Active mutual fund managers care about fund size, which is affected by common fund flows driven by macroeconomic shocks. Fund managers hedge against common flow shocks by tilting their portfolios toward low-flow-beta stocks. In equilibrium, common flow shocks earn a risk premium. A multi-factor...

We show theoretically that variable production costs lower systematic risk of firms' cash flows if capital and variable inputs are complementary in firms’ production and input prices are sufficiently pro-cyclical. In our dynamic model, this operating hedge effect is weaker for more profitable...

Given a European derivative security with an arbitrary payoff function and a corresponding set of" underlying securities on which the derivative security is based, we solve the dynamic replication problem: find a" self-financing dynamic portfolio strategy involving only the underlying securities...

Active equity funds care about fund size, affected by fund flows that obey a strong factor structure with the common component responding to macroeconomic shocks. Funds hedge against common flows by tilting their portfolios toward low-flow-beta stocks, while household/retail and index investors...