In addition to being a function of traditional fundamentals such as cash-flow persistence and the discount rate, the equilibrium association between a security price and a value-relevant statistic can simply be a function of what rational investors believe the association will be. We refer to this phenomenon as beliefs-driven price association (BPA). By explicitly considering the phenomenon of BPA, we show that the price response to information releases can vary over time even if the risk-free interest rate and investor preferences are static and the earnings/cash flow generating process is stable. This observation suggests, for example, that price-to-earnings associations and price volatility can vary over time even if a stable pattern of economic fundamentals suggests otherwise. The possibility of BPA suggests that measures of the cost of capital, information content, and growth prospects inferred from observed market prices will be confounded. While we do not predict when periods of BPA will arise, we provide empirically testable predictions about how prices should behave during periods of BPA. In particular, we predict that, during sufficiently long periods of high (positive or negative) BPA, price volatility, price levels, and expected returns will be higher than would be implied by a fundamental valuation framework. Finally, while BPA in the pricing of one security does not cause BPA in the pricing of other securities, the price levels of those other securities will be affected if the securities with BPA are sufficiently large relative to the market as a whole.

We analyze the costs and benefits of clawback provisions that enable firms to recover incentive compensation from top management if financials are restated. In a simple contracting model, we find that a clawback provision effectively lengthens the horizon of incentives and curbs misreporting. However, such a provision can add noise to the underlying performance measure, reducing managerial effort and firm value. Our empirical tests support the model’s predictions regarding which types of firms are likely to voluntarily use clawback provisions. We also document that clawback provisions are associated with higher reporting quality, greater CEO pay-for-performance sensitivity, and higher CEO compensation.

"This article investigates the effects of welfare payments, wages, and unemployment on women's probability of interstate migration [in the United States]. It also investigates if the income attraction of locations varies with recency of labor market experience. Welfare gains increase the probability of interstate migration. Welfare effects are largest for single mothers with small children and stronger among women with no recent labor market experience. The welfare effects, albeit small, are larger than the wage effects. The wage effects are weaker among women with no recent work experience. Ethnic-specific analyses suggest differences in migration behavior among Anglos, African-Americans, and Puerto Ricans."

This paper examines the role of seniority in two interrelated phenomena-rising age-earnings profiles and the use of layoffs rather than wage adjustments during economic decline. The results suggest that rehiring based on a seniority-first criterion is not inconsistent with an approach that maximizes worker productivity within a heterogeneous labor force. Moreover, assessment of worker reliability based on the upward portion of the wage-productivity cum seniority locus is appropriate since it reduces subsequent turnover. Thus, an approach that combines human capital accumulation with Lazear-type deferred payments schemes explains much of long-term worker-firm attachment.

This paper addresses the First Theorem of Welfare Economics in a moral hazard environment. An entrepreneur sells equity in a firm which he supplies with an unobservable, costly input. How much equity he retains determines his incentives and is observed by investors. The investors have rational expectaions which cause the equity price to increase in the amount of equity the entrepreneur retains. This gives the entrepreneur an incentive to retain equity and hence supply input. The entrepreneur may also be bound by an explicit incentive contract. In this framework, not all competitive equilibria are efficient, as defined relative to the moral hazard constraint. However, equilibria can be inefficient only if the entrepreneur's optimal input is nonunique or exhibits positive income effects.

We examine time-invariant and time-varying market integration across European stock markets. Financial integration increases during the sovereign debt crisis and is mainly driven by macroeconomic variables, market capitalization, political uncertainty, and technological developments. Higher market integration is associated with decreasing diversification benefits. During crises, investors select portfolios that are not only explained by firm characteristics.

We use party-identifying language—like “liberal media” and “MAGA”—to identify Republican users on the investor social platform StockTwits. Using a difference-in-difference design, we find that partisan Republicans remain relatively unfazed in their beliefs about equities during the COVID-19 pandemic, while other users become considerably more pessimistic. In cross-sectional tests, we find Republicans become relatively more optimistic about stocks that suffered the most during the COVID-19 crisis, but more pessimistic about Chinese stocks. Finally, stocks with the greatest partisan disagreement on StockTwits have significantly more trading in the broader market, explaining 28% of the increase in stock turnover during the pandemic.