120.
Issue Salience and Political Stereotypes

We examine US voters’ beliefs about views held by Republicans and Democrats. While individuals exaggerate partisan differences on a range of socioeconomic and political issues, we document that belief distortions are larger on issues that individuals consider more important. We organize these facts using a model of stereotypes where distortions are stronger for issues that are more salient to voters. In line with the model, belief distortions are predictable from the differences across parties, in particular the relative prevalence of extreme attitudes. To assess the impact of issue salience, we show that the end of the Cold War in 1991, which shifted US voters’ attention away from external threats and towards domestic issues, led to an increase in perceived polarization in the latter, and more so for issues with more stereotypical partisan differences. The reverse pattern occurred after the terrorist attacks in 2001, when attention swung back towards external threats. The distortions we identify are quantitatively significant, and could have important consequences for political engagement as such distortions strongly predict voting turnout.
The effects of competition for monetary rewards and public relative performance information on psychological pressure and cooperation in multitask environments

In today’s economy, jobs frequently comprise multiple tasks and duties, which presents a challenge for the design of incentive systems. We examine how competition for monetary rewards (tournament compensation schemes versus piece-rate compensation) or standing in rankings (public disclosure of rankings with rank anonymity removed) in one task affect employee cooperation (operationalized through a knowledge sharing task) with former competitors in an unrewarded and unrelated task. For this purpose, we conduct a two-part laboratory experiment and hypothesize that competition in the first task negatively affects cooperation in the second unrelated task. We further hypothesize that psychological pressure that employees experience from competition mediates the effect of competition in one task on cooperation in another task. Our results support our hypotheses. In supplemental analyses we find that the decrease in cooperation results from the behavior of low performers in the competition, whereas cooperation by high performers is not affected by competition. Our results have important implications for compensation setting practice in business. Electronic copy available at: https://ssrn.com/abstract=3219853 1
How Norms Shape the Nature of Belief Systems in Mass Publics

How should ideology be understood, and should we be concerned if Americans lack it? Combining widely used survey questions with an incentivized coordination game, we separately measure individuals’ own policy preferences and their knowledge of what other ideological group members expect them to believe. This allows us to distinguish knowledge of ideological norms—what liberals and conservatives believe ought to go with what—from adherence to those norms. We find that a non-trivial portion of those reporting ideologically inconsistent preferences do so knowingly, suggesting their lack of ideological constraint can be attributed to pragmatism rather than innocence. Additionally, a question order experiment reveals that priming ideological norms before measuring policy preferences promotes ideological adherence, suggesting ideological constraint is at least partially attributable to norm conformity pressure. Together, these findings raise the question whether ideology is actually desirable or if it instead allows elites to reverse the direction of accountability.
Regulatory Risk , Market Risk , and Firm Financing Choices : Evidence from U . S . Electricity Market Restructuring July 2008

Based on the universe of rate-regulated electric utilities in the U.S., we examine why firms alter their financing decisions when transitioning from a regulated to a competitive market regime. We find that the significant increase in regulatory risk after the passage of the Energy Policy Act, state-level restructuring legislations, and divestiture policies have reduced leverage by 17.4 percent. Policies that encouraged competition, and hence increased market risk, lowered leverage by another 11 percent. The ability to exercise market power allowed some firms to counter this competitive threat, offsetting the overall leverage decline by 3.3 percent. We also confirm findings in the literature that firms with higher profitability and higher asset growth have lower leverage, and those with more tangible assets are more levered. In addition, firms belonging to a holding company or ones with a footloose customer segment use less debt.
Board of Governors of the Federal Reserve System

This paper studies the within-model-year pricing and production of new automobiles. Using new monthly data on U.S. transaction prices, we document that for the typical new vehicle, prices typically fall over the model year at a 9.2 percent annual rate. Concurrently, both sales and inventories are hump shaped. To explain these time series, we formulate a market equilibrium model for new automobiles in which inventory and pricing decisions are made simultaneously. On the demand side, we use micro-level data to estimate time-varying aggregate demand curves for each vehicle. On the supply side, we solve a dynamic programming model of an automaker that, while able to produce only one vintage of a product at a time, may accumulate inventories and consequently sell multiple vintages of the same product simultaneously. The profit maximizing pricing and production strategies under a build-to-stock inventory policy imply declining prices and hump-shaped sales and inventories of the magnitudes observed in the data. Further, roughly half of the price decline is driven by inventory control considerations, as opposed to decreasing demand.