Unprecedented street protests brought down Mubarak’s government and ushered in an era of competition between three rival political groups in Egypt. Using daily variation in the number of protesters, we document that more intense protests are associated with lower stock market valuations for firms connected to the group currently in power relative to non-connected firms, but have no impact on the relative valuations of firms connected to rival groups. These results suggest that street protests serve as a partial check on political rent-seeking. General discontent expressed on Twitter predicts protests but has no direct effect on valuations.

Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that, indeed, differences in the size of economies explain a large fraction of the cross‐sectional variation in currency returns. The data also support additional implications of the model: the introduction of a currency union lowers interest rates in participating countries, and stocks in the nontraded sector of larger economies pay lower expected returns.

Unprecedented street protests brought down Mubarak's government and ushered in an era of competition between three rival political groups in Egypt. Using daily variation in the number of protesters, we document that more intense protests are associated with lower stock market valuations for firms connected to the group currently in power relative to non-connected firms, but have no impact on the relative valuations of firms connected to rival groups. These results suggest that street protests serve as a partial check on political rent-seeking. General discontent expressed on Twitter predicts protests but has no direct effect on valuations.

We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an increase in uncertainty and costly distortions in consumption, capital accumulation, and labor supply.

We present a model in which investors decide whether or to what degree they want to allow their behavior to be influenced by “market sentiment.” Investors who choose to insulate their decisions from market sentiment earn higher expected returns, but incur a small mental cost. We show that if information is moderately dispersed across investors, even a very small mental cost may result in a significant amount of sentiment in equilibrium: Individuals who choose to be swayed by sentiment increase uncertainty about the future and make it less costly for others to be swayed by sentiment as well.

We use textual analysis of earnings conference calls held by listed firms around the world to measure the amount of risk managers and investors at each firm associated with each country at each point in time. Flexibly aggregating this firm-country-quarter-level data allows us to systematically identify spikes in perceived country risk (“crises”) and document their source and pattern of transmission to foreign firms. While this pattern usually follows a gravity structure, it often changes dramatically during crises. For example, while crises originating in developed countries propagate disproportionately to foreign financial firms, emerging market crises transmit less financially and more to traditionally exposed countries. We apply our measures to show that elevated perceptions of a country’s riskiness, particularly those of foreign and financial firms, are associated with significant falls in local asset prices, capital outflows, and an increased likelihood of a sudden stop.

Separate literatures study violations of uncovered interest parity (UIP) using regression-based and portfolio-based methods. We propose a decomposition of these violations into a cross-currency, a between-time-and-currency, and a cross-time component that allows us to analytically relate regression-based and portfolio-based facts and to estimate the joint restrictions they put on models of currency returns. Subject to standard assumptions on investors’ information sets, we find that the forward premium puzzle (FPP) and the “dollar trade” anomaly are intimately linked: both are driven almost exclusively by the cross-time component. By contrast, the “carry trade” anomaly is driven largely by cross-sectional violations of UIP. The simplest model that the data do not reject features a cross-sectional asymmetry that makes some currencies pay permanently higher expected returns than others, and larger time series variation in expected returns on the U.S. dollar than on other currencies. Importantly, conventional estimates of the FPP are not directly informative about expected returns because they do not correct for uncertainty about future mean interest rates. Once we correct for this uncertainty, we never reject the null that investors expect high-interest-rate currencies to depreciate, not appreciate.

We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for noneconomic reasons can be an important determinant of regional economic growth. We show that West German households who had social ties to East Germany in 1989 experienced a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions that (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.7 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic development.

We study how decades-long exposure to individuals of a given foreign descent shapes natives’ attitudes and behavior toward that group. Using individualized donations data, we show that long-term exposure to a given foreign ancestry leads to more generous behavior specifically toward that group’s ancestral country. Focusing on exposure to Arab Muslims to examine mechanisms, we show that long-term exposure (i) decreases explicit and implicit prejudice against Arab Muslims, (ii) reduces support for policies and political candidates hostile toward Arab Muslims, (iii) increases charitable donations to Arab countries, (iv) leads to more personal contact with Arab Muslims, and (v) increases knowledge of Arab Muslims and Islam.

We develop a novel, risk-based theory of the effects of exchange rate stabilization. In our model, the choice of exchange rate regime allows policymakers to make their currency, and by extension, the firms in their country, a safer investment for international investors. Policies that induce a country’s currency to appreciate when the marginal utility of international investors is high lower the required rate of return on the country’s currency and increase the world-market value of domestic firms. Applying this logic to exchange rate stabilizations, we find a small economy stabilizing its bilateral exchange rate relative to a larger economy can increase domestic capital accumulation, domestic wages, and even its share in world wealth. In the absence of policy coordination, small countries optimally choose to stabilize their exchange rates relative to the currency of the largest economy in the world, which endogenously emerges as the world’s “anchor currency”, Larger economies instead optimally choose to float their exchange rates. The model therefore predicts an equilibrium pattern of exchange rate arrangements that is remarkably similar to the one in the data.