We develop a model of asset trading with financial leverage in an economy with a continuum of investors. The investors are assumed to have diverse and rational beliefs in the sense of being compatible with observed data. We show that a reduction in the margin requirement may cause the stock...

We explore how mutual fund investors collectively value sustainability when the tradeoff with performance becomes salient. Following the introduction of Morningstar’s sustainability ratings (the “globe” ratings), mutual funds increased their holdings of sustainable stocks in an attempt to...

We develop a test for deciding whether the linear spaces spanned by the factor exposures of a large cross-section of assets toward latent systematic risk factors at two distinct points in time are the same. The test uses a panel of asset returns in local windows around the two time points. The...

In this paper, we study the asymptotic behavior of specification tests in conditional moment restriction models under first-order local identification failure with dependent data. More specifically, we obtain conditions under which the conventional specification test for conditional moment...

We use the term structure of bank CD rates to examine whether maturity-transformation risk is priced into the rates banks offer customers. We find that depositors pay a significant cost for the liquidity provided by bank deposits. This cost is strongly related to the amount of...

This paper examines the impact of transition and physical climate risk on stock markets using, for the first time in this context, the annual CCPI index calculated by Germanwatch as well as its components (in addition to a wide range of other indices) for 48 countries from 2007 to 2023....

This study provides new evidence on the impact of climate physical risk (as measured by the Global Climate Risk Index (CRI) from Germanwatch) on stock market returns. Specifically, a panel model with fixed effects is estimated using annual data from 2007 to 2021 for a set of 65 countries as well...

This study examines whether application of IFRS by non-US firms results in accounting amounts comparable to those resulting from application of US GAAP by US firms. IFRS firms have greater accounting system and value relevance comparability with US firms when IFRS firms apply IFRS than when they...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...

Starting from the Merton framework for firm defaults we provide the analytics and robustness of the relationship between default probabilities and default correlations. We then derive the implication of these results for the impact of macroeconomic shocks on credit portfolios, for the pricing of...