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.

This article integrates strategic product market analysis with price-taking asset pricing theory. We demonstrate that a firm's market power can lead to scale-dependent and potentially infinite required returns. Scale dependency, which we relate to risk spillovers between expansionary and existing cash flows, reflects the divergence of incremental from existing required returns. The firm-specific nature of risk spillovers potentially destroys the concept of a common industry "risk class". Our analysis raises important questions regarding the validity of widely used "comparables" methods for determining risk-adjusted discount rates.

Abstract This paper examines how labor mobility restrictions like noncompete agreements affect firms’ investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of noncompete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations increase their investment rate in physical capital. However, new firm entry in corresponding sectors declines. I provide evidence for different mechanisms to explain these patterns. Together, the findings show that labor frictions play an important role in investment decisions. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We address the determination of bitcoin prices and decentralized security. Users forecast the transactional and resale values of holdings, pricing the risk of systemic attacks. Miners contribute resources to protect against attackers and compete for block rewards. Bitcoin’s design leads to multiple equilibria: the same blockchain technology is consistent with sharply different price and security levels. Bitcoin’s monetary policy can lead to welfare losses and deviations from quantity theory. Price-security feedback amplifies fundamental shocks’ volatility impact and leads to boom and busts unconnected to fundamentals. We characterize how viability versus fiat currency depends on bitcoin’s relative acceptability and inflation protection.

[This article investigates the predictability of jump arrivals in U.S. stock markets. Using a new test that identifies jump predictors up to the intraday level, I find that jumps are likely to occur shortly after macroeconomic information releases, such as the Federal Reserve announcements, nonfarm payroll reports, and jobless claims, as well as market index jumps. I also find firm-specific jump predictors related to earnings releases, analyst recommendations, past stock jumps, and dividend dates. Evidence suggests that distinguishing systematic jumps from idiosyncratic jumps is possible using the characteristics of jump predictors. Finally, I present a short-term jump size clustering.]

This article develops a direct filtration-based maximum likelihood methodology for estimating the parameters and realizations of latent affine processes. Filtration is conducted in the transform space of characteristic functions, with a version of Bayes’ rule used for recursively updating the joint characteristic function of latent variables and the data conditional upon past data. An application to daily stock returns over 1953-96 reveals substantial divergences from EMM-based estimates; in particular, more substantial and time-varying jump risk. The implications for stock index options ’ prices are discussed.

This article develops a direct filtration-based maximum likelihood methodology for estimating the parameters and realizations of latent affine processes. Filtration is conducted in the transform space of characteristic functions, using a version of Bayes' rule for recursively updating the joint characteristic function of latent variables and the data conditional upon past data. An application to daily stock market returns over 1953-1996 reveals substantial divergences from estimates based on the Efficient Methods of Moments (EMM) methodology; in particular, more substantial and time-varying jump risk. The implications for pricing stock index options are examined.

Using a new Bayesian method for the analysis of diffusion processes, this article finds that the nonlinear drift in interest rates found in a number of previous studies can be confirmed only under prior distributions that are best described as informative. The assumption of stationarity, which is common in the literature, represents a nontrivial prior belief about the shape of the drift function. This belief and the use of "flat" priors contribute strongly to the finding of nonlinear mean reversion. Implementation of an approximate Jeffreys prior results in virtually no evidence for mean reversion in interest rates unless stationarity is assumed. Finally, the article documents that nonlinear drift is primarily a feature of daily rather than monthly data, and that these data contain a transitory element that is not reflected in the volatility of longer-maturity yields.

I test the hypothesis that short debt maturity attenuates the negative effect of growth opportunities on leverage. Using simultaneous equations with leverage and maturity endogenous, I find strong support for an economically significant attenuation effect. The negative effect of growth opportunities on leverage for firms with all shorter-term debt is less than one-sixth as large as the effect for firms with all longer-term debt. Short maturity also increases liquidity risk, however, which negatively affects leverage. The results suggest that firms trade off the cost of underinvestment problems against the cost of liquidity risk when choosing short maturity.

Forward rate dynamics are modeled as a random field. In contrast to multifactor models, random field models offer a parsimonious description of term structure dynamics, while eliminating the self-inconsistent practice of recalibration. The form of the drift of the instantaneous forward rate process necessary to preclude arbitrage under the risk-neutral measure is obtained. Forward risk-adjusted measures are identified and used to price a bond option when the forward volatility structure depends on the square root of the current spot rate. Several classes of tractable random field models are presented.