Knowledge that Transforms

Abstract We examine how banks reallocate employees following mergers and acquisitions (M&As) and the resulting effects on productivity. Using matched employee–branch data combined with branch-level financial information, we show that M&As expand internal labor markets and trigger substantial worker redeployment. Newly consolidated banks reassign high-ability loan officers to acquirer branches, increasing productivity. Target branches also experience productivity improvements, primarily driven by restructuring and cost reductions. These effects are strongest in municipalities where the combined pre-merger internal labor markets of the target and acquirer were larger, highlighting the central role of internal labor markets in generating efficiency gains from consolidation.

Abstract Using the Credit Rating Agency Reform Act of 2006, we examine the effect of the credibility of mandatory disclosure by credit rating agencies (CRAs) on market feedback. We find an increase in investment-price sensitivity for firms affected by the act, and the increase is enhanced when managers have greater incentives to glean information from prices—when firms are exposed to multiple dimensions of uncertainty, have higher growth options, face more competition, have less informed managers, or have higher accounting fraud risk. Our findings suggest that the greater credibility of CRA mandatory disclosure improves managerial learning from stock prices.

Abstract In January 2025, CRSP discontinued the existing stock tape used in many published papers. This transition rewrites 9.62% of monthly returns by more than 1 basis point (bp), primarily due to a change in the dividend reinvestment assumption. Analyzing the impact for a comprehensive set of premia in several thousand sorting specifications reveals that, on average, 11.43% of all monthly long-short returns differ by more than 10 bp—especially in early periods, NBER recessions, and return-based sorts. Reassuringly, average premia and their significance remain largely unaffected, suggesting CRSP changes mainly introduce unsystematic variation without altering key asset pricing conclusions.

Abstract We study whether information design influences consumer behavior in a randomized field experiment with users of an online account aggregation app. Participants received a personalized index representing their net worth as a lifetime monthly cash flow. The presentation of this index varied across treatments in its framing and the salience of its display. Consumers exposed to a consumption-oriented frame and a salient comparison of the index with their past spending reduced discretionary spending. These findings show that minor variations in information presentation can significantly affect financial behavior, highlighting the power of design in promoting saving and informing policy and regulation.

Abstract Closing auctions account for about 10% of daily trading volume and offer a potentially attractive alternative to trading in the continuous market. We find that the price impact is lower in closing auctions than in the continuous market for all stocks except Nasdaq microcaps. Opening auctions are illiquid. We compute trading costs for anomalies based strategies by strategically placing orders in the lower cost mechanism. The annualized trading costs for long/short portfolios based on financial ratios such as profitability and investment range from 17 to 41 basis points (bps). Excluding microcaps, these costs fall to 9–21 bps in closing auctions.

Abstract Housing and human capital represent two major forms of household wealth. This article investigates the potential for housing speculation to crowd out household investment in children’s education, an endeavor that only pays off in the long run. To address endogeneity concerns, we exploit the unintended spillover effect of staggered house purchase restrictions (HPR) in China. Using a difference-in-differences approach, we find that HPR reduce educational investment of households in nearby unregulated cities. We also provide evidence consistent with a housing speculation channel. These findings shed new light on the socioeconomic consequences of housing market booms.

Abstract We argue that firms’ ability to disinvest real assets helps rationalize the negative distress premiums in stocks, bonds, and, as we show, loans and firm assets. Using a real options model in which shareholders and debtholders share disinvestment proceeds, the model suggests that the stock (debt) distress premium becomes more negative with the proceeds paid out to that class, and that both premiums can be negative when debtholders receive most of the proceeds. Using hard-asset disinvestment-ability proxies, the stock (bond or loan) distress premium becomes less (more) negative with those proxies, possibly suggesting that shareholders benefit more strongly from nonsecured-asset disinvestments.

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

Abstract Expected returns on market volatility, which can be obtained from VIX futures prices in closed form using standard models, positively predict subsequent realized volatility returns. Volatility returns are negative on average. Following increases in volatility, expected volatility returns and subsequent realized volatility returns become more negative. Because realized volatility returns are negatively correlated with index returns, expected volatility returns also negatively predict S&P 500 index returns, but these results are less significant. The results are robust to a wide range of variations in the empirical setup and to small-sample biases.

Abstract We study the classical relationship between a firm’s investment and q , for which an unobserved persistent shock is an important factor in the investment decision. In our setting, besides the potential measurement problem of q , controlling for the unobserved shock becomes a new challenge. We develop an estimation method that addresses both econometric issues given timing and information set assumptions. Using 16,256 unique public firms in the United States from 1975 to 2021, we find that q remains a significant factor of investment even after controlling for the unobserved shock and measurement error.