This paper examines how productivity changes affect real rates of return and price/earnings ratios in a small open economy. The model provides conditions under which increased productivity in a country’s traded goods sector causes prices of non-traded goods to increase relative to the...

We develop a model of a firm owned by shareholders and administered by managers who may be either honest or dishonest. When managers have an informational advantage but shareholders retain control, dishonest managers can make false reports that distort investment and thereby reduce firm cash...

This paper attempts to shed light on the continuing debate regarding executive compensation by comparing the income of S&P 500 CEOs with that of the Presidents of elite private universities. The results reveal that university presidents are paid only a fraction of what CEOs are paid –...

We present a model in which some of the firm’s information (“newâ€) can be disclosed verifiably and some information (“typeâ€) cannot, to show that some firms may voluntarily withhold good news and disclose bad news. We describe an equilibrium in which high-type firms...

We solve a model with two “Lucas trees.†Each tree has i.i.d. dividend growth. The investor has log utility and consumes the sum of the two trees’ dividends. This model produces interesting asset-pricing dynamics, despite its simple ingredients. Investors want to rebalance their...

I examine whether the discount of diversified firms can actually be attributed to diversification itself, using recent econometric developments about causal inference. The value effect of diversification is unbiasedly estimated by matching diversified and specialized firms on the propensity...

This paper explicitly solves a dynamic portfolio choice problem in which an investor allocates his wealth between a riskless and a risky asset. The solution shows that insights gained from studying static portfolio choice problems do not necessarily carry over to dynamic choice settings. For...

Data from the Taiwan Stock Exchange identify the originator of each submitted order, and there are no designated dealers or specialists. We study marketable order imbalances, i.e., the net order flow resulting from trades that demand immediacy. We distinguish imbalances by trader type...