We find that an option-based equity tail risk factor is priced in the cross section of currency returns; more exposed currencies offer a low risk premium because they hedge against equity tail risk. A portfolio that buys currencies with high equity tail beta and shorts those with low beta extracts the global component in the tail factor. The estimated price of risk of this novel global factor is consistently negative in currency carry and momentum portfolios, and in portfolios of other asset classes, suggesting that excess returns of these strategies can be partially understood as compensations for global tail risk.

We study the predictive power of option-implied moment risk premia embedded in the conventional variance risk premium. We find that although the second-moment risk premium predicts market returns in short horizons with positive coefficients, the third-moment (fourth-moment) risk premium predicts market returns in medium horizons with negative (positive) coefficients. Combining the higher-moment risk premia with the second-moment risk premium improves the stock return predictability over multiple horizons, both in sample and out of sample. The finding is economically significant in an asset-allocation exercise and survives a series of robustness checks.

Persistent performance in venture capital is routinely interpreted as evidence for skill. We present a dynamic model of delegated investment with endogenous fund heterogeneity and deal flow, which generates performance persistence without skill differences and predicts mean reversion in long-term performance. Investors working with multiple funds use contingent payments and tiered contracts to induce proper project nurturing and managerial effort. Successful funds receive continuation contracts that tolerate investment failure and encourage innovation, and subsequently finance entrepreneurs through a path-dependent assortative matching favoring incumbents. Recent empirical findings corroborate the model’s general implications, and the economic mechanisms are robust to short-term contracting, endogenous bargaining, and double moral hazard issues.

We examine the recent rise of institutional investment in the single-family home rental market and its implications for renters’ welfare. Using institutional mergers to identify local exogenous variation in institutional landlords’ scale and market share, we show that rents increase in neighborhoods where both merging firms owned properties (i.e., overlapped neighborhoods) relative to other nonoverlapped neighborhoods. Meanwhile, the crime rate also significantly decreases in overlapped neighborhoods after mergers. Our findings suggest that while institutional landlords leverage their market power to extract greater surplus from renters, they also improve the quality of rental services by enhancing neighborhood safety.

We examine the influence of political connections on firms' environmental performance within the setting of China's Regulation 18, which prohibits government officials from taking business positions. Firms that lost political connections due to Regulation 18 experienced increases in environmental performance. This improvement is mainly driven by the tunneling channel rather than the sheltering channel. Specifically, we decompose the environmental ratings into strengths and concerns, and find the effect is stronger on strengths. The environmental improvements are more pronounced for firms with a higher degree of tunneling, and are value-enhancing. Our findings suggest that political connections impede firms' environmental performance and generate negative externality to the environment.

Despite the explosive growth of peer-to-peer lending in China, information asymmetry remains a critical issue and is likely to be amplified in such an evolving credit market compared to a traditional credit market. This paper studies how investors screen the nonstandard and often unverifiable information disclosed voluntarily by the borrowers to make their investment decisions. Using data from Renrendai, one of the leading P2P lending platforms in China, we find that the amount of information disclosed voluntarily by the borrowers can significantly improve the funding probability. The impact is even more remarkable for the borrowers with lower credit rating. However, the loan default probability increases with the amount of disclosure, indicating the possibility of information manipulation by the borrowers. Further investigation shows the puzzle that lenders remain attracted by such loan listings can be explained by the higher profitability offered by the borrowers. These findings imply the necessity of regulation on the information disclosure in the P2P lending

We identify fixed-income mutual funds as an important contributor to the unusually high selling pressure in liquid asset markets during the COVID-19 crisis. We show that mutual funds experienced pronounced investor outflows amplified by their liquidity transformation. In meeting redemptions, funds followed a pecking order by first selling their liquid assets, including Treasuries and high-quality corporate bonds, which generated the most concentrated selling pressure in these markets. Overall, the estimated price impact of mutual funds was sizable at a third of the increase in Treasury yields and a quarter of the increase in corporate bond yields during the COVID-19 crisis.

Using a difference-in-differences approach, we examine the effect of industry-specific knowledge transfer on audit performance after a merger of two Chinese audit firms with different levels of expertise in an industry. For clients in an industry audited by both merging audit firms, those audited by the audit firm less specialized in that industry belong to the treatment group, while all other clients belong to the control group. We find an economically significant improvement in audit quality (as reflected in a reduction in financial misstatements) for the treatment group relative to the control group in the same merged audit firm. We show the treatment effect is not driven by changes in auditor incentives or personnel movement and is more pronounced when we expect stronger communication between the less and more specialized auditors after the merger. We caution that our findings are specific to China and may not generalize to other countries. Data Availability: Data used in this study are available from public sources identified in the text.

We quantify the impact of bank market power on monetary policy transmission through banks to borrowers. We estimate a dynamic banking model in which monetary policy affects imperfectly competitive banks' funding costs. Banks optimize the pass‐through of these costs to borrowers and depositors, while facing capital and reserve regulation. We find that bank market power explains much of the transmission of monetary policy to borrowers, with an effect comparable to that of bank capital regulation. When the federal funds rate falls below 0.9%, market power interacts with bank capital regulation to produce a reversal of the effect of monetary policy.