We study the personal credit market using unique individual-level data covering fintech and traditional lenders. We show that fintech lenders acquire market share by lending first to higher-risk borrowers and then to safer borrowers, and rely mainly on hard information to make credit decisions. Fintech borrowers are significantly more likely to default than neighbor individuals with the same characteristics borrowing from traditional financial institutions. Furthermore, they tend to experience a short-lived reduction in the cost of credit, because their indebtedness increases more than non-fintech borrowers after loan origination. However, fintech lenders’ pricing strategies are likely to take this into account.

Stock exchange operators compete for order flow by setting “make” fees for limit orders and “take” fees for market orders. When traders can quote continuous prices, exchange operators compete on total fee, because traders can choose prices that perfectly neutralize any fee division. The 1-cent minimum tick size, however, prevents traders from neutralizing fee division. The nonneutrality of division between make and take fees (1) allows an exchange operator to establish exchanges that differ in fee structure to engage in second-degree price discrimination and (2) destroys the Bertrand equilibrium, leads to frequent fee changes, and encourages entries of new exchanges. Received May 29, 2016; editorial decision April 19, 2018 by Editor Robin Greenwood.

Liquidity provision is often attributed to debt-issuing intermediaries like banks. We develop a unified theoretical framework and empirically show that mutual funds issuing demandable equity also provide an economically significant amount of liquidity by insuring against idiosyncratic liquidity shocks. Quantitatively, bond funds provide 12.5% of the liquidity that banks provide per dollar. Our model further shows that when equity values incorporate the liquidation cost from redemptions, as in swing pricing, liquidity provision is not necessarily reduced. This is because swing pricing may increase funds’ capacity for holding illiquid assets without inducing panic runs.

Our study provides the first causal test of classical and behavioral asset pricing models that incorporate skewness pricing. In line with these models, our experimental markets show that skewness is systematically priced. Our findings also reveal that positively skewed assets available in small supply exhibit negative expected returns, which is consistent with prospect theory, but not with expected utility models. Furthermore, in line with the mechanism underlying prospect theory, we show that the negative returns of the positively skewed asset are most pronounced during market sessions where traders overweight the low probability of receiving a large payoff.

This paper conducts a textual analysis of earnings call transcripts to quantify climate risk exposure at the firm level. We construct dictionaries that measure physical and transition climate risks separately and identify firms that proactively respond to climate risks. Our validation analysis shows that our measures capture firm-level variations in respective climate risk exposure. Firms facing high transition risk, especially those that do not proactively respond, have been valued at a discount in recent years as aggregate investor attention to climate-related issues has been increasing. We document differences in how firms respond through investment, green innovation, and employment when facing high climate risk exposure.