A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

• Drechsler, I., Savov, A., & Schnabl, P. (2018). A Model of Monetary Policy and Risk Premia. The Journal of Finance, 73, 317–373.

  We develop a dynamic asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk‐tolerant agents (banks) borrow from risk‐averse agents (i.e., take deposits) to fund levered investments. Leverage exposes banks to funding risk, which they insure by holding liquidity buffers. By changing the nominal rate the central bank influences the liquidity premium, and hence the cost of taking leverage. Lower nominal rates make liquidity cheaper and raise leverage, resulting in lower risk premia and higher asset prices, volatility, investment, and growth. We analyze forward guidance, a “Greenspan put,” and the yield curve.

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• Lovo, S., & Spaenjers, C. (2018). A Model of Trading in the Art Market. American Economic Review, 108, 744–774.

  We present an infinite-horizon model of endogenous trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value in each period. Our model generates endogenous cross-sectional and time-series patterns in investment outcomes. Average returns and buy-in probabilities are negatively correlated with the time between purchase and resale (attempt). Idiosyncratic risk does not converge to zero as the holding period shrinks. Prices and auction volume increase during expansions. Our model finds empirical support in auction data and has implications for selection biases in observed prices and transaction-based price indexes.

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• Tan, H., & Wright, J. (2018). A Price Theory of Multi-sided Platforms: Comment. American Economic Review, 108, 2758–2760.

  Weyl (2010) shows that in multi-sided platform settings, profit maximization leads to classical and Spence distortions, with the Spence distortion providing a new explanation for why prices may sometimes be too high (or too low) on platforms. However, the key formulas Weyl gives comparing privately and socially optimal prices are misstated. Properly interpreted, his results only explain marginal incentives with respect to setting prices and not the total distortion in prices, which can be very different.

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• Weyl, E. G. (2018). A Price Theory of Multi-sided Platforms: Reply. American Economic Review, 108, 2761–2762.

  I appreciate the clarification of my work by Tan and Wright, regret the confusing way my equations were labeled and intended them to be interpreted in the manner they suggest is correct.

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• Bakshi, G., Chabi-Yo, F., & Gao, X. (2018). A Recovery that We Can Trust? Deducing and Testing the Restrictions of the Recovery Theorem. Review of Financial Studies, 31, 532–555.

  How reliable is the recovery theorem of Ross (2015)? We explore this question in the context of options on the 30-year Treasury bond futures, allowing us to deduce restrictions that link the physical and risk-neutral return distributions. Our empirical results undermine the implications of the recovery theorem. First, we reject an implicit assumption of the recovery theorem that the martingale component of the stochastic discount factor is identical to unity. Second, we consider the restrictions between the physical and risk-neutral return moments when the recovery theorem holds, and reject them in both forecasting regressions and generalized method of moments estimations.

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• Hartzmark, S. M., & Shue, K. (2018). A Tough Act to Follow: Contrast Effects in Financial Markets. The Journal of Finance, 73, 1567–1613.

  A contrast effect occurs when the value of a previously observed signal inversely biases perception of the next signal. We present the first evidence that contrast effects can distort prices in sophisticated and liquid markets. Investors mistakenly perceive earnings news today as more impressive if yesterday's earnings surprise was bad and less impressive if yesterday's surprise was good. A unique advantage of our financial setting is that we can identify contrast effects as an error in perceptions rather than expectations. Finally, we show that our results cannot be explained by an alternative explanation involving information transmission from previous earnings announcements.

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• Liu, J., Stambaugh, R. F., & Yuan, Y. (2018). Absolving Beta of Volatility’s Effects. Journal of Financial Economics, 128, 1–15.

  The beta anomaly, negative (positive) alpha on stocks with high (low) beta, arises from beta’s positive correlation with idiosyncratic volatility (IVOL). The relation between IVOL and alpha is positive among underpriced stocks but negative and stronger among overpriced stocks (Stambaugh, Yu, and Yuan, 2015). That stronger negative relation combines with the positive IVOL-beta correlation to produce the beta anomaly. The anomaly is significant only within overpriced stocks and only in periods when the beta-IVOL correlation and the likelihood of overpricing are simultaneously high. Either controlling for IVOL or simply excluding overpriced stocks with high IVOL renders the beta anomaly insignificant.

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• Jiang, H., & Zheng, L. (2018). Active Fundamental Performance. Review of Financial Studies, 31, 4688–4719.

  We propose a new measure, active fundamental performance (AFP), to identify skilled mutual fund managers. AFP evaluates fund investment skills conditioned on the release of firms’ fundamental information. For each fund, we examine the covariance between deviations of its portfolio weights from a benchmark portfolio and the underlying stock performance on days when firms publicize fundamental information. Because asset prices on these information days better reflect firm fundamentals, AFP can more effectively identify investment skills. From 1984 to 2014, funds in the top decile of high AFP subsequently outperformed those in the bottom decile by 2% to 3% per year.

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• Aizawa, N., & Kim, Y. S. (2018). Advertising and Risk Selection in Health Insurance Markets. American Economic Review, 108, 828–867.

  This paper studies the impact of advertising as a channel for risk selection in Medicare Advantage. We provide evidence that insurer advertising is responsive to the gains from risk selection. Then we develop and estimate an equilibrium model of Medicare Advantage with advertising, allowing rich individual heterogeneity. Our estimates show that advertising is effective in attracting healthy individuals who are newly eligible for Medicare, contributing to advantageous selection into Medicare Advantage. Moreover, risk selection through advertising substantially lowers premiums by improving insurers' risk pools. The distributional implication is that unhealthy consumers may be better off through cross-subsidization from healthy individuals.

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• Morellec, E., Nikolov, B., & Schürhoff, N. (2018). Agency Conflicts around the World. Review of Financial Studies, 31, 4232–4287.

  We construct firm-level indexes for agency conflicts between controlling shareholders and outside investors by estimating a dynamic model of financing decisions. Our estimates for 12,652 firms from 14 countries show that agency conflicts are large and highly variable across firms and countries. Differences in agency conflicts are largely due to differences in firm-level governance, ownership concentration, and other firm characteristics. The origin of law is more relevant for curtailing governance excesses than for guarding the typical firm. Agency costs split about equally between wealth transfers and value losses from policy distortions. Recent governance reforms in Europe have significantly reduced agency costs.

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