We identify the tension created by the dual demands of financial institutions to be value-maximizing entities that also serve the public interest. We highlight the importance of information in addressing the public's desire for banks to be safe yet innovative. Regulators can choose several...

Recent academic work and policy analysis give insight into the governance problems exposed by the financial crisis and suggest possible solutions. We begin this paper by explaining why governance of banks differs from governance of nonfinancial firms. We then look at four areas of governance:...

A large fraction of the companies that went private between 1990 and 2007 were fairly young public firms, often with the same management team making the crucial restructuring decisions both at the time of the initial public offering (IPO) and the buyout. Why did these public firms decide to...

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels - of around 12 percent - not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

This paper considers the problem of information acquisition in an intermediated market, where the specialists have access to superior technology for acquiring information. These informational advantages of specialists relative to households lead to disagreement between the two groups, changing...

Option prices embed predictive content for the outcomes of pending mergers and acquisitions. This is particularly important in merger arbitrage, where deal failure is a key risk. In this paper, I propose a dynamic asset pricing model that exploits the joint information in target stock and option...

Standard factor pricing models do not capture well the common time-series or cross-sectional variation in average returns of financial stocks. We propose a five-factor asset pricing model that complements the standard Fama and French (1993) three-factor model with a financial sector ROE factor...

This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 31 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial...

Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in exchange for cash. We characterize the constrained efficient allocation as the solution to a planner's problem and show that the market equilibrium is constrained inefficient,...

This paper explores financial stability policies for the shadow banking system. I tie policy options to economic mechanisms for shadow banking that have been documented in the literature. I then illustrate the role of shadow bank policies using three examples: agency mortgage real estate...