This paper examines the impact of short-sale constraints on the magnitude of international diversification benefit for U.S. investors during the period of 1976—1998. The diversification benefit is measured as the increase in expected return when switching from the U.S. equity index portfolio...

The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, "shadow banks" are particularly important institutions. Shadow banks are financial intermediaries...

This paper explores the advantages of a new financial charter for large, complex, internationally active financial institutions that would address the corporate governance challenges of such organizations, including incentive problems in risk decisions and the complicated corporate and...

This paper studies the connection between risk taking and executive compensation in financial institutions. A theoretical model of shareholders, debtholders, depositors, and an executive suggests that 1) in principle, excessive risk taking (in the form of risk shifting) may be addressed by...

The financial crisis provides a natural experiment for testing theoretical predictions of the equity underwriter's role following an initial public offering. Clients of Bear Stearns, Lehman Brothers, Merrill Lynch, and Wachovia saw their stock prices fall almost 5 percent, on average, on the day...

This paper develops a model of financial institutions that borrow short-term and invest in long-term marketable assets. Because these financial intermediaries perform maturity transformation, they may be vulnerable to runs. We endogenize the profits of an intermediary and derive distinct...

This paper examines how much capital banks should optimally hold. Our model encompasses different kinds of moral hazard studied in banking: asset substitution (or risk shifting, e.g., making risky, negative net present value loans), managerial rent seeking (e.g., shirking or investing in...

This paper examines the effects of constraints in a Tiebout framework applied to school finance reforms. We use data from Michigan, which enacted a comprehensive school finance reform in 1994 that, in effect, ended local discretion over school spending. This scenario affords us a unique...

Most mortgages in the United States are securitized through the agency mortgage-backed-securities (MBS) market. These securities are generally traded on a “to-be-announced,” or TBA, basis. This trading convention significantly improves agency MBS liquidity, leading to lower borrowing costs...

Charter schools have been one of the most important dimensions of recent school reform measures in the United States. Currently, there are more than 4,500 charter schools spread across forty U.S. states and the District of Columbia. Though there have been numerous studies on the effects of...