We examine the usefulness of other comprehensive income (OCI) to debt investors in nonfinancial companies. Motivated by Merton's (1974) real options framework, we construct a measure of incremental OCI volatility, designed to capture the effect of OCI on overall firm asset volatility, which is a primary driver of credit risk in Merton's (1974) model. We find that the volatility of incremental OCI influences the likelihood of default, credit ratings, and the cost of debt. Overall, our evidence suggests that creditors use information from OCI in their assessment of firm credit risk and in pricing debt contracts.

We study how culture influences mutual funds around the world. Uncertainty Avoidance (UA), which is related to ambiguity aversion, is negatively associated with flow-performance sensitivity, deviation from the fund benchmark, fund alpha, and the fraction of active management across the 25 countries in our sample. This is true even when controlling for an exhaustive set of fund- and country-level characteristics. We also find that a fund's deviation from its benchmark is not only affected by the UA of its domicile country but also by the UA of its fund family's country of origin. Our results highlight the importance of considering cultural characteristics, and UA in particular, when studying mutual funds across countries.

Intermediation in private equity involves illiquid investments, professional investors, and high information asymmetry. We use this unique setting to empirically evaluate theoretical predictions regarding intermediation. Using placement agents has become nearly ubiquitous, but agents are associated with significantly lower abnormal returns in venture and real estate funds, consistent with investor capture and influence peddling. However, returns are higher for buyout funds employing a top-tier agent and for first-time real estate and venture funds employing an agent, and are less volatile for agent-affiliated funds, consistent with a certification role. Our results suggest heterogeneous motives for intermediation in the private equity industry.

This paper reports the results of two randomized field experiments, each offering different populations of Chicago youth a supported summer job. The program consistently reduces violent-crime arrests, even after the summer, without improving employment, schooling, or other arrests; if anything, property crime increases over two to three years. Using a new machine learning method, we uncover heterogeneity in employment impacts that standard methods would miss, describe who benefits, and leverage the heterogeneity to explore mechanisms. We conclude that brief youth employment programs can generate important behavioral change, but for different outcomes, youth, and reasons than those most often considered in the literature.

We extend Kreps and Wilson's concept of sequential equilibrium to games with infinite sets of signals and actions. A strategy profile is a conditional ε ‐equilibrium if, for any of a player's positive probability signal events, his conditional expected utility is within ε of the best that he can achieve by deviating. With topologies on action sets, a conditional ε ‐equilibrium is full if strategies give every open set of actions positive probability. Such full conditional ε ‐equilibria need not be subgame perfect, so we consider a non‐topological approach. Perfect conditional ε ‐equilibria are defined by testing conditional ε ‐rationality along nets of small perturbations of the players' strategies and of nature's probability function that, for any action and for almost any state, make this action and state eventually (in the net) always have positive probability. Every perfect conditional ε ‐equilibrium is a subgame perfect ε ‐equilibrium, and, in finite games, limits of perfect conditional ε ‐equilibria as ε → 0 are sequential equilibrium strategy profiles. But limit strategies need not exist in infinite games so we consider instead the limit distributions over outcomes. We call such outcome distributions perfect conditional equilibrium distributions and establish their existence for a large class of regular projective games. Nature's perturbations can produce equilibria that seem unintuitive and so we augment the game with a net of permissible perturbations.

We study a class of backtests for forecast distributions in which the test statistic depends on a spectral transformation that weights exceedance events by a function of the modeled probability level. The weighting scheme is specified by a kernel measure which makes explicit the user’s priorities for model performance. The class of spectral backtests includes tests of unconditional coverage and tests of conditional coverage. We show how the class embeds a wide variety of backtests in the existing literature, and further propose novel variants which are easily implemented, well-sized and have good power. In an empirical application, we backtest forecast distributions for the overnight P&L of ten bank trading portfolios. For some portfolios, test results depend materially on the choice of kernel.

From the inception of money market funds (MMFs), all MMFs reported a fixed $1 NAV (Net Asset Value). In July 2014, the Securities and Exchange Commission (SEC) issued new regulations for MMFs that require Prime institutional MMFs to report floating NAVs. The SEC did not expect a significant impact on the MMF industry from requiring floating NAVs for Prime institutional funds. We find that over 70% of the assets under management in Prime MMFs left Prime funds with over half the Prime funds closing. We find that more than half of the Prime retail MMFs (which are not required to switch to floating NAV) closed with more than 50% of the assets under management exiting these funds. Finally, we find that for every dollar that exited Prime MMFs a dollar was added to Government MMFs. Based on the SEC's economic discussions, these results all represent unexpected consequences.

Medicare reimburses health care providers for the drugs they administer. Since 2005, it has reimbursed based on the past price of the drug. Reimbursement on past prices could motivate manufacturers to set higher launch prices because providers become less sensitive to price and because provider reimbursement is higher if past prices were higher. Using data on drug launch prices between 1999 and 2010, we estimate that reimbursement based on past prices caused launch prices to rise dramatically. The evidence is consistent with the 2018 claim from Medicare's administrator that it “creates a perverse incentive for manufacturers to set higher prices.”

Two main creditors exist in commercial real estate: arm’s-length investors and banks. We model commercial mortgage-backed securities (CMBS) as the less informed source of credit. In equilibrium, these investors fund properties with a low probability of distress, and banks fund properties that may require renegotiation. As a natural experiment, we test the model using the collapse of the CMBS market during 2007–2009, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated. This suggests that securitization in this market funds safe collateral.

We study innovation and product differentiation using a uniqueness measure based on textual analysis of prospectuses. We find that small and start‐up families have higher start rates than larger families, and their products are more unique. Unique strategies attract more inflows in the first three years, and investors respond more to text‐based uniqueness than other measures such as holdings or returns uniqueness. For established funds, word uniqueness has weak negative power for explaining returns, so investors in competitive equilibrium do not sacrifice much performance to get specialized products. Uniqueness attenuates the flow‐performance relation, reducing the risk of investor outflows.