What Is the Expected Return on a Stock?

We derive a formula for the expected return on a stock in terms of the risk‐neutral variance of the market and the stock's excess risk‐neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.     

Real Anomalies

We examine the importance of cross‐sectional asset pricing anomalies (alphas) for the real economy. To this end, we develop a novel quantitative model of the cross‐section of firms that features lumpy investment and informational inefficiencies, while yielding distributions in closed form. Our findings indicate that anomalies can cause material real inefficiencies, which raises the possibility that agents who help eliminate them add significant value to the economy. The model shows that the magnitude of alphas alone is a poor indicator of real outcomes, and highlights the importance of the alpha persistence, the amount of mispriced capital, and the Tobin's q of firms affected.     

The Dynamics of Capital Flow Episodes

We first propose a novel methodology for identifying episodes of strong equity and bond flows using estimates from a regime-switching model that keeps context- and sample-specific assumptions to a minimum. We then assess the impacts of U.S. stock market volatility (VIX) and U.S. monetary policy shocks on equity and bond flow episodes. Our results indicate that the impacts of both shocks differ across in- and outflow episodes and, based on an assessment of equity flows, vary considerably over time. While VIX shocks are mostly associated with asymmetric impacts across episodes, U.S. monetary policy shocks generate such asymmetries primarily over time.     

Reproducibility in Accounting Research: Views of the Research Community

We have little knowledge about the prevalence of irreproducibility in the accounting literature. To narrow this gap, we conducted a survey among the participants of the 2019 JAR Conference on their perceptions of the frequency, causes, and consequences of irreproducible research published in accounting journals. A majority of respondents believe that irreproducibility is common in the literature, constitutes a major problem, and receives too little attention. Most have encountered irreproducibility in the work of others (although not in their own work) but chose not to pursue their failed reproduction attempts to publication. Respondents believe irreproducibility results chiefly from career or publication incentives as well as from selective reporting of results. They also believe that practices like sharing code and data combined with stronger incentives to replicate the work of others would enhance reproducibility. The views of accounting researchers are remarkably similar to those expressed in a survey by the scientific journal Nature. We conclude by discussing the implications of our findings and provide several potential paths forward for the accounting research community.     

Is Historical Cost Accounting a Panacea? Market Stress,Incentive Distortions,and Gains Trading

Accounting rules, through their interactions with capital regulations, affect financial institutions’ trading behavior. The insurance industry provides a laboratory to explore these interactions: life insurers have greater flexibility than property and casualty insurers to hold speculative‐grade assets at historical cost, and the degree to which life insurers recognize market values differs across U.S. states. During the financial crisis, insurers facing a lesser degree of market value recognition are less likely to sell downgraded asset‐backed securities. To improve their capital positions, these insurers disproportionately resort to gains trading, selectively selling otherwise unrelated bonds with high unrealized gains, transmitting shocks across markets.     

The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research

This paper discusses the empirical literature on the economic consequences of disclosure and financial reporting regulation, drawing on U.S. and international evidence. Given the policy relevance of research on regulation, we highlight the challenges with (1) quantifying regulatory costs and benefits, (2) measuring disclosure and reporting outcomes, and (3) drawing causal inferences from regulatory studies. Next, we discuss empirical studies that link disclosure and reporting activities to firm‐specific and market‐wide economic outcomes. Understanding these links is important when evaluating regulation. We then synthesize the empirical evidence on the economic effects of disclosure regulation and reporting standards, including the evidence on International Financial Reporting Standards (IFRS) adoption. Several important conclusions emerge. We generally lack evidence on market‐wide effects and externalities from regulation, yet such evidence is central to the economic justification of regulation. Moreover, evidence on causal effects of disclosure and reporting regulation is still relatively rare. We also lack evidence on the real effects of such regulation. These limitations provide many research opportunities. We conclude with several specific suggestions for future research.     

Optimal Continuation versus the Timeless Perspective in Monetary Policy

The timeless‐perspective approach suggests that policymakers implement in each period policy actions conforming to a rule that would have been fully optimal to adopt in the distant past. A motivating advantage is that policy henceforth would continue by recommending the same optimality conditions if reconsidered, thereby enhancing credibility. We argue that continuation can alternatively be achieved with better results, on average, in terms of policymakers' objectives, by implementing in each period the time‐invariant policy that is optimal from the viewpoint of the contemporary understanding of objectives and constraints, but while ignoring the conditions that happen to prevail at the time.     

Real Wage Rigidities and the Cost of Disinflations

This paper analyzes the cost of disinflations under real wage rigidities in a micro-founded New Keynesian model. The conventional view is that real wage rigidities can be a useful mechanism to generate a slump in output after a credible disinflationary policy because they prevent the immediate adjustment of inflation. This view is flawed, since it depends on analyzing the model in a linearized framework. Once nonlinearities are taken into account, the results change both qualitatively and quantitatively. Disinflations actually lead to a permanently higher level of output, and real wage rigidities increase the output during the adjustment to the new steady state.     

Fiscal Policy and Occupational Employment Dynamics

We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the United States. Employment rises most strongly in service, sales, and office (“pink-collar”) occupations. By contrast, employment in blue-collar occupations is hardly affected by fiscal policy. We provide evidence that occupation-specific changes in labor demand are key for understanding these findings. We develop a business-cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation-specific within-industry employment shifts due to differences in the short-run substitutability between labor and capital services across occupations.     

Public Funding of Political Parties

This paper studies the typical European system for public funding of parties, where parties receive public funds depending on their vote share. These funds finance electoral campaigns. It is shown that such a funding system increases policy convergence. The effect is larger, the more funding depends on vote shares. If the parties have access to other means of campaign finance given in a lump‐sum way, the effect is moderated.