Tyler Muir: Winner of the 2025 Fischer Black Prize
Pages: 2443-2446 | Published: 9/2025 | DOI: 10.1111/jofi.13487 | Cited by: 0
ARVIND KRISHNAMURTHY
Forest through the Trees: Building Cross‐Sections of Stock Returns
Pages: 2447-2506 | Published: 9/2025 | DOI: 10.1111/jofi.13477 | Cited by: 2
SVETLANA BRYZGALOVA, MARKUS PELGER, JASON ZHU
We build cross‐sections of asset returns for a given set of characteristics, that is, managed portfolios serving as test assets, as well as building blocks for tradable risk factors. We use decision trees to endogenously group similar stocks together by selecting optimal portfolio splits to span the stochastic discount factor, projected on individual stocks. Our portfolios are interpretable and well diversified, reflecting many characteristics and their interactions. Compared to combinations of dozens (even hundreds) of single/double sorts, as well as machine‐learning prediction‐based portfolios, our cross‐sections are low‐dimensional yet have up to three times higher out‐of‐sample Sharpe ratios and alphas.
The “Actual Retail Price” of Equity Trades
Pages: 2507-2541 | Published: 7/2025 | DOI: 10.1111/jofi.13467 | Cited by: 1
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.
Pages: 2543-2590 | Published: 8/2025 | DOI: 10.1111/jofi.13469 | Cited by: 0
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.
Arbitrage Capital of Global Banks
Pages: 2591-2638 | Published: 8/2025 | DOI: 10.1111/jofi.13478 | Cited by: 2
ALYSSA ANDERSON, WENXIN DU, BERND SCHLUSCHE
We study the impact of the U.S. money market fund reform implemented in October 2016 on global banks' funding supply and business activities. We show that the reform induced a large negative wholesale funding shock for global banks. In contrast to the conventional bank lending channel, the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision. We discuss the role of postcrisis liquidity regulations and unconventional monetary policy in explaining our findings, and implications for banks' business models and deposit competition.
Persuading Investors: A Video‐Based Study
Pages: 2639-2688 | Published: 8/2025 | DOI: 10.1111/jofi.13471 | Cited by: 1
ALLEN HU, SONG MA
Persuasive communication functions through not only content but also delivery—facial expression, tone of voice, and diction. This paper examines the persuasiveness of delivery in startup pitches. Using machine learning algorithms to process full pitch videos, we quantify persuasion in visual, vocal, and verbal dimensions. We find that positive (i.e., passionate, warm) pitches increase funding probability. However, conditional on funding, startups with higher levels of pitch positivity underperform. Women are more heavily judged on delivery when evaluated in single‐gender teams, but they are neglected when copitching in mixed‐gender teams. Using an experiment, we show that persuasion delivery works mainly through leading investors to form inaccurate beliefs.
Does Saving Cause Borrowing? Implications for the Coholding Puzzle
Pages: 2689-2738 | Published: 7/2025 | DOI: 10.1111/jofi.13466 | Cited by: 0
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.
Household Portfolios and Retirement Saving over the Life Cycle
Pages: 2739-2787 | Published: 8/2025 | DOI: 10.1111/jofi.13473 | Cited by: 1
JONATHAN A. PARKER, ANTOINETTE SCHOAR, ALLISON COLE, DUNCAN SIMESTER
Using account‐level data on millions of U.S. middle‐class investors over 2006 to 2018, we characterize the share of investable wealth that they hold in the stock market over their working lives. Relative to the 1990s, this share has both risen by 10% and become age‐dependent. The Pension Protection Act (PPA)—which allowed target date funds (TDFs) to be default options in retirement plans—played an important role: younger (older) workers starting at a firm after TDFs became the default option post‐PPA invested more (less) in stocks, in line with the TDF glidepath. In contrast, contribution rates changed little following the PPA.
Pages: 2789-2830 | Published: 8/2025 | DOI: 10.1111/jofi.13474 | Cited by: 0
SEBASTIEN BETERMIER, LAURENT E. CALVET, SAMULI KNÜPFER, JENS SOERLIE KVAERNER
This paper develops an empirical methodology for extracting pricing factors from investor portfolio data. We apply this approach to the stockholdings of Norwegian individual investors from 1997 to 2017. A two‐factor model, featuring the market portfolio and a long‐short portfolio constructed from the holdings of investors sorted by age or wealth, explains both the common variation in portfolio holdings and the cross section of stock returns. Portfolio tilts toward the long‐short investor factor correlate with indebtedness, macroeconomic exposure, gender, and investment experience. Our paper illustrates the benefits of using holdings data for explaining the risk premia of financial assets.
Over‐the‐Counter Markets for Nonstandardized Assets
Pages: 2831-2873 | Published: 8/2025 | DOI: 10.1111/jofi.13483 | Cited by: 0
YOSHIO NOZAWA, ANTON TSOY
We study a search and bargaining model of over‐the‐counter markets for nonstandardized assets of heterogeneous quality. Once matched, investors privately learn their values positively correlated with asset quality. Bargaining results in delay that is hump‐shaped in quality and U‐shaped in asset turnover. We document these patterns in commercial real estate and corporate bonds markets. Extreme qualities are little affected by changes in asset standardization, while intermediate