Asset Pricing and Risk‐Sharing Implications of Alternative Pension Plan Systems
Version of Record online: 10/7/2025 | DOI: 10.1111/jofi.13507
NUNO COIMBRA, FRANCISCO GOMES, ALEXANDER MICHAELIDES, JIALU SHEN
We show that incorporating defined benefit pension funds in an incomplete markets asset pricing model improves its ability to match the historical equity premium and riskless rate and has important risk‐sharing implications. We document the importance of the pension fund's size and asset demands, and a new risk channel arising from fluctuations in the fund's returns. We use our calibrated model to study the implications of a shift to an economy with defined contribution plans. The new steady state is characterized by a higher riskless rate and a lower equity premium. Consumption volatility increases for retirees but decreases for workers.
Version of Record online: 10/7/2025 | DOI: 10.1111/jofi.13505
SIMCHA BARKAI, STAVROS PANAGEAS
Young firms' contribution to aggregate employment has been underwhelming. We show that a similar trend is not apparent, however, in their contribution to aggregate sales or stock market capitalization, implying that these firms have exhibited a high average‐to‐marginal revenue product of labor. We study the implications of a gradual shift in the average‐to‐marginal revenue product of labor within a model of dynamic firm heterogeneity. We show that this shift provides (i) a unified explanation for several aspects of the decline in dynamism and (ii) a possible explanation for why large declines in young‐firm employment may have only a moderate effect on aggregate output and consumption.
Version of Record online: 10/7/2025 | DOI: 10.1111/jofi.13497
MARK BORGSCHULTE, MARIUS GUENZEL, CANYAO LIU, ULRIKE MALMENDIER
We assess the long‐term effects of managerial stress on aging and mortality. Using a difference‐in‐differences design, we apply neural network–based machine‐learning techniques to CEOs' facial images and show that exposure to industry distress shocks during the Great Recession produces visible signs of aging. We estimate a one‐year increase in “apparent” age. Moreover, using data on CEOs since the mid‐1970s, we estimate a 1.1‐year decrease in life expectancy after an industry distress shock, but a two‐year increase when antitakeover laws insulate CEOs from market discipline. The estimated health costs are significant, both in absolute terms and relative to other health risks.
The Stock Market and Bank Risk‐Taking
Version of Record online: 10/6/2025 | DOI: 10.1111/jofi.13502
ANTONIO FALATO, DAVID SCHARFSTEIN
Using confidential supervisory risk ratings, we document that banks increase risk after going public compared to a control group of banks that filed to go public but withdrew their filings for plausibly exogenous reasons. The increase in risk improves short‐term performance at the expense of long‐term performance. We argue that the increase in risk stems from pressure to maximize short‐term stock prices and earnings once the bank is publicly traded. After going public, banks owned by investors that place greater value on short‐term performance increase risk more, and those managed by CEOs with more short‐term compensation also increase risk more.
Going for Broke: Bank Reputation and the Performance of Opaque Securities
Version of Record online: 10/6/2025 | DOI: 10.1111/jofi.13503
ABE DE JONG, TIM KOOIJMANS, PETER KOUDIJS
Can banks’ reputational concerns improve the quality of opaque, off‐balance sheet securities, such as mortgage‐backed securities? We study this question in a uniquely parsimonious setting. In the 1760s, Dutch banking partnerships securitized West‐Indian plantation mortgages that were risky and opaque. High‐reputation banks originated better mortgages and issued securities that, on average, retained 17.5% more of their value during a market collapse. Reputational effects are attenuated when the managing partners were married into wealth or received a large share of profits in the short term, suggesting that bank reputation only works if bankers are personally exposed to (long‐run) reputational losses.
Version of Record online: 10/6/2025 | DOI: 10.1111/jofi.13506
ELENA S. PIKULINA, DANIEL FERREIRA
We introduce the concept of subtle discrimination—biased acts that cannot be objectively ascertained as discriminatory. When candidates compete for promotions by investing in skills, firms' subtle biases induce discriminated candidates to overinvest when promotions are low‐stakes (to distinguish themselves from favored candidates) but underinvest in high‐stakes settings (anticipating low promotion probabilities). This asymmetry implies that subtle discrimination raises profits in low‐productivity firms but lowers them in high‐productivity firms. Although subtle biases are small, they generate large gaps in skills and promotion outcomes. We derive further predictions in contexts such as equity analysis, lending, fund flows, banking careers, and entrepreneurial finance.
ESG News, Future Cash Flows, and Firm Value
Version of Record online: 9/30/2025 | DOI: 10.1111/jofi.13498
FRANÇOIS DERRIEN, PHILIPP KRÜGER, AUGUSTIN LANDIER, TIANHAO YAO
We investigate the expected consequences of negative environmental, social, and governance (ESG) news on firms' future profits. After learning about negative ESG news, analysts significantly downgrade their forecasts at short and longer horizons. Negative ESG news affects forecasts more strongly at longer horizons than other types of negative corporate news. The negative revisions of earnings forecasts following negative ESG news largely reflect expectations of lower future sales, rather than higher future costs. Quantitatively, forecast revisions can explain most of the negative impacts of ESG news on firm value. Analysts are correct to revise forecasts downward following negative ESG news.
