Investment Cycles and Sovereign Debt Overhang

We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk-averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy, and investment is distorted by more in recessions than in booms, amplifying the effect of shocks. The government's lack of commitment induces a negative correlation between investment and the stock of government debt, a "debt overhang" effect. Debt relief is never Pareto improving and cannot affect the long-run level of investment. Furthermore, restricting the government to a balanced budget can eliminate the cyclical distortion of investment.     

Implied Equity Duration: A Measure of Pandemic Shutdown Risk

Implied equity duration was originally developed to analyze the sensitivity of equity prices to discount rate changes. We demonstrate that implied equity duration is also useful for analyzing the sensitivity of equity prices to pandemic shutdowns. Pandemic shutdowns primarily impact short‐term cash flows, thus they have a greater impact on low‐duration equities. We show that implied equity duration has a strong positive relation to U.S. equity returns and analyst forecast revisions during the onset of the 2020 COVID‐19 shutdown. Our analysis also demonstrates that the underperformance of “value” stocks during this period is a rational response to their lower durations.     

Duration and Fisher's Rate of Return over Cost

This paper seeks to explain why the net present value profiles of investment projects may intersect with changes in the interest rate. Previous explanations have pointed to differences in the timing of the projects' cash flows. However, the timing of a project's cash flows has not been defined in the literature and the relative timing of projects' cash flows typically is illustrated by a simplistic example. We make use of the projects' durations to specify timing differences and provide a more explicit analysis of the role of timing differences in the intersection of present value profiles of projects.     

Informational Efficiency and Information Subsets

This paper proposes a new definition of the Efficient Markets Hypothesis with respect to information, which is more formal and precise than those of Rubinstein 13 , Fama 4 , Jensen 6 , and Beaver 1 , and which fits well as a framework for interpreting the many tests of the Efficient Markets Hypothesis in the literature. Security markets are here considered “efficient with respect to information set ?” if and only if revealing ? to all agents would change neither equilibrium prices nor portfolios. In addition to other desirable features, this definition has the “subset property”: efficiency with respect to ? implies efficiency with respect to any subset of ?.     

Insider Trading,Ownership Structure,and the Market Assessment of Corporate Sell-Offs

This paper finds that the generally favorable assessment of corporate sell-off decisions is most apparent for closely held firms where insider net-buy activity is prevalent during the prior six-month period. This suggests that insider trader activity and ownership structure information are used by the market in the characterization of sell-off decisions as favorable or unfavorable for investors.