We demonstrate the benefits of merging traditional hypothesis-driven research with new methods from machine learning that enable high-dimensional inference. Because the literature on post-earnings announcement drift (PEAD) is characterized by a “zoo” of explanations, limited academic consensus on model design, and reliance on massive data, it will serve as a leading example to demonstrate the challenges of high-dimensional analysis. We identify a small set of variables associated with momentum, liquidity, and limited arbitrage that explain PEAD directly and consistently, and the framework can be applied broadly in finance.

Based on theoretical advice and empirical evidence suggesting that risk taking in asset allocation enhances pension returns, we evaluate empirically whether good corporate governance leads to a larger allocation of pension assets to risky securities as compared to safe investments. Our findings suggest that firms with good external and internal corporate governance take more risk by investing heavily in equities and allocating a smaller share of the plan assets to cash, government debt, and insurance company accounts. The main underlying mechanisms appear to be higher investment returns and better pension funding status associated with higher equity and lower safe asset allocations.

Douglas V. DeJong, Daniel W. Collins, Explanations for the Instability of Equity Beta: Risk-Free Rate Changes and Leverage Effects, The Journal of Financial and Quantitative Analysis, Vol. 20, No. 1 (Mar., 1985), pp. 73-94

Several titles reflecting different approaches to our subject matter were considered for the paper. An historical but somewhat pedantic approach to the teaching of investments might have been titled “Pedagogical Developments in Investments: Past, Present, and Future.” Another possibility was “Sex and the Single Investor, ” a title which probably would have attracted a larger audience. “Beat the Dealer Versus Beat the Market” might well have been an appropriate title in view of our presence here in Las Vegas and also because of recent experience in the securities markets. We finally decided on simply “A Portfolio Analysis of the Teaching of Investments, ” because this seems to better capture the essence of our viewpoint.

Richard G. Marcis, V. Kerry Smith, The Demand for Liquid Asset Balances by U.S. Manufacturing Corporations: 1959-1970, The Journal of Financial and Quantitative Analysis, Vol. 8, No. 2 (Mar., 1973), pp. 207-218

Presence of a variable market demand function for a given product has significant implications for factor input levels and for the resulting production costs to the firm. In a recent paper, McKean argues that in order to describe the costs of producing a product subject to fluctuating demand it is necessary to take into account the entire distribution of outputs as it relates to the static total cost function. While it is evident that influences on costs and factor inputs will differ in the case of a fluctuating demand schedule compared to the conventional stable demand conditions of classical micro theory, it is not clear that the use of a static cost function in conjunction with a probability distribution of outputs is the proper framework in which to examine the problem.

Risk continues to be a widely discussed topic within the field of finance. Academicians add risk variables to their quantitative models, while financial practitioners include risk considerations in their qualitative deliberations. In both contexts, risk — together with some measure of profit or return — generally comprise a dual or composite criteria for investment decision-making purposes. Whereas the decisionmaking situation can be described as ex ante, this article deals with risk in an ex post context. In particular, it reports an investigation of alternative risk-return measures which are designed to rank and evaluate the ex post performance of investment portfolios. Section I reviews three composite measures of performance and examines their interrelationships. A fourth alternative measure is also suggested. In Section II, the measures are used to rank the portfolio performance of a sample of mutual funds. Some difficulties in making performance comparisons of these funds against the market are discussed in Section III. The final section briefly explores the implications of the study and suggests areas for subsequent research.

We uncover stylized facts of commodity futures’ price and volatility dynamics in the post-financialization period and find a factor structure in daily commodity volatility that is much stronger than the factor structure in returns. The common factor in commodity volatility relates to stock market volatility as well as to the business cycle. Model-free realized commodity betas with the stock market were high during 2008–2010 but have since returned to the pre-crisis level, close to 0. While commodity markets appear segmented from the equity market when considering only returns, commodity volatility indicates a nontrivial degree of market integration.

The positive market reaction associated with an ADR listing is frequently attributed to a reduction in market segmentation costs that improves access to capital. If so, the benefit should be greatest for ADR firms that face relatively high indirect barriers to capital access. Our paper directly tests this supposition. We document that, following a U.S. listing, the sensitivity of investment to free cash flow decreases significantly for firms from emerging capital markets, but does not change for developed market firms. Further, emerging market ADR firms mention the need for access to external capital markets in their filing documents more frequently than their developed market counterparts and, in the post-ADR period, tout their liquidity rather than a need for capital access. Finally, the increase in capital access following an ADR is more pronounced for firms from emerging markets. Our findings suggest that greater access to external capital markets is an important benefit of a U.S. stock market listing for emerging market firms and is less important for developed market firms.

Ram T. S. Ramakrishnan, Anjan V. Thakor, Moral Hazard, Agency Costs, and Asset Prices in a Competitive Equilibrium, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 4, Proceedings of the 17th Annual Conference of the Western Finance Association, June 16-19, 1982, Portland, Oregon (Nov., 1982), pp. 503-532