We develop a new class of tree-based models (P-Tree) for analyzing (unbalanced) panel data utilizing global (instead of local) split criteria that incorporate economic guidance to guard against overfitting while preserving interpretability. We grow a P-Tree top-down to split the cross section of...

We survey the nascent literature on machine learning in the study of financial markets. We highlight the best examples of what this line of research has to offer and recommend promising directions for future research. This survey is designed for both financial economists interested in grasping...

We study sources and implications of undiversified portfolios in a production-based asset pricing model with financial frictions. Households take concentrated positions in a single firm exposed to idiosyncratic shocks because managerial effort requires equity stakes, and because investors gain...

We introduce a novel empirical decomposition of equity price growth rates in terms of equity holdings, based on market-clearing conditions. Although our sample holdings cover only an average of 5% of market capitalization, our reconstructed equity holdings account for, on average, 89% of the...

We document that value-to-price, the ratio of Residual-Income-Model-based valuation to market price, subsumes the power of book-to-market ratio and many other value or quality measures in predicting stock returns. Long-short value-to-price portfolios hedge against momentum, revitalize the...

We define risk transfer as the percent change in the market risk exposure for a group of investors over a given period. We estimate risk transfer using novel data on U.S. investors' portfolio holdings, flows, and returns at the security level with comprehensive coverage across asset classes and...

We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic, and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in...

We derive the effect of plausible deniability on asset risk premia in a dynamic setting with correlated firm values, systematic risk, and risk-averse investors. Firms optimally exercise American disclosure options, which are more valuable due to the possibility that other correlated firms may...

How should long-term investors form portfolios in our time-varying, multifactor and friction-filled world? Two conceptual frameworks may help: looking directly at the stream of payments that a portfolio and payout policy can produce, and including a general equilibrium view of the markets'...

We generalize the seminal Gibbons-Ross-Shanken test to the empirically relevant case where the number of test assets far exceeds the number of observations. In such a setting, one needs to use a regularized estimator of the covariance matrix of test assets, which leads to biases in the original...