In this paper, we develop a new model for government cost-benefit analysis in the presence of risk. In our model, a benevolent government chooses the scale of a risky project in the presence of two key frictions. First, there are market failures, which cause the government to perceive project...

This paper is an empirical examination of capital allocation in a sample of 165 diversified" conglomerates in 1979. I find that divisions in high-Q manufacturing industries tend to invest" less than their stand-alone industry peers, while divisions in low-Q manufacturing industries tend" to...

We present a framework for analyzing "model persuasion." Persuaders influence receivers' beliefs by proposing models (likelihood functions) that specify how to organize past data (e.g., on investment performance) to make predictions (e.g., about future returns). Receivers are assumed to find...

We propose a novel measure of risk perceptions: the price of volatile stocks (PVS_t), defined as the book-to-market ratio of low-volatility stocks minus the book-to-market ratio of high-volatility stocks. PVS_t is high when perceived risk directly measured from surveys and option prices is low....

We develop three novel measures of how much of the price impact of their trading different mutual funds internalize. We show that mutual funds that internalize more of their price impact hold larger cash buffers and use these buffers more aggressively to accommodate inflows and outflows. As a...

We develop a model in which specialized bond investors must absorb shocks to the supply and demand for long-term bonds in two currencies. Since long-term bonds and foreign exchange are both exposed to unexpected movements in short-term interest rates, a shift in the supply of long-term bonds in...