We propose a novel identification approach based on a predictable change in the intraday volatility of index futures to estimate the Federal Reserve's reaction to stock returns. This identification approach relies on a weaker set of assumptions than required under identification through heteroskedasticity based on lower frequency data. Our approach also allows the examination of changes in the reaction of monetary policy to the stock market. We document an asymmetric response of policy expectations to changes in stock prices in adverse and positive economic environments. Specifically, the results show a sharp increase in the response of monetary policy expectations to stock returns during recessions and bear markets. This finding is consistent with the existence of the so-called “Fed put.”

We argue that mutual fund managers should trade actively only when the market presents opportunities to pick stocks with positive alpha. In this paper, we propose stock-selection opportunity measures and show that a significant portion of mutual funds time their active trading, i.e., they trade more when the market presents more stock-selection opportunities. We show that positive timers outperform negative timers by about 82 bps in annualized four-factor alpha over the subsequent six-month horizon and, more importantly, that stock-selection timing contributes significantly to fund performance even after controlling for fund managers’ stock-picking ability. Finally, we present evidence that on average funds with very high portfolio turnover are actually poor timers, whereas younger funds and funds with larger family size exhibit better skills in timing stock-selection.

Hazard stocks are the opposite of lottery stocks. We proxy hazard stocks with the minimum daily idiosyncratic return over the past month, “IMIN,” and examine the relation between hazard stocks and expected returns. The literature on lottery stocks implies that investors should discount hazard stocks. Anomalously, we find a negative relation between IMIN and future returns. Hedge portfolios that are long high IMIN stocks and short low IMIN stocks generate monthly alphas of -0.52% to -0.76%. The results are robust after controlling for numerous firm characteristics and corporate events. The hazard stock anomaly is primarily driven by limits to arbitrage and, to a lesser degree, by firm-level information uncertainty. Via the Reg SHO pilot program, we provide causal evidence that the apparent asymmetric preferences across lottery and hazard stocks are due to arbitrage asymmetry as described by Stambaugh et al. (2015). This demonstrates that asymmetric arbitrage may yield what appear to be asymmetric preferences.

Using staggered board reforms as a quasi-natural experiment and a difference-in-differences approach, this study examines the impact of corporate governance on cash holdings in 41 countries. We find that board reforms are followed by significant reductions in cash holdings. This effect is more pronounced for firms with weaker pre-reform corporate governance and for firms from countries with weaker institutional environments. Analysis of cash spending suggests that, following board reforms, firms are more likely to use cash to increase R&D expenditures, dividend payouts, and share repurchases, but not to increase capital or acquisition expenditures. Finally, the results indicate that enhanced corporate governance following board reforms leads to higher (lower) cash (dividend payouts) values, consistent with the view that board reforms strengthen corporate governance.