We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.

Abstract We document statistically significant relations between mutual fund betas and past market returns driven by fund feedback trading. Against this backdrop, evidence of “artificial” market timing emerges when standard market timing regressions are estimated across periods that span time variation in fund systematic risk levels, as is typical. Artificial timing significantly explains the inverse relation between timing model estimates of market timing and stock selectivity. A fund’s feedback trading relates to its past performance and remains significant after accounting for trading on momentum. Fund flows suggest that investors value feedback trading, which helps hedge downside risk during bear markets.

Measuring the effect of peers on individuals' outcomes is a challenging problem, in part because individuals often select peers who are similar in both observable and unobservable ways. Group formation experiments avoid this problem by randomly assigning individuals to groups and observing their responses; for example, do first‐year students have better grades when they are randomly assigned roommates who have stronger academic backgrounds? In this paper, we propose randomization‐based permutation tests for group formation experiments, extending classical Fisher Randomization Tests to this setting. The proposed tests are justified by the randomization itself, require relatively few assumptions, and are exact in finite samples. This approach can also complement existing strategies, such as linear‐in‐means models, by using a regression coefficient as the test statistic. We apply the proposed tests to two recent group formation experiments.

One dominant approach to evaluate the causal effect of a treatment is through panel data analysis, whereby the behaviors of multiple units are observed over time. The information across time and units motivates two general approaches: (i) horizontal regression (i.e., unconfoundedness), which exploits time series patterns, and (ii) vertical regression (e.g., synthetic controls), which exploits cross‐sectional patterns. Conventional wisdom often considers the two approaches to be different. We establish this position to be partly false for estimation but generally true for inference. In the absence of any assumptions, we show that both approaches yield algebraically equivalent point estimates for several standard estimators. However, the source of randomness assumed by each approach leads to a distinct estimand and quantification of uncertainty even for the same point estimate. This emphasizes that researchers should carefully consider where the randomness stems from in their data, as it has direct implications for the accuracy of inference.

Building on recent research linking changes in housing prices to investors’ degree of risk aversion, we posit that there is a negative relation between growth in housing prices and a firm’s cost of equity capital. Consistent with our hypothesis, we find that firms located in states with positive growth rates in housing prices exhibit lower costs of equity capital. We also observe that the effect of changes in housing prices is mainly driven by smaller firms. This housing effect is not only statistically significant but also economically important. Our results hold across various measures of growth rates in housing prices and are robust to controlling for potential biases due to measurement errors in estimating the implied cost of equity capital. This study is the first to establish an association between growth rates in housing prices and firms’ cost of equity capital. It also contributes to the emerging literature on the economic importance of a firm’s geographic location.

This study investigates how economic policy uncertainty (EPU) affects venture capital (VC) contract terms. Using a unique database of contracts between VCs and entrepreneurial firms in China, we provide evidence that EPU positively affects the presence of investor-friendly covenants in VC contracts. Our mechanism analysis shows that screening for high-quality startups and VCs’ increased bargaining power are potential channels. Furthermore, we find that including more investor-friendly covenants mitigates the negative effect of EPU on VC exit performance.

ABSTRACT This study examines whether and how voluntary news disclosure made by private firms affects investment sensitivities of public peer firms. Analyzing data from U.S. public firms from 1996 to 2018, we discover that public firms’ investment sensitivities intensify in industries with active private firm disclosures; a one standard deviation increase in private firm news disclosure raises public firms’ investment sensitivities by 14.5–17.6 percent. To mitigate endogeneity, we employ instrumental-variable methods, leveraging the staggered implementation of prudent investor rules and enforceability of noncompete agreements. Our results show that these effects are magnified in industries marked by the higher expected industry return volatility and less local newspaper coverage. We find that news from private firms significantly enhances public firms’ investment sensitivities, regardless of its sentiment. This research highlights the crucial role of private firm disclosures in influencing public firms’ investment decisions, enhancing our understanding of information spillovers in corporate disclosure. JEL Classifications: D80; G31; G32; M41.