A technique is presented for deriving equilibrium models of asset risk premia in continuous time models which does not require the complete solution of a consumer's continuous time stochastic control problem. The technique is used to show that even if traders have heterogeneous information about asset returns and/or there are non-traded assets, then the risk premium of a traded asset is determined by the covariance between the asset's return and the rate of change in per capita consumption. We only require the assumption that traders' consumptions and traded asset values form an Ito process.

If managers induce employees to hold company stock in defined contribution pension plans as a form of takeover defense, then changes in state laws that enhance managerial protection should lead to a reduction in employer stock in 401(k) plans. Delaware's mid-1990s validation of the poison pill in conjunction with a staggered board was followed by a significant decline in employee ownership within defined contribution plans for firms incorporated in Delaware. Evidence using governance data suggests that this is due to responses of firms with staggered boards. Binary choice models confirm that employee ownership in defined contribution plans lowers takeover probabilities.

We examine a sample of firms that adopt “target ownership plans”, under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.

We examine determinants of non-executive employee stock option holdings, grants, and exercises for 756 firms during 1994–1997. We find that firms use greater stock option compensation when facing capital requirements and financing constraints. Our results are also consistent with firms using options to attract and retain certain types of employees as well as to create incentives to increase firm value. After controlling for economic determinants and stock returns, option exercises are greater (less) when the firm's stock price hits 52-week highs (lows), which confirms in a broad sample the psychological bias documented by Heath et al. (Quarterly Journal of Economics 114 (1999) 601–628).

This paper finds that discounts and premiums of closed-end funds reflect the market's assessment of anticipated managerial performance. Using single and multiple benchmarks, we present evidence that there is a significant and positive relation between stock fund premiums and future net asset value performance over the following year. The relation is not caused by the anticipation of future expenses. We also find that bond closed-end funds show no such relation between premium and asset value performance.

The book-to-market ratio of the Dow Jones Industrial Average predicts market returns and small firm excess returns over the period 1926–1994. The DJIA book-to-market ratio contains information about future returns that is not captured by other variables such as interest yield spreads and dividend yields. The DJIA book-to-market ratio's predictive ability is specific to the pre-1960 sample. In contrast, the S&P book-to-market ratio provides some predictive ability in the post-1960 period, although this relation is dramatically weaker than the Dow Jones pre-1960 findings. The predictive ability of book-to-market ratios appears to stem from the relation between book value and future earnings.

This paper examines the relation between closed-end fund premia and returns. Additional evidence is provided on Thompson's (1978) finding that fund premia are negatively correlated with future returns. Funds with 20% discounts have expected twelve-month returns that are 6% greater than nondiscounted funds. This correlation is attributed to premium mean-reversion, not to anticipated future portfolio performance. Economically motivated explanations do not account for this effect.

A portfolio formed from a given list of assets is defined as a numeraire portfolio for the list if (a) it is self-financing, (b) its value is always positive, and (c) zero is always the best conditional forecast of the numeraire-dominated rate of return of every asset on the list. The numeraire portfolio exists if and only if there are no profit opportunities from trading assets on the list. For a sample list of heterogeneous assets (NYSE size-quintile portfolios, corporate bonds, and short-term bills), numeraire-dominated returns are similar to market-model forecast errors and, as abnormal return measures, clearly dominate market-adjusted returns.

In this paper we provide a model of the underwritten offerings of new shares of seasoned securities. Our purpose is to explain why the offering price chosen by the underwriter is lower than the market price of the firm's shares. Our model recognizes the interdependence between the markets surrounding the announcement and sale of the new issue and recognizes as well the effect which asymmetric information regarding investor demands has upon the prices in these markets.