Recent work uses option prices to derive lower bounds for the risk premia of the market portfolio and individual stocks. We test the bounds conditionally. We cannot reject that they are valid, but we do reject that they are tight. Using the market bounds as forecasts appears unreasonable in many cases due to their high slackness. Adding past mean slackness is a potential improvement but is hampered by the brevity of the available data series. The correlation of the stock bounds with subsequent returns stems primarily from the time series rather than the cross section.

Mutual funds seek alpha, but coskewness is also an important performance attribute. Coskewness of fund returns is associated with market timing, liquidity management, and derivative use. Measures of active management associated with positive alphas are also associated with undesirable coskewness. When controlling for other characteristics, coskewness is positively associated with activity measures related to market timing and negatively associated with activity measures related to stock picking. In the cross-section of funds, the latter effect dominates, so funds generate undesirable coskewness in the pursuit of alpha. Money flows to funds with desirable coskewness. Received October 25, 2016; editorial decision January 29, 2018 by Editor Stijn Van Nieuwerburgh.

Portfolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing literature, our main result does not assume independence of returns and depends only on discounting of future cash flows. We also provide a critique of portfolio turnpike results, based on the observations that (1) the time required for convergence is often too large to be relevant, and (2) there is no convergence for consumption withdrawal problems. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

We analyze dynamic trading by an activist investor who can expend costly effort to affect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in parameters can produce either positive or negative relations between market liquidity and economic efficiency, depending on the activism technology and model parameters. Two results that contrast with the previous literature are that (a) the relationship between market liquidity and economic efficiency is independent of the activist's initial stake for a broad set of activism technologies, and (b) an increase in noise trading can reduce market liquidity because it increases uncertainty about the activist's trades (the activist trades in the opposite direction of noise traders) and thereby increases information asymmetry about the activist's intentions.