Anomalies and Their Short‐Sale Costs
Version of Record online: 9/30/2025 | DOI: 10.1111/jofi.13501
DMITRIY MURAVYEV, NEIL D. PEARSON, JOSHUA M. POLLET
Short‐sale costs eliminate the abnormal returns on asset pricing anomaly portfolios. While many anomalies persist out‐of‐sample before accounting for short‐sale costs, they cannot be exploited with long‐short strategies due to stock borrow fees. Using a comprehensive sample of 162 anomalies, the average long‐short portfolio return is a significant 0.14% per month before short‐sale costs, and the returns are due to the short leg. However, the average is −0.01% once returns are adjusted for borrow fees. Moreover, anomalies are not profitable even before fees if the high‐fee observations, representing 12% of stock dates, are excluded from the analysis.
Long‐Horizon Exchange Rate Expectations
Version of Record online: 9/29/2025 | DOI: 10.1111/jofi.13504
LUKAS KREMENS, IAN W. R. MARTIN, LILIANA VARELA
We study exchange rate expectations in surveys of financial professionals and find that they successfully forecast currency appreciation at the two‐year horizon, both in and out of sample. Exchange rate expectations are also interpretable, in the sense that three macro‐finance variables—the risk‐neutral covariance between the exchange rate and equity market, the real exchange rate, and the current account relative to GDP—explain most of their variation. There is no “secret sauce,” however, in expectations: After controlling for the three macro‐finance variables, the residual information in survey expectations does not forecast currency appreciation in our sample.
Version of Record online: 9/29/2025 | DOI: 10.1111/jofi.13499
GIANPAOLO PARISE, MIRCO RUBIN
This paper establishes that mutual funds strategically time their trades in environmental, social, and governance (ESG) stocks around disclosure dates to inflate their sustainability ratings. This claim is supported by three empirical findings. First, we show that funds' ESG betas increase shortly before disclosure and decrease shortly afterwards. Second, we document that post‐disclosure fund returns are higher but have lower ESG exposure than disclosed portfolios. Third, we provide evidence that ESG stock prices temporarily rise before disclosure and decline afterwards. Overall, we establish that green window dressing positively impacts fund sustainability ratings, performance, and flows.
War Discourse and the Cross Section of Expected Stock Returns
Version of Record online: 9//2025 | DOI: 10.1111/jofi.13482
DAVID HIRSHLEIFER, DAT MAI, KUNTARA PUKTHUANTHONG
Version of Record online: 8/27/2025 | DOI: 10.1111/jofi.13486
DANIEL L. GREENWALD, JOHN KRAINER, PASCAL PAUL
Aggregate U.S. bank lending to firms expanded following the outbreak of COVID‐19. Using loan‐level supervisory data, we show that this expansion was driven by draws on credit lines by large firms. Banks that experienced larger credit line drawdowns restricted term lending more, crowding out credit to smaller firms, which reacted by reducing investment. A structural model calibrated to match our empirical results shows that while credit lines increase total bank credit in bad times, they redistribute credit from firms with high propensities to invest to firms with low propensities to invest, exacerbating the decrease in aggregate investment.
The Propagation of Cyberattacks through the Financial System: Evidence from an Actual Event
Version of Record online: 8/27/2025 | DOI: 10.1111/jofi.13475
ANTONIS KOTIDIS, STACEY L. SCHREFT
This article quantifies the effects of a multiday cyberattack that forced offline a technology service provider (TSP) to the banking sector. The attack impaired customers’ ability to send payments through the TSP, but the business continuity plans of banks and the TSP reduced the effect by more than half. Large banks performed better. Through contagion, banks not directly exposed to the attack experienced a liquidity shortfall, causing them to borrow funds or tap reserves. The ability to send payments after hours helped avoid further contagion. These results highlight the importance of preparedness by the private and official sector for cyberattacks.
Pockets of Predictability: A Replication
Version of Record online: 8/25/2025 | DOI: 10.1111/jofi.13484
NUSRET CAKICI, CHRISTIAN FIEBERG, TOBIAS NEUMAIER, THORSTEN PODDIG, ADAM ZAREMBA
Farmer, Schmidt, and Timmermann (FST) document time‐variation in market return predictability, identifying “pockets” of significant predictability through kernel regressions. However, our analysis reveals a critical discrepancy between the method outlined by FST and the code actually implemented. Instead of using a one‐sided kernel, which guarantees out‐of‐sample forecasts, they perform in‐sample estimation with a two‐sided kernel. As a result, future information leaks into the forecasting model, undermining its reliability. Rectifying this error qualitatively alters the findings, invalidating most conclusions of the FST study. Thus, attempts to exploit such “pockets”—should they exist—offer little help in forecasting market returns.
Impediments to the Schumpeterian Process in the Replacement of Large Firms
Version of Record online: 8/20/2025 | DOI: 10.1111/jofi.13481
MARA FACCIO, JOHN J. MCCONNELL