We build a model of universities combining their real production decisions with their choice of endowment size and asset allocation. Variation in opportunity cost, that is, the productivity of internal projects, has a first-order effect on these choices. Adding the UPMIFA-mandated 7% payout constraint, the endowment size and asset allocations match those empirically observed. This constraint has little effect on universities that do not value the output of their internal projects but harms those that do: it prevents the endowment's use as an effective buffer stock, thereby increasing the volatility of production, and it slows the growth of the most productive universities.

Abstract I show that increased turnover accompanies changes in stocks’ risk exposures. A one standard deviation decrease in a stock’s market beta increases turnover as much as 25%. The sensitivity of turnover to beta changes has grown over time. Market beta changes explain as much as 5% of the monthly cross-sectional variation in turnover. VAR decompositions of returns show turnover is more strongly associated with discount rate news than cash flow news. This mechanism provides a new channel for turnover combined with realized returns to predict long horizon returns and cash flow changes. Further, this mechanism can amplify many prior explored motives for trade.

Abstract Cross-firm predictability among economically linked firms can arise when both firms exhibit their own momentum and their returns are contemporaneously correlated. We show that cross-firm predictability can last up to 10 years, which is hard to reconcile with an interpretation of slow information diffusion. However, it is consistent with the economically linked firms’ commonality in momentum. The contribution of each source can be found by decomposing leaders’ returns into the predictable (momentum) and news components. Sorting on each, we find that both sources contribute almost equally to 1-month predictability, whereas commonality in momentum is solely responsible for longer-horizon cross-firm predictability.

We build a model of universities combining their real production decisions with their choice of endowment size and asset allocation. Variation in opportunity cost, that is, the productivity of internal projects, has a first-order effect on these choices. Adding the UPMIFA-mandated 7% payout constraint, the endowment size and asset allocations match those empirically observed. This constraint has little effect on universities that do not value the output of their internal projects but harms those that do: it prevents the endowment's use as an effective buffer stock, thereby increasing the volatility of production, and it slows the growth of the most productive universities.

We model how firms releasing information on different dates causes the CAPM to fail, requiring an additional factor based on the information structure to price assets. We exemplify this mechanism’s empirical relevance using quarterly earnings announcements, which cluster across months along size and book-to-market. Seventy percent of the alpha reduction from including SMB and HML occurs in the four main earnings announcement months. The information structure factor accounts for all of SMB and HML’s seasonal alpha reduction and one third of their overall alpha reduction. Controlling for size and book-to-market, exposures to SMB and HML vary with firms’ earnings announcement month.

Abstract The value a director provides to a firm is empirically difficult to establish. We estimate that value by exploiting the commonality in idiosyncratic returns of firms linked by a director and show that, on average, a director’s influence causes variation in firm value of almost 1% per year. The return commonality is not due to industry or other observable economic links. Variation in the availability of information on shared directors and a placebo test exploiting the timing of shared directors provide further identification. The results also imply that the directorial labor market does not fully assess directors in real time. (JEL G34, G14)

A stock’s market exposure, beta, varies across return frequencies. Sorting stocks on the difference between low- and high-frequency betas (Δβ) yields large systematic mispricings relative to the CAPM at high frequencies, but significantly smaller mispricings at low frequencies. We provide a risk-based explanation for this frequency dependence by introducing uncertainty about the effect of systematic news on firm value (opacity) into a frictionless model. We document a robust relationship between the frequency dependence of betas and proxies for opacity. Our findings suggest that opacity poses significant challenges to using betas estimated from high-frequency returns. While the CAPM may be an appropriate asset pricing model at low frequencies, additional factors, e.g., based on opacity, are necessary at high frequencies. (JEL G11, G12, G13, G14)

ABSTRACT U.S. industrial firms invest heavily in noncash, risky financial assets such as corporate debt, equity, and mortgage‐backed securities. Risky assets represent 40% of firms’ financial portfolios, or 6% of total book assets. We present a formal model to assess the optimality of this behavior. Consistent with the model, risky assets are concentrated in financially unconstrained firms holding large financial portfolios, are held by poorly governed firms, and are discounted by 13% to 22% compared to safe assets. We conclude that this activity represents an unregulated asset management industry of more than $1.5 trillion, questioning the traditional boundaries of nonfinancial firms.