Financial theory suggests that hedging can increase shareholder value in the presence of capital market imperfections, including direct and indirect costs of financial distress, costly external financing, and convex tax exposure. The influence of these costs, which are high when profits are low and low or negligible when profits are large, on the extent of firm hedging has not been consistently addressed in the finance literature. In Brown and Toft's (2002) model, more convex costs imply that a firm will decrease the extent of hedging. At the same time, one version of Smith and Stulz's (1985) tax hypothesis implies that a given firm is expected to increase the extent of hedging under a more convex tax exposure. I address this ambiguity in the literature by showing that, in incomplete markets, value-maximizing firms that stand to gain the most from hedging may in fact hedge less than otherwise identical firms with less to gain from hedging. This hedging paradox can partly account for the lack of conclusive evidence to suggest that convex costs can influence both a firm's decision to hedge and the extent of the firm's hedging. Finally, I introduce a new interpretation of empirical relations between potential hedging gains and the extent of hedging.

We examine the consistency of several prominent multifactor models from the empirical asset pricing literature with the arbitrage pricing theory (APT) framework. We follow the APT-related literature and estimate the common factor structure from a rich cross-section (associated with 42 major CAPM anomalies) by employing the asymptotic principal components method. Our benchmark model contains six statistical factors and clearly dominates, in both economic and statistical terms, most of the empirical multifactor models proposed in the literature by a good margin. These results represent a critical challenge to the current workhorse models in terms of explaining large-scale equity risk premiums. (JEL G10, G12) Received December 27, 2019; editorial decision October 20, 2020 by Editor Thierry Foucault.

T HIS study investigates within a comrnon analytical framework the determinants of firm expenditures o;n capital investment, research and development and dividends. Its two basic objectives relative to past work are: first, to probe more deeply into the forces determining these outlays by taking into account the interdependencies among them,' and second, to provide a framework for evaluating alternative assumptions regarding firm motivation. A firm maximizing stockholder objectives will exhibit different behavior in its expenditure decisions from one pursuing managerial goals. Consequently, two main variants of a model of firm expenditures, based on these rival concepts of motivation, are developed and tested.

This article studies the importance of stock market literacy and trust for stock ownership decisions. We find that these two distinct channels simultaneously explain not only the probability of participation, but, conditional on participation, also explain the share of investment in stocks. Once we account for stock market literacy, sociability is no longer significant for participation; what matters is literacy rather than sociability. Further, we observe that economic shocks and future expectations are key behavioral characteristics that explain a household’s decision to invest in stocks. However, upon participation, a larger set of behavioral characteristics explains the level of stock investment.

For 20 years following 1949, average total fertility per woman in China hovered just above six children. The year 1970 marked the beginning of persistent fertility declines. By 1980, the rate had dropped to 2.75, and since 1992 it has remained under 2. While some of this transition can be accounted for by broad socioeconomic developments, the extent to which it is attributable to China's unique population policies remains controversial. This paper analyzes household data from the 1992 Household Economy and Fertility Survey (HEFS) to provide the first direct microeconomic empirical evidence on the efficacy of these policies.

economic policy ; unemployment

This study examines novel momentum strategies in commodities futures markets that incorporate term-structure information. We show that momentum strategies that invest in contracts on the futures curve with the largest expected roll-yield or the strongest momentum earn significantly higher risk-adjusted returns than a traditional momentum strategy, which only invests in the nearest contracts. Moreover, when incorporating conservative transaction costs we observe that our low-turnover momentum strategy more than doubles the net return compared to a traditional momentum strategy.

Numerous articles have investigated the distribution of share prices, and find that the returns are fat tailed. Nevertheless, there is still controversy about the amount of probability mass in the tails, and hence about the most appropriate distribution to use in modeling returns. This controversy has proven hard to resolve, as the alternatives are non-nested. We employ extreme value theory, focusing exclusively on the larger observations in order to assess the tail shape within a unified framework. We find that at least the first two moments exist. This enables one to generate robust probabilities on large returns, which put the recent stock market swings into historical perspective.