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Our paper reexamines whether 29 variables from 26 papers published after Goyal and Welch 2008 , as well as the original 17 variables, were useful in predicting the equity premium in-sample and out-of-sample as of the end of 2021. Our samples include the original periods in which these variables were identified, but end later. More than one-third of these new variables no longer have empirical significance even in-sample. Of those that do, half have poor out-of-sample performance. A small number of variables still perform reasonably well both in-sample and out-of-sample. [ABSTRACT FROM AUTHOR]

Social learning is the updating of beliefs based on observation of others. Such observation can lead to efficient aggregation of information, but also to inaccurate decisions, fragility of mass behaviors, and, in the case of information cascades, to complete blockage of learning. We review the theory of information cascades and social learning and discuss important themes, insights, and applications of this literature as it has developed over the last 30 years. We also highlight open questions and promising directions for further theoretical and empirical exploration. (JEL D71, D82, D83, D91, Z13) [ABSTRACT FROM AUTHOR]

We analyze incentive-efficient government bailouts within a canonical model of intra-firm moral hazard. Bailouts exacerbate the moral hazard of firms and managers in two ways. First, they make them less averse to failing. Second, the taxes to fund bailouts dampen their incentives. Nevertheless, if third-party externalities from keeping the firm alive are strong, bailouts can improve welfare. Our model suggests that governments should use bailouts sparingly, where social externalities are large and subsidies small; eliminate incumbent owners and managers to improve a priori incentives; and finance bailouts through redistributive taxes on productive firms instead of forcing recipients to repay in the future.

Our paper o�ers a minimalist model of a run on a financial market. The prime ingredient is that each risk-neutral investor fears having to liquidate after a run, but before prices can recover back to fundamental values. During the run, only the risk-averse market-making sector is willing to absorb shares. To avoid having to possibly liquidate shares at the marginal post-run price—in which case the market-making sector will already hold a lot of share inventory and thus be more reluctant to absorb additional shares—all investors may prefer selling their shares into the market today at the average run price, thereby causing the run itself. Consequently, stock prices are low and risk is allocated ineciently. Liquidity runs and crises are not caused by liquidity shocks per se, but by the fear of future liquidity shocks.

We study the most important legislative and shareholder boycott to date, the boycott of South Africa's apartheid regime, and find that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the publicity of the boycott and the multitude of divesting companies, political pressure had little visible effect on the financial markets.

Seasoned equity issuers can raise reported earnings by altering discretionary accounting accruals. We find that issuers who adjust discretionary current accruals to report higher net income prior to the offering have lower post-issue long-run abnormal stock returns and net income. Interestingly, the relation between discretionary current accruals and future returns (adjusted for firm size and book-to-market ratio) is stronger and more persistent for seasoned equity issuers than for non-issuers. The evidence is consistent with investors naively extrapolating pre-issue earnings without fully adjusting for the potential manipulation of reported earnings.

This discussion piece argues that situations in which there are two similarly strong contestants (Symmetry) are often marked by long and expensive struggles for advantage and power. In contrast, an arrangement in which only one party gets access to all/most resources (Asymmetry) can minimize the cost/incidence of such struggles. For example, in their heydays, the Roman, Soviet, Habsburg, and Osman empires effectively reduced arms-races and armed conflict among their ethnic constituents. The Pax Romana was a powerful argument in favor of one-group dominance. The costliness of power struggles is determined both endogenous and exdogenously. For example, while minorities can spend resources to arm themselves, their ability to fight depends also on such factors as terrain, the effectiveness of available weapons, and their role as offender or defendor. I would argue that the Bosnian conflict was so costly precisely because the Bosnian terrain largely neutralized the arms advantage of the Serb faction. However, one should not take too narrow a view, because there are also forces making asymmetry more costly. Achieving or maintaining dominance (especially against forces/struggles from within-possibly among symmetrically similarly powerful lobbyists) can be expensive and distort incentives. Further, if dominance permits genocide, it may indeed occur. The potential exploitation of the loser may crystallize the opposition-indeed, there is a common notion that “oppression” and violations of “fairness” can lead to strong efforts by the weaker party. If the audience is to come away with any insights from this piece (and few of the arguments are really new), it is simply that helping a weaker party in the interest of “fairness” as the U.S. has done in the case of many of its interventions, can potentially escalate and prolong conflicts to the point where no intervention, or even intervention on the part of the stronger party’s side, would have been better for all parties involved.

This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals (“entrepreneurs”) convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals’ private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals.

Firms with lower leverage are not only less likely to experience financial distress but are also better positioned to acquire assets from other distressed firms. With endogenous asset sales and values, each firm's debt choice then depends on the choices of its industry peers. With indivisible assets, otherwise-identical firms may adopt different debt policies, with some choosing highly levered operations (to take advantage of ongoing debt benefits) and others choosing more conservative policies to wait for acquisition opportunities. Our key empirical implication is that the acquisition channel can induce firms to reduce debt when assets become more redeployable. [ABSTRACT FROM AUTHOR]

U.S. corporations do not issue and repurchase debt and equity to counteract the mechanistic effects of stock returns on their debt-equity ratios. Thus over one- to five-year horizons, stock returns can explain about 40 percent of debt ratio dynamics. Although corporate net issuing activity is lively and although it can explain 60 percent of debt ratio dynamics (long-term debt issuing activity being most capital structure-relevant), corporate issuing motives remain largely a mystery. When stock returns are accounted for, many other proxies used in the literature play a much lesser role in explaining capital structure.