Version of Record online: 8/4/2025 | DOI: 10.1111/jofi.13469
EMIL N. SIRIWARDANE, ADI SUNDERAM, JONATHAN WALLEN
We use arbitrage activity in equity, fixed income, and foreign exchange markets to characterize the frictions and constraints facing intermediaries. The average pairwise correlation between the 32 arbitrage spreads that we study is 22%. These low correlations are inconsistent with canonical intermediary asset pricing models. We show that at least two types of segmentation drive arbitrage dynamics. First, funding is segmented—certain trades rely on specific funding sources, making their arbitrage spreads sensitive to localized funding shocks. Second, balance sheets are segmented—intermediaries specialize in certain trades, so arbitrage spreads are sensitive to idiosyncratic balance‐sheet shocks.
Too Much, Too Soon, for Too Long: The Dynamics of Competitive Executive Compensation
Version of Record online: 7/30/2025 | DOI: 10.1111/jofi.13470
GILLES CHEMLA, ALEJANDRO RIVERA, LIYAN SHI
We examine executive compensation in a general equilibrium model with dynamic moral hazard, where executives' outside options are endogenously determined by equilibrium market compensation. Firms provide incentives through compensation packages featuring deferred payments as “carrots” and termination as “sticks.” Crucially, the effectiveness of termination as an incentive device is undermined by the outside options available to executives. As individual firms fail to internalize the effect of their compensation design on these endogenous outside options, the equilibrium is generally inefficient. Compared to shareholder‐value‐maximizing compensation packages, executives are paid too much, too soon, and keep their jobs for too long.
The “Actual Retail Price” of Equity Trades
Version of Record online: 7/25/2025 | DOI: 10.1111/jofi.13467
CHRISTOPHER SCHWARZ, BRAD BARBER, XING HUANG, PHILIPPE JORION, TERRANCE ODEAN
We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account‐level round‐trip cost ranges from 0.07% to 0.46%, excluding any commissions. The dispersion is due to off‐exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF does not explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.
Does Saving Cause Borrowing? Implications for the Coholding Puzzle
Version of Record online: 7/2/2025 | DOI: 10.1111/jofi.13466
PAOLINA C. MEDINA, MICHAELA PAGEL
Using an experiment in which 3.1 million bank customers were encouraged to save, we explore the mechanisms behind coholding liquid savings and credit card debt. Theoretically, we show that the joint responses of spending, saving, and borrowing to the nudge differ across economic models of coholding. Using machine learning techniques, we find that the most responsive individuals reduce spending and increase savings by 4.9% (206 USD PPP per month) while their credit card debt remains unchanged. These individuals' marginal responses to the nudge are consistent with our model of coholding for the purpose of self‐ or partner‐control.