We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from...

The U.S. system of security law was designed more than 70 years ago to regain investors’ trust after a major financial crisis. Today we face a similar problem. But while in the 1930s the prevailing perception was that investors had been defrauded by offerings of dubious quality securities, in...

The regulations that shape the design and the operations of corporations, credit and securities markets differ vastly from country to country. In addition, similar regulations are often unequally enforced in different countries. Economists still have an imperfect understanding of why these...

We study the impact of the announcement of enforcement of financial and securities regulation by the UK’s Financial Services Authority and London Stock Exchange on the market price of penalized firms. Since these agencies do not announce enforcement until a penalty is levied, their actions...

Private pension provision faces the challenging task of providing stable income streams during retirement. The challenge has increased markedly in the last decades due to volatile financial markets, falling interest rates and the withdrawal of employers and external insurers as risk bearers of...

This article presents an application of extreme value theory to compute the value at risk of a market position. In statistics, extremes of a random process refer to the lowest observation (the minimum) and to the highest observation (the maximum) over a given time-period. Extreme value theory...

Using a comprehensive database of firms in Western and Eastern Europe, we study how the business environment in a country drives the creation of new firms. Our focus is on regulations governing entry. We find entry regulations hamper entry, especially in industries that naturally should have...

This Paper empirically investigates the decisions of US publicly traded firms on where to incorporate. We study the features of states that make them attractive to incorporating firms and the characteristics of firms that determine whether they incorporate in or out of their state of location....

This Paper develops an account of the role and significance of rent extraction in executive compensation. Under the optimal contracting view of executive compensation, which has dominated academic research on the subject, pay arrangements are set by a board of directors that aims to maximize...

This paper analyzes why corporate governance matters for stock returns if the stock market prices the underlying managerial agency problem correctly. Our theory assumes that strict corporate governance prevents managers from diverting cash flows, but reduces incentives for managerial effort. In...