Abstract We present a comprehensive analysis of the performance and flows of U.S. actively managed equity mutual funds during the 2020 COVID-19 crisis. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows surpass precrisis trends, but not dramatically. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Rational models claim “trading to learn” explains widespread excessive speculative trading and challenge behavioral explanations of excessive trading. We argue rational learning models do not explain speculative trading by studying day traders in Taiwan. Consistent with previous studies of learning, unprofitable day traders are more likely than profitable traders to quit. Consistent with models of overconfidence and biased learning (but not with rational learning), the aggregate performance of day traders is negative; 74% of day trading volume is generated by traders with a history of losses; and 97% of day traders are likely to lose money in future day trading. Received: March 4, 2019; Editorial decision: May 16, 2019 by Editor: Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We analyze how firm-level shocks to collateral values influence employment outcomes among US corporations. Using comprehensive employment data from the US Census Bureau, we estimate that employment expenditures increase by $0.10 per $1 increase in firms’ real estate collateral values. These effects are stronger among financially constrained firms, and additional hiring is funded through debt issuance, consistent with a collateral channel. This relation holds among firms in tradable goods sectors, alleviating concerns about local demand shocks. Thus, through a collateral lending channel, fluctuations in the US commercial real estate market are an important driver of corporate labor demand.

Abstract This paper examines empirically the announcement effect of commercial corporate governance ratings on share returns. Rating downgrades by Institutional Shareholder Services (ISS) are associated with negative returns of –1.14% over a 3-day announcement window. The returns are highly correlated with the proprietary analysis of ISS and are decreasing in agency costs, consistent with ratings providing independent information on underlying corporate governance quality. We thus show that the influence and impact of ISS extends beyond proxy recommendations and subsequent voting outcomes. Our findings contrast with the insignificant price impact of Daines, Gow, and Larcker (2010), whose analysis we replicate and successfully reconcile to ours by pooling upgrades and downgrades together.

We propose a theory of corporate liquidity management in which signaling through illiquidity is cheaper than signaling through “skin in the game.” This causes ex post liquidation of worthy projects even when there are enough aggregate resources available for their continuation. We examine the policy remedies for this distortion and consider their consequences for the supply of liquidity, interest rate policy, and subsidies.

Abstract The traditional approach to obtain valid confidence intervals for non-parametric quantities is to select a smoothing parameter such that the bias of the estimator is negligible relative to its standard deviation. While this approach is apparently simple, it has two drawbacks: first, the question of optimal bandwidth selection is no longer well-defined, as it is not clear what ratio of bias to standard deviation should be considered negligible. Second, since the bandwidth choice necessarily deviates from the optimal (mean squares-minimizing) bandwidth, such a confidence interval is very inefficient. To address these issues, we construct valid confidence intervals that account for the presence of a non-negligible bias and thus make it possible to perform inference with optimal mean squared error minimizing bandwidths. The key difficulty in achieving this involves finding a strict, yet feasible, bound on the bias of a non-parametric estimator. It is well-known that it is not possible to consistently estimate the pointwise bias of an optimal non-parametric estimator (for otherwise, one could subtract it and obtain a faster convergence rate violating Stone’s bounds on the optimal convergence rates). Nevertheless, we find that, under minimal primitive assumptions, it is possible to consistently estimate an upper bound on the magnitude of the bias, which is sufficient to deliver a valid confidence interval whose length decreases at the optimal rate and which does not contradict Stone’s results.

ABSTRACT I examine how characteristics of investors’ information access tools change investors’ reactions to firm disclosures. I examine my research question in the context of information choice (i.e., allowing investors to choose the order of information and sections to read within a disclosure) and spatial layout (i.e., how information is displayed when viewing the disclosure). Results of an experiment are consistent with information choice improving investors’ judgments if the disclosure is viewed on a computer screen. Conversely, and consistent with cognitive overload, information choice harms investors’ judgments if the disclosure is viewed on a smaller screen, such as that of a mobile device. Follow‐up experiments show that changing the disclosure presentation to reduce the need to scroll is one way to improve investors’ judgments on a smaller (or mobile) screen. My findings caution firms and regulators about expanding information choice within disclosures without considering the screen size used to access the disclosure.

We investigate the importance of firm-bank relationships for the international transmission of bank distress to the real economy. Using a large panel of matched financial statements of firms of all sizes and their relationship banks in Germany, we find that banks with losses from proprietary trading activities during the 2007/8 financial crisis decreased their lending, and that their firm customers responded by reducing real investment and employment. We document how different types of firms partially offset reduced credit supply by resorting to alternative financing sources.