We combine self-collected historical data from 1867 to 1907 with CRSP data from 1926 to 2012, to examine the risk and return over the past 140 years of one of the most popular mechanical trading strategies — momentum. We find that momentum has earned abnormally high risk-adjusted returns — a...

Commentaries on the credit bubble of 2003-2007 routinely equate it with earlier episodes like the Internet boom. While credits were over-priced like Internet stocks a decade before, we show, using a model based on disagreement and short-sales constraints, that this is where the similarity ends....

Limits to arbitrage play a central role in behavioral finance. They are thought to interfere with arbitrage processes so that security prices can deviate from true values for extended periods of time. We describe a recent financial innovation that allows limits to arbitrage to be sidestepped,...

Minimum capital requirements are a central tool of banking regulation. Setting them balances a number of factors, including any effects on the cost of capital and in turn the rates available to borrowers. Standard theory predicts that, in perfect and efficient capital markets, reducing banks'...

We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants' competitive investment responses to shifts in demand. Ship prices are far too volatile given the mean reversion in earnings. We show that high current ship...

A basic tenet of financial economics is that asset prices change in response to unexpected fundamental information. Since Roll's (1988) provocative presidential address that showed little relation between stock prices and news, however, the finance literature has had limited success reversing...

We analyze the effectiveness of consumer financial regulation by considering the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a difference-in- differences research design and a unique panel data set covering over 160 million credit card...

Shareholder valuations are economically and statistically positively correlated with more powerful independent directors, their power gauged by social network power centrality measures. Sudden deaths of powerful independent directors significantly reduce shareholder value, consistent with...

As illustrated in the tale of "the dog that did not bark," the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is...

In this paper we demonstrate that legislation has a simple, yet previously undetected impact on firm stock prices. While it is understood that the government and firms have an important relationship, it remains difficult to determine which firms any given piece of legislation will affect, and...