Knowledge that Transforms

Abstract Past research has documented a substantial finance wage premium. We examine whether this premium reflects differences in lifetime career opportunities. Using resume data, we reconstruct career trajectories in finance and nonfinance sectors and build synthetic measures of career attractiveness that account for compensation levels, growth, and risk. We find that asset management and investment banking provide a sizable risk-adjusted career premium relative to banking, insurance, and other sectors. This premium has declined across cohorts, particularly relative to high tech. Labor-market entry patterns respond to these premia: potential entrants treat finance and high-tech careers as substitutes when choosing where to start.

Abstract This article studies buybacks with two informed parties: a manager and an outside speculator. Buybacks introduce two countervailing forces. A competition effect reduces speculator profits when buybacks compete against speculative trades. A dispersion effect increases speculator profits: buying undervalued shares generates gains, while buying overvalued shares generates losses, widening the dispersion in per-share value across states. Sufficiently informed buybacks benefit shareholders; uninformed buybacks harm them. These effects vary with shareholders’ liquidity exposures. The desirability of informed buybacks depends on the prevalence of speculation. Authorization depends on ownership, governance, and market conditions. Shareholders might welcome informed buybacks—not merely tolerate them.

Abstract Using a calibrated, collective life-cycle portfolio choice model for a dual-income couple, we show that an increase in the ability to share risk within the household due to a mean-preserving spread in the partners’ coefficients of relative risk aversion leads to a substantial increase in financial risk-taking. Importantly, we show that risk sharing has a larger economic impact on portfolio choice than risk diversification. While unitary models usually do not fully replicate the optimal portfolio choice of collective models, we propose approximations that work reasonably well for moderate background risk. We provide strong empirical support for our key findings.

Abstract We study the aggregate impact of information spillovers emerging from industry star firms. Changes in stars’ relative earnings growth predict future earnings growth, consensus earnings surprises, and job postings of same-industry nonstar firms. Star-firm performance also predicts industry-level GDP and employment growth. Price markup and innovation spillovers are potential channels underlying these patterns. Our results further show that this performance predictability is not fully incorporated into nonstars’ stock prices. A long–short portfolio based on star firms’ earnings growth earns an annualized 6-factor alpha of 8.7%. Together, our findings provide consistent evidence of the economic importance of star firms.

Abstract While the Dodd–Frank Act (DFA) mandates board risk committees for large banks, we argue that such committees do not benefit all banks. Banks forced by the DFA to adopt a board risk committee do not experience a reduction in risk following adoption. In contrast, banks that voluntarily established risk committees before the DFA exhibit lower risk, especially when these committees possess greater risk expertise. Using unique interview data, we find that board risk committees serve as active monitors rather than merely rubber-stamping management proposals. However, regulatory-mandated tasks limit their monitoring role.

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 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 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.