When experience and a noisy signal shape expectation formation across cohorts in a constrained rational fashion, a binding short-sale constraint interplays with beliefs to drive investors out of the stock market. Given beliefs, nonparticipation can be optimal for extended periods or lead to...

What are the implications of disagreement about environmental, social, and governance (ESG) ratings for portfolio choice? Constructing an optimal portfolio for each ESG rating agency by minimizing tracking error while satisfying a portfolio-level ESG constraint, we found that ESG rating...

Consistent with the agency cost rational, this paper documents that managers having larger private benefits of control purchase more insurance to reduce their own exposure to the probability of left-tail outcomes and hence the volatility of the firm's cash flows. Private benefits of control are...

This research addresses whether geographic diversification provides benefits over industry diversification in a sample of European country and industry indexes. The methodology allows performance comparisons with short-selling constraints, upper and lower bounds, and many benchmarks. In the...

We analyze the interlinkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin’s q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home...

We study the consumption-portfolio problem with realized capital gain taxation. The distinguishing feature of our analysis is that we impose on the model an important element of the tax code that has received little attention in the academic literature: the limited use of capital losses....

This research addresses whether geographic diversification provides benefits over industry diversification. In the absence of constraints, no empirical evidence is found to support the argument that country diversification is superior. With short-selling constraints, however, the geographic...

We investigate whether corporate finance incentives aect the extent of corporate hedging with property insurance. Using a database that contains detailed insurance information, we show that rms buy property insurance to reduce the expected costs of distress. Further, we document a scale effect:...