We examine over 7400 analyst recommendations made in the year after going public for IPOs from 1999 to 2000. Initiations of coverage at the end of the quiet period come almost exclusively from affiliated analysts, whereas initiations afterward are predominantly from unaffiliated analysts. Contrary to previous findings, we find no evidence that the market discounts recommendations from affiliated analysts once we control for recommendation characteristics and timing. Moreover, analyst coverage in the first year is not affected by underpricing, and after the flurry of initiations at the end of the quiet period, the number of analysts covering a firm during the following 11 months is unrelated to the number of managing underwriters.

A principal can observe both the output and input of an agent who works at a job involving multiple tasks. We provide a simple theory that explains why it may be optimal for the principal to use only an output-based incentive contract, even though the principal can monitor the agent's actions perfectly in all but one task and knows exactly which action is optimal for each task.

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Quantitative market timing strategies are not consistently profitable when applied to 15 major commodity futures series. We conduct the most comprehensive study of quantitative trading rules in this market setting to date. We consider over 7000 rules, employ two alternative bootstrapping methodologies, account for data-snooping bias, and consider different time periods. We cannot rule out the possibility that trading rules compliment some other trading strategy or that some traders may have success using a specific rule on its own, but we do conclusively show that none of these rules beat the market any more than expected given random data variation.

We theoretically and empirically investigate the role of information on the cross section of stock returns and firms' cost of capital when investors face estimation risk and learn from noisy signals of uncertain quality. The resultant equilibrium is an information-dependent conditional CAPM. We find strong empirical support for the model. Innovations in market volatility, oil prices, exchange rates, and dispersion of analysts' forecasts not only help explain the cross section of stock returns, but their influence depends on the stock's systematic estimation risk. Moreover, dividend and share repurchase initiations have significant downward announcement effects on estimated betas and their standard errors.

The combination of power utility and i.i.d. lognormal consumption growth makes for a benchmark model in which asset prices and expected returns can be found in closed form. Introducing the consumption-based model, John H. Cochrane (2005, 12) writes, “The combination of lognormal distributions and power utility is one of the basic tricks to getting analytical solutions in this kind of model.” A message of this paper is that the lognormality assumption can be relaxed without sacrificing tractability. Working under two assumptions—that there is a representative agent with power utility and that consumption growth is i.i.d.—I introduce, in Section I, a mathematical object (the cumulantgenerating function, or CGF) in terms of which four fundamental quantities that are at the heart of consumption-based asset pricing can be simply expressed. Those quantities are the equity premium, riskless rate, consumption-wealth ratio, and mean consumption growth. The expressions derived relate the fundamentals directly to the cumulants (equivalently, moments) of consumption growth. The lognormal assumption is equivalent to the assumption that all cumulants above the second are zero. If one is in the business of making up stochastic processes, many suggest themselves most naturally in continuous time. Although there is an obvious discrete-time analogue of Brownian motion—a random walk with Normally distributed increments—it is less natural to map Poisson processes, say, into discrete time, and therefore harder to deal with the possibility of jumps in consumption. In Section II, I show that these results carry over to the continuous-time setting. The i.i.d. growth assumption is replaced by its continuous-time analogue: log consumption is a Levy process. Disasters and the Welfare Cost of Uncertainty

Using the longest event window, we find that public target shareholders receive a 63% (14%) higher premium when the acquirer is a public firm rather than a private equity firm (private operating firm). The premium difference holds with the usual controls for deal and target characteristics, and it is highest (lowest) when acquisitions by private bidders are compared to acquisitions by public companies with low (high) managerial ownership. Further, the premium paid by public bidders (not private bidders) increases with target managerial and institutional ownership.

Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle by Jeffrey R. Brown, Jeffrey R. Kling, Sendhil Mullainathan and Marian V. Wrobel. Published in volume 98, issue 2, pages 304-09 of American Economic Review, May 2008

We examine the role of investment opportunities as a determinant of the relative importance of cash flows from operations (CFO) and accruals in firm valuation. We find that at low investment-opportunity levels, CFO value-relevance increases with investment opportunities. When investment opportunities are high, accrual value-relevance declines as investment opportunities increase. Consequently, earnings value-relevance first varies directly and then inversely with investment opportunities. We show that the increase in CFO value-relevance is consistent with cost differentials between internal and external financing causing CFO to be an increasingly important determinant of the realization of investment opportunities. The decline in accrual value-relevance at high investment-opportunity levels appears to be attributable to accounting measurement deficiencies.