[We investigate the asset pricing and macroeconomic implications of the ratio of new orders (NO) to shipments (S) of durable goods. NO/S measures investment commitments by firms, and high values of NO/S are associated with a business cycle peak. We find that NO/S proxies for a short-horizon component of risk premia not identified in prior work. Higher levels of NO/S forecast lower excess returns on equities and many types of bonds, at horizons from one month to one year. These effects are generally robust to the inclusion of common return predictors and are significant on an out-of-sample basis as well. We also address the term structure of risk premia by constructing a similar ratio to measure longer-term investment commitments, which predicts returns primarily at longer horizons.]

[This article documents differences between the Q-sensitivity of investment of stand-alone firms and unrelated segments of conglomerate firms. Unrelated segments exhibit lower Q-sensitivity of investment than stand-alone firms. This fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand-alone firms in high-Q industries. This finding is robust to matching on industry, year, size, age, and profitability. The differences are more pronounced in conglomerates in which top management has small ownership stakes, suggesting that agency problems explain the investment behavior of conglomerates.]

This article documents differences between the Q-sensitivity of investment of stand-alone firms and unrelated segments of conglomerate firms. Unrelated segments exhibit lower Q-sensitivity of investment than stand-alone firms. This fact is driven by unrelated segments of conglomerate firms that tend to invest less than stand-alone firms in high-Q industries. This finding is robust to matching on industry, year, size, age, and profitability. The differences are more pronounced in conglomerates in which top management has small ownership stakes, suggesting that agency problems explain the investment behavior of conglomerates.

[We study the effect of introducing a nonredundant derivative on the volatilities of the stock market return and the locally risk-free interest rate. Our analysis uses a standard, frictionless, full-information, dynamic, continuous-time, general-equilibrium, Lucas endowment economy in which there are two classes of agents who have time-additive power utility functions and differ only in their risk aversion. Our main result is to show analytically that if the intensity of the precautionary demand for savings is not too high, then the introduction of a nonredundant derivative increases the volatility of stock market returns. Furthermore, in the economy with the derivative, the volatility of stock market returns can be substantially greater than that of aggregate dividend growth (fundamental volatility). We also show that the volatility of the locally risk-free interest rate increases with the introduction of the derivative.]

Using a unique dataset based on daily and hourly high-yield bond transaction prices, we find the informational efficiency of corporate bond prices is similar to that of the underlying stocks. We find that stocks do not lead bonds in reflecting firm-specific information. We further examine price behavior around earnings news and find that information is quickly incorporated into both bond and stock prices, even at short return horizons. Finally, we find that measures of market quality are no poorer for the bonds in our sample than for the underlying stocks.

This study examines the behavior of spreads paid in firm underwritten seasoned common stock offerings and straight bond offerings. Estimates indicate that up to 85% of the spread is variable cost and that the marginal spread is rising. Further, offerings that are likely to require greater underwriting services encounter higher marginal spreads. These findings are consistent with there being a family of U-shaped spreads, with lower quality offerings priced on higher spreads, unlike the economies of scale view of spreads. They agree with the views that underwriters provide valuable services and that the marginal cost of external finance is rising.

[This article offers a tractable monetary asset pricing model. In monetary economies, the price level, inflation, asset prices, and the real and nominal interest rates have to be determined simultaneously and in relation to each other. This link allows us to relate in closed form each of the dependent entities to the underlying real and monetary variables. Among other features of such economies, inflation can be partially nonmonetary and the real and nominal term structures can depend on fundamentally different risk factors. In one extreme, the process followed by the real term structure is independent of that followed by its nominal counterpart.]

[In a one-period model of market making with many exogenously informed traders, we first show that the variance of prices and expected trading volume depend on the public information released at the start of trading. This is accomplished by representing beliefs with elliptically contoured distributions, for which the form of optimal decision rules does not depend on the specific distribution used. Second, if the model is altered so that the decision to become informed is made endogenous, then the decision rules of the market-maker and informed traders depend on the public information. Third, in a multiperiod model with many informed traders and long-lived private information, recursion formulas similar to those of Kyle (1985) hold for all elliptically contoured distributions, trading volume is autocorrelated, and, unless per period liquidity trading is bounded away from zero as new trading periods are added, informed traders' profits vanish.]

[Corporate debt sales have been regarded as "no news" events because there is no significant price reaction on average to their announcement. We explore the hypothesis that this lack of average price reaction to debt sale announcements is explained by the partial anticipation of debt offers. Theory suggests that the demand for debt capital is fundamentally related to changes in the sources and uses of funds, and we find evidence that earnings are significantly lower, investment growth is significantly higher, and, for some issuers, debt refunding requirements are significantly greater in the period immediately prior to issue than in periods well before and after the issue. We find that this preissue information conditions investors' expectations of issue, thereby affecting the cross-sectional announcement date price reaction to debt sales in two ways. First, announcement date price reactions are negative, on average, for unanticipated offers or for those offers where prior information suggests that an issue is unlikely. Second, holding the probability of issue constant, announcement date price reactions are significantly more negative for offers that raise more capital than investors expected. These results are consistent with cash flow signaling and asymmetric information models of corporate financings.]

[In an adverse selection model of a securities market with one informed trader and several liquidity traders, we study the implications of the assumption that the informed trader has more information on Monday than on other days. We examine the interday variations in volume, variance, and adverse selection costs, and find that on Monday the trading costs and the variance of price changes are highest, and the volume is lower than on Tuesday. These effects are stronger for firms with better public reporting and for firms with more discretionary liquidity trading.]