The most recently issued, on-the-run, Treasuries are extremely liquid and frequently trade at a premium in both the cash and repo, or financing, markets. Previous research suggests that both the cash and repo premiums reflect demand from buy-and-hold investors who value the superior liquidity of these securities and are reluctant to lend them in the repo market. We find evidence that premiums in the repo market are also closely related to market participants’ demand to hedge interest rate risk associated with their holdings of fixed income securities.

This paper studies the life-cycle consumption and portfolio choice problem taking account of annuity risk at retirement. The study allows for government-provided annuity income. Optimally, households allocate retirement wealth to nominal, inflation-linked and variable annuities, and condition this choice on the state of the economy. The case in which there are limitations in the types of annuities that are available is also considered and the costs of annuity market incompleteness are quantified. Subsequently, the paper determines how investors optimally anticipate annuitization before retirement. The conclusion is that ignoring annuity risk before and at retirement can be economically costly.

I provide an overview of the topics covered in this Special Issue of the Journal of Corporate Finance on “Financial Flexibility and Corporate Liquidity.” This burgeoning literature encompasses studies of the determinants and consequences of corporate cash holdings, as well as the impact of flexibility considerations on corporate capital structure and payout policies. The papers published in this special issue make important contributions to this literature and point towards several promising areas for future research.

We quantify the effects of closing price manipulation on trading characteristics and stock price accuracy using a unique sample of prosecuted manipulation cases. Based on these findings we construct an index of the probability and intensity of closing price manipulation. As well as having regulatory applications, this index can be used to study manipulation in the large number of markets and time periods in which prosecution data are not readily available.

Although economic theory predicts an inverse relation between relativewages and immigration-induced supply shifts, it has been difficultto document such effects. The weak evidence may be partly due to samplingerror in a commonly used measure of the supply shift, the immigrantshare of the workforce. After controlling for permanent factors thatdetermine wages in specific labor markets, little variation remainsin the immigrant share. We find significant sampling error in thismeasure of supply shifts in Canadian and U.S. census data. Correctingfor the resulting attenuation bias can substantially increase existingestimates of the wage impact of immigration. (c) 2011 by The University of Chicago. Allrights reserved.

The Pareto-like tail of the size distribution of firms can arise from random growth of productivity or stochastic accumulation of capital. If the shocks that give rise to firm growth are perfectly correlated within a firm, then the growth rates of small and large firms are equally volatile, contrary to what is found in the data. If firm growth is the result of many independent shocks within a firm, it can take hundreds of years for a few large firms to emerge. This paper describes an economy with both types of shocks that can account for the thick-tailed firm size distribution, high entry and exit rates, and the relatively young age of large firms. The economy is one in which aggregate growth is driven by the creation of new products by both new and incumbent firms. Some new firms have better ideas than others and choose to implement those ideas at a more rapid pace. Eventually, such firms slow down when the quality of their ideas reverts to the mean. As in the data, average growth rates in a cross section of firms will appear to be independent of firm size, for all but the smallest firms.

Multiple blockholder structures are a widespread phenomenon in the U.S. The theoretical literature, however, provides conflicting predictions on whether a single large blockholder or a set of dispersed smaller blockholders is better for firm value. Using U.S. data, we find a negative correlation between Tobin's Q and blockholder dispersion. The findings are robust to a wide variety of model specifications and controls and differ from results for other geographic regions such as Europe and Asia.

We study the optimal joint design of prudential supervision and deposit guarantee regulations in a multi-country, integrated banking market, where policy-makers have preferences regarding profitability and stability of the banking sector. Non-coordinated policies will tend to yield too little supervision and too much deposit insurance. The paper concludes with recommendations on policy priorities in this area.