Knowledge that Transforms

We derive optimal characteristics of contribution rates into defined contribution pension plans based on consumption-savings theory. Contribution rates should increase with age and decrease with the balance-to-income ratio. Using Swedish registry data, we show that on average, individuals save according to those principles. However, almost half of the population behaves hand-to-mouth and does not undo the mandated constant contribution rates. In a quantitative model, designing contribution rates to follow the principles implies a 1.8% welfare gain and less dispersed replacement rates, while maintaining the same average replacement rate. Results are robust to various sources of model misspecification, including temptation preferences.

We present a portfolio choice demand model that allows for the nonparametric estimation of investors’ (subjective) expectations and risk preferences. Using comprehensive 401(k)-plan-level data from 2009 through 2019, we explore heterogeneity in asset allocations using our empirical framework. We recover investors’ beliefs about each asset and examine the implications and potential sources of those beliefs. Heterogeneity in expectations across investors accounts for twice as much variation in portfolio holdings as heterogeneity in risk aversion. Belief heterogeneity is partly driven by investors’ characteristics and experiences, reflecting local sources of information such as county-level GDP and employers’ past performance.

We study how intraday and overnight components of past returns predict future stock returns from 1926 to 2019. Portfolios formed on past intraday returns display momentum without long-term reversal, whereas portfolios formed on past overnight returns display no momentum. We link this asymmetric day-night pattern to the fact that most trading occurs intraday, which has remained stable over time. Evidence from international stock markets, intraday intervals, and analyst expectations suggests that investors underreact to private information revealed through trading. This underreaction mechanism is most consistent with Hong and Stein’s (1999) theory of momentum.

This paper studies how public information, such as proxy advice, affects shareholder voting and, thus, corporate decision-making. We find that while public information improves the voting decisions of uninformed shareholders, it also induces privately informed shareholders to exit rather than to exercise their voice (vote). As a result, public information impairs information aggregation by voting but improves information aggregation by trading. Overall, public information can undermine corporate decision-making. Furthermore, slightly more precise public information can lead to a discontinuous reduction in firm value. Our results give rise to new empirical predictions and have implications for regulation.

Decentralized exchanges (DEXs) allow traders to express their willingness to pay for quick execution through a public priority fee bidding mechanism. We provide evidence that high-fee DEX trades are more informative and contribute more to price discovery. Using address-level blockchain transaction data, we show that informed traders persistently bid higher fees to secure early execution, revealing a strong willingness to pay for execution priority. Further, analysis of Ethereum mempool data demonstrates that informed traders employ a “jump bidding” strategy, placing high initial bids to deter potential competitors.

We present a new database of banking-crisis interventions, covering 1,946 interventions in 20 categories across 143 countries. We demonstrate that crisis-intervention patterns are significantly related to income and fiscal variables and to measures of the political system and currency regime. GDP losses following crises are economically significant and are larger for wealthier countries, with some evidence that these losses are mitigated by democratic political systems and liberal currency regimes. Finally, intervention frequencies reached an apex during the post–Bretton Woods era, continuing a secular increase since at least the late seventeenth century.

This paper examines CEO pay at nonprofits. Using compensation data for 14,111 nonprofits, we find that CEO pay dropped by 2% after legislation in New York reduced CEOs’ ability to influence their own pay. Despite lower pay, CEOs exerted more effort, and nonprofit performance improved. The effects were stronger at commercial nonprofits than at charities and for male CEOs than female CEOs. These findings are consistent with a model where some nonprofit CEOs derive meaning from their work and compensation can be rigged. Overall, our results suggest that regulation that targets the pay-setting process can improve organizational outcomes at nonprofits.

I test whether asset prices reflect risk exposures of financial intermediaries in a setting well-suited to tackling concerns about omitted risk factors. I analyze catastrophe bonds whose cash flows are linked to natural disasters and find that 71% of the security-level variation in expected returns can be explained by a theoretically motivated measure of intermediaries’ marginal utility. Assuming natural disasters are independent of aggregate wealth, this result is inconsistent with any alternative explanation based on unobserved macroeconomic risks. In addition, the aggregate premium decreases and becomes less sensitive to the occurrence of disasters when intermediaries’ access to outside capital improves.

We analyze the role of nonbank lenders in the transmission of monetary policy using data on the universe of unsecured credit to firms and households in Denmark. Nonbanks increase their credit supply after a monetary contraction, both relative to banks and in absolute terms. The increase in nonbank lending is financed through increased long-term debt. A model with segmented debt markets featuring differential investor rate sensitivities rationalizes these findings. Nonbank credit insulates corporate investment and household consumption from monetary contractions, with positive spillovers extending beyond nonbank clients through industry and geographic channels.

We show that socially responsible investors can have a negative impact by slowing the pace of firm reform. Investors with broad prosocial preferences value acquiring dirty firms with high negative production externalities because they can reform these firms. The anticipation of trading gains for dirty firms decreases the incentive of current firm owners to reduce externalities proactively, potentially causing delay in reform. The presence of financial investors—alongside socially responsible investors—can exacerbate delay. Investment mandates through which socially responsible investors commit to paying a premium for green firms can incentivize reform in a timely manner.