Abstract Geophysicists examine and document the repercussions for the earth’s climate induced by alternative emission scenarios and model specifications. Using simplified approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making? We provide a framework for answering this question by embracing recent decision theory and tools from asset pricing, and we apply this structure with its interacting components to a revealing quantitative illustration.

We demonstrate the asymptotic equivalence between commonly used test statistics for out-of-sample forecasting performance and conventional Wald statistics. This equivalence greatly simplifies the computational burden of calculating recursive out-of-sample test statistics and their critical values. For the case with nested models, we show that the limit distribution, which has previously been expressed through stochastic integrals, has a simple representation in terms of -distributed random variables and we derive its density. We also generalize the limit theory to cover local alternatives and characterize the power properties of the test.

ABSTRACT: We examine the value relevance of a comprehensive set of summary performance measures including sales, earnings, comprehensive income, and operating cash flows. We find that, while value relevance peaks for measures “above the line,” no single measure dominates around the world. Instead, a measure is more relevant when it captures, directly and quickly, information about firms’ cash flows. Specifically, for each performance measure by country, we estimate eight attributes commonly used to assess earnings quality. We find these attributes highly correlated—most of their variance is explained by only two principal factors. A factor capturing articulation with cash flows is positively associated with a measure’s value relevance; a factor reflecting the measure’s persistence, predictability, smoothness, and conservatism is negatively associated. Our results suggest that, when it comes to equity valuation, accounting researchers and standard-setters should focus not on what performance measure is “best” at a given point in time, but on the underlying attributes that investors find most relevant.

ABSTRACT When raising new equity capital managers have historically rejected the direct offer method favoring instead the seemingly more expensive underwritten public issue. This paper provides a resolution for this equity financing paradox by demonstrating empirically that firms which engage in direct offers enjoy a comparative cost advantage that is more than sufficient to account for the absolute reported cost differences between the two methods of equity financing.

This paper studies the time-series behavior of asset returns and aggregate consumption. Using a representative consumer model and imposing restrictions on preferences and the joint distribution of consumption and returns, we deduce a restricted log-linear time-series representation. Preference parameters for the representative agent are estimated and the implied restrictions are tested using postwar data.