Bond underwriters, lacking “Greenshoe options” and formal systems to track “flipping” activity, have fewer tools than equity underwriters to manage secondary market order flow uncertainty. We show that bond underwriters respond by selectively “overallocating” some issues to attain net short positions. Overallocations are economically substantive, facilitate the syndicate's price stabilization efforts, and are largely offset in the days after issuance. These issues on average experience more net selling by institutional investors and, despite large syndicate purchases, appreciate less in the secondary market. Thus, overallocation is an observable indicator that underwriters anticipate weakness in net secondary market demand.

Credit spreads for secured debt are lower than for unsecured debt, especially when a firm's credit quality deteriorates, the economy slows, or average credit spreads widen. Yet investment-grade firms tend to be reluctant to issue secured debt at all times. In contrast, we find that for firms that are rated below investment grade, the likelihood of secured debt issuance increases as firm credit quality deteriorates, the economy slows, or average credit spreads widen. This differential pattern of issue behavior is consistent with highly rated firms seeing unencumbered collateral as a form of insurance, to be used only in extremis.

Using Internet search volume of dividend-related keywords to measure investor preference for dividends that varies over time and across states, we show that dividend sentiment affects corporate policies and asset prices. Investors search more for dividends when economic conditions are poor, with the peak volume reached during the recent COVID-19 pandemic. Firms initiate or increase dividends when dividend sentiment is stronger, especially in regions with strong dividend sentiment. Shifts in dividend sentiment predict higher investor demand for dividends and higher returns for high dividend stocks. Further, mutual funds that pay high dividends receive more inflows when dividend sentiment is stronger.

This paper investigates the impact of macro-prudential policy (proxied by the counter-cyclical capital buffer (CCyB)) on bank credit risk during uncertain times, as banking sector stability is crucial in promoting financial intermediation. Using a unique daily data set consisting of 4939 credit default swaps (CDS) of 70 banks from 25 countries over the period 2010–2019, we find that CCyB tightening decreases bank-level CDS spreads, while CCyB loosening increases CDS spreads. This heterogeneous effect of CCyB arises due to its asymmetric effect on the capital ratio (i.e., the equity-to-total assets ratio) of banks. Tightening CCyB significantly increases capital, whereas loosening CCyB does not impact capital. Thus, the risks that emanate from the banking sector during periods of heightened uncertainty and financial distress can be significantly dampened when CCyB regulation is enabled. Consequently, macro-prudential policies for banks to hold higher levels of capital during good times are justified to contain financial market risks during downturns.

This study examines whether sell-side equity analysts engage in “social learning” in which their earnings forecasts for certain firms are influenced by the forecasts and outcomes of “peer” analysts associated with other firms in their respective portfolios. We find that analyst optimism is negatively correlated with recent forecast errors, by peers, on other firms in the analyst's portfolio. An analyst is also more likely to issue “bold” forecasts when peers recently issued similar forecasts for other portfolio firms. Analysts learn more from peers with similar personal characteristics. Overall, social learning benefits analysts and improves their forecast accuracy.

We show that hedge fund managers who more actively and astutely adjust the political sensitivity of their portfolios, in line with the dynamic U.S. political landscape, improve their investment performance. Funds that tilt their portfolios toward market segments expected to perform better during the new political regime, specifically around U.S. Presidential elections, generate significantly higher alphas. Further, hedge fund families with greater responsiveness to political changes exhibit persistently superior performance and are more likely to survive. Hedge fund investors reward more responsive fund managers with greater inflows.