A new type of momentum based on the signs of past returns is introduced. This momentum is driven primarily by sign dependence, which is positively related to average return and negatively related to return volatility. An empirical application using a universe of commodity and financial futures offers supporting evidence for the existence of such momentum. Investment strategies based on return signal momentum result in higher returns and Sharpe ratios and lower drawdown relative to time series momentum and other benchmark strategies. Overall, return signal momentum can benefit investors as an effective strategy for speculation and hedging.

The Federal Reserve’s AMLF program was designed to provide liquidity to money market funds (MMFs). Between September 2008 and May 2009, the program made $217 billion in non-recourse loans to depository institutions and bank holding companies to purchase asset-backed commercial paper from MMFs. JP Morgan and State Street dominated the program, accounting for over 90% of all loans made. Our analysis suggests that JP Morgan exhibited more self-dealing behavior than State Street. We find that JP Morgan and State Street earned economically and statistically significant cumulative returns of 2.28% and 2.49% (respectively) over the first seven days of the program after controlling for market returns and heteroscedasticity.

This paper provides a rationale for the use of convertible securities as the medium of exchange in corporate change-of-control transactions. We argue that convertible securities can resolve the information asymmetry about the bidder’s value while at the same time mitigating the information asymmetry about the target’s value. In contrast, deals with cash or stock can only address one information asymmetry or the other but not both. Empirically, we find that a bidder is more likely to offer convertible securities, rather than all cash or all stock, when both the bidder and its target face large asymmetric information problems. We also find that both bidders and targets in convertible deals enjoy positive abnormal stock returns around takeover announcements. These findings provide empirical support for the use of convertible securities to resolve the double-sided asymmetric information problem. Finally, we find that bidder returns in convertible deals are larger than in all-cash and all-stock deals, but that target returns in convertible deals are smaller than in all-cash and all-stock deals.

This paper examines the investment allocation choices of actively-managed US mutual funds in emerging market equities after the market crises of the 1990s. We analyze both country- and firm-level disclosure and institutional policies that influence mutual funds’ allocation choices relative to major stock market indices. At the country level, we find that US funds invest more in open emerging markets with stronger accounting standards, shareholder rights, and legal frameworks. At the firm level, US funds are found to invest more in firms that adopt discretionary policies such as greater accounting transparency and the issuance of an ADR. Our results suggest that steps can be taken both at the country and the firm level to create an environment conducive to foreign institutional investment.

After decades of supporting free trade, in 2018 the United States raised import tariffs and major trade partners retaliated. We analyze the short-run impact of this return to protectionism on the U.S. economy. Import and retaliatory tariffs caused large declines in imports and exports. Prices of imports targeted by tariffs did not fall, implying complete pass-through of tariffs to duty-inclusive prices. The resulting losses to U.S. consumers and firms that buy imports was $51 billion, or 0.27% of GDP. We embed the estimated trade elasticities in a general-equilibrium model of the U.S. economy. After accounting for tariff revenue and gains to domestic producers, the aggregate real income loss was $7.2 billion, or 0.04% of GDP. Import tariffs favored sectors concentrated in politically competitive counties, and the model implies that tradeable-sector workers in heavily Republican counties were the most negatively affected due to the retaliatory tariffs. JEL Code: F1.

There are two fundamentally different views of the role of elections in policy formation. In one view, voters can affect candidates' policy choices: competition for votes induces politicians to move toward the center. In this view, elections have the effect of bringing about some degree of policy compromise. In the alternative view, voters merely elect policies: politicians cannot make credible promises to moderate their policies, and elections are merely a means to decide which one of two opposing policy views will be implemented. We assess which of these contrasting perspectives is more empirically relevant for the U. S. House. Focusing on elections decided by a narrow margin allows us to generate quasi-experimental estimates of the impact of a “randomized” change in electoral strength on subsequent representatives' roll-call voting records. We find that voters merely elect policies: the degree of electoral strength has no effect on a legislator's voting behavior. For example, a large exogenous increase in electoral strength for the Democratic party in a district does not result in shifting both parties' nominees to the left. Politicians' inability to credibly commit to a compromise appears to dominate any competition-induced convergence in policy.

We argue and demonstrate empirically that a firm's institutional and legal context has first‐order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm‐level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.

We study how the creation of an internal capital market (ICM) can invite strategic responses in product markets that, in turn, shape firm boundaries. ICMs provide ex post resource flexibility, but come with ex ante commitment costs. Alternatively, stand‐alones possess commitment ability but lack flexibility. By creating flexibility, integration can sometimes deter a rival's entry, but commitment problems can also invite predatory capital raising. These forces drive different organizational equilibria depending on the integrator's relation to the product market. Hybrid organizational forms like strategic alliances can sometimes dominate integration by offering some of its benefits with fewer strategic costs.