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

• Celik, M. A., Tian, X., & Wang, W. (2022). Acquiring Innovation under Information Frictions*. Review of Financial Studies, 35, 4474–4517.

  Acquiring innovation through M&A is subject to information frictions, as assessing the value of innovative targets is a challenging task. We find an inverted U-shaped relation between firm innovation and takeover exposure; equity usage increases with target innovation; and the deal completion rate drops with innovation. We develop and estimate a model of acquiring innovation under information frictions, featuring endogenous merger, innovation, and offer composition decisions. Our estimates suggest that acquirers’ due diligence reveals only 30 of private information possessed by targets. Eliminating information frictions increases capitalized merger gains by 59, stimulates innovation, and boosts productivity, business dynamism, and social welfare.

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• Bauer, R., Eberhardt, I., & Smeets, P. (2022). A Fistful of Dollars: Financial Incentives, Peer Information, and Retirement Savings. Review of Financial Studies, 35, 2981–3020.

  To understand what motivates individuals to look at their pension situation and make adequate savings decisions, we conduct two field experiments with 226,946 and 257,433 pension fund participants. We find peer-information statements do not increase the rate at which individuals check their pension information, but lottery-type financial incentives do. Offering a few large prizes rather than many small prizes is most effective. However, the uptake of pension information does not lead to improved pension knowledge nor to increased self-reported savings three weeks after our intervention.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.

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• Burkart, M., & Lee, S. (2022). Activism and Takeovers. Review of Financial Studies, 35, 1868–1896.

  We compare activism and takeovers from the perspective of a blockholder who can provide effort to improve firm value. We show that free-riding behavior by dispersed shareholders has the following implications: First, activism can be more profitable than a hostile takeover even if it is less efficient. Second, activism is most efficient when it brokers, rather than substitutes for, takeovers. Third, such takeover activism earns superior returns. More broadly, our theory implies that activists specialize in governance reforms with limited, temporary ownership being a strength rather than a shortcoming of activism.

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• Abel, A. B., & Panageas, S. (2022). An Analytic Framework for Interpreting Investment Regressions in the Presence of Financial Constraints. Review of Financial Studies, 35, 4055–4104.

  We derive analytic solutions for the valuation, optimal investment, and optimal payout of a financially constrained firm. While marginal q and average q would be identically equal in the absence of financial constraints, they differ when financial constraints bind. We use analytic solutions to characterize the properties of regressions of investment on average q and cash flow. The coefficient on cash flow is positive, but does not isolate the impact of the financial constraint, since it also partially reflects the impact of persistent profitability. The coefficient on average q understates the impact of persistent profitability.

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• Akbari, A., Carrieri, F., & Malkhozov, A. (2022). Can Cross-Border Funding Frictions Explain Financial Integration Reversals? Review of Financial Studies, 35, 394–437.

  We show that constraints on using leverage for foreign positions can act as an international investment barrier. Guided by an international CAPM with leverage constraints, we use observed stock prices to measure the variation in the magnitude and the implicit cost of such cross-border funding barriers. Our measure helps explain the dynamics of global market integration and, in particular, its reversals documented in the literature, but not explained by other international investment barriers. We confirm our results using alternative financial integration measures, international capital flows, and institutional portfolio holdings.

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• Andonov, A., & Rauh, J. D. (2022). The Return Expectations of Public Pension Funds. Review of Financial Studies, 35, 3777–3822.

  The return expectations of public pension funds are positively related to cross-sectional differences in past performance. This positive relation operates through the expected risk premium, rather than the expected risk-free rate or inflation rate. Pension funds act on their beliefs and adjust their portfolio composition accordingly. Persistent investment skills, risk taking, efforts to reduce costly rebalancing, and fiscal incentives from unfunded liabilities cannot fully explain the reliance of expectations on past performance. The results are consistent with extrapolative expectations, since the dependence on past returns is greater when executives have personally experienced longer performance histories with the fund.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.

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• Atmaz, A. (2022). Stock Return Extrapolation, Option Prices, and Variance Risk Premium. Review of Financial Studies, 35, 1348–1393.

  This paper presents a tractable dynamic equilibrium model of stock return extrapolation in the presence of stochastic volatility. In the model, consistent with survey evidence, investors expect future returns to be higher (lower) but also less (more) volatile following positive (negative) stock returns. The biased volatility expectation introduces a new channel through which past returns and investor sentiment affect derivative prices. In particular, through this novel channel, the model reconciles the otherwise puzzling evidence of past returns affecting option prices and the evidence of variance risk premium predicting future stock market returns even after controlling for the realized variance.

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• Backus, D. K., Chernov, M., Zin, S. E., & Zviadadze, I. (2022). Monetary Policy Risk: Rules versus Discretion. Review of Financial Studies, 35, 2308–2344.

  Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope.

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• Baker, S. R., Kueng, L., Meyer, S., & Pagel, M. (2022). Consumption Imputation Errors in Administrative Data. Review of Financial Studies, 35, 3021–3059.

  Many research papers in household finance utilize annual snapshots of household wealth from administrative data, such as tax registries, to calculate “imputed consumption.” However, trading costs, unobserved intrayear trades, or unobserved security characteristics may cause measurement error. We document how such errors vary across groups of individuals by income, portfolio characteristics, and wealth and how they are correlated with individual income and balance sheets, asset prices, and the business cycle using transaction-level retail brokerage account data. We find that the economic significance of imputation error is small in many research settings, and we discuss robustness checks and econometric specifications to minimize the impact of imputation error in future research.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.

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• Bakkensen, L. A., & Barrage, L. (2022). Going Underwater? Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics. Review of Financial Studies, 35, 3666–3709.

  How do climate risk beliefs affect coastal housing markets? This paper provides theoretical and empirical evidence. First, we build a dynamic housing market model and show that belief heterogeneity can reconcile prior mixed evidence on flood risk capitalization. Second, we implement a door-to-door survey in Rhode Island, finding significant flood risk underestimation and sorting based on risk perceptions and amenity values. Third, we estimate that coastal prices exceed fundamentals by 6-13 in our benchmark area, with potentially higher overvaluation in other locations. Finally, we quantify both allocative inefficiency and distributional consequences arising from flood risk misperceptions and insurance policy reform.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.

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