This paper studies how fund-family advisors use cross-fund subsidization to manipulate fund performances and maximize fund-family values, and how this activity shapes market equilibrium. The trade-off between subsidization efficiency and funds’ endogenous profit-performance convexities determines the subsidization. When the effect of profit-performance convexities dominates, advisors optimally use low-value funds to subsidize high-value funds. When the effect of subsidization efficiency dominates, advisors use liquid funds to subsidize temporarily distressed funds. The subsidization induces negative asymmetric cross-fund flow-performance sensitivities: high-value (liquid) funds’ performances strongly decrease low-value (temporarily distressed) funds’ flows, whereas low-value (temporarily distressed) funds’ performances weakly reduce high-value (liquid) funds’ flows.

I investigate whether management earnings forecasts fully reflect the implications of accruals for future earnings. I find that managers overestimate accrual persistence in range forecasts but not in point forecasts and that managers’ accrual-related forecast bias in range forecasts increases with forecast range and forecast horizon. My results suggest that managers overestimate accrual persistence when faced with greater difficulty forecasting earnings. Moreover, I find that managers’ accrual-related forecast bias in range forecasts is somewhat affected by managerial opportunism and fear of litigation. Finally, I find accrual mispricing for firms issuing range forecasts but not for firms issuing point forecasts.

Disentangling peer effects from other confounding effects is difficult,and separately identifying endogenous and contextual effects is impossible for the linear-in-means model. This study confronts these problems by using spatial autoregressive models with group fixed effects. The nonlinearity introduced by the variations in the peer measurements provides information to identify both endogenous and contextual effects,thus resolving the "reflection problem." The group fixed effects term captures the confounding effects of the common variables.Applying the model to data sets from the National Longitudinal Studyof Adolescent Health, I find strong evidence for both endogenous and contextual effects in student academic achievement. (c) 2010 by The University of Chicago. Allrights reserved.

This paper studies how bias in nonaccounting and in accounting information should be related. Bias in accounting information is modeled, as in some recent literature, as an alteration in the relative information content of accounting numbers. The optimal bias in one type of information is shown to be a complement of the bias in the other type. This result can be applied in various settings to explain a number of phenomena.

Options contracts are listed on thousands of stocks with different numbers of contracts per stock. This paper proposes to construct four risk-targeting portfolios to consolidate information in all the option contracts on each stock. A cross-sectional regression identifies the market price of risk on each risk source for each stock at any given date. The market price of risk estimate strongly predicts the excess return of the corresponding risk-targeting portfolio. Long-short portfolio construction on the risk-targeting portfolios in proportion to the market price of risk estimates generates highly positive average excess returns per unit risk across all four risk dimensions.

We examine the valuation effects of cross-border merger and acquisition (M&A) waves. Like domestic M&As, cross-border M&As cluster by industry and time. Cross-border M&A waves create value overall: acquirer announcement returns, combined acquirer and target announcement returns, and post-merger operating performance within waves are significantly higher than those outside of waves. Unlike domestic M&A waves, deals undertaken later in waves outperform those earlier in waves. The late entrants' outperformance is stronger when target countries differ from acquirer countries in terms of culture, financial development, and legal system. Overall, the results suggest that cross-border acquisitions promote efficient redeployment of corporate assets.

Using data from Chinese stock markets, we examine the effect of speculative trading on stock returns. We develop a volume-related variable, abnormal turnover ratio (ATR), by isolating speculative trading from liquidity and other components in trading volume. After a group of tests verifying that ATR indeed represents speculative trading, we show that ATR negatively predicts future stock returns. The average monthly return spread between the top and bottom ATR deciles is −1.87%, suggesting a highly significant negative ATR premium. The return predictability of ATR survives after controlling for common risk factors and event-driven information shocks. These findings indicate that speculative trading affects asset prices.

This study investigates how investors that own both equity and debt in the same firm affect other shareholders in the firm. It documents that dual claim investors are quite prevalent among the industrial firms listed in the Russell 3000, with over 20% of them having a bank holding company that owns both debt and equity in the firm. The results imply that shareholders are substantially impacted by the presence of dual claim investors in firms, suggesting that relatively small ownership stakes by dual claim banks are associated with greater conflicts of interest among shareholders and debt holders; while relatively large bank equity stakes may benefit outside shareholders when aligned with loan by dual claim banks because they improve bank monitoring incentives and reduce the agency cost of debt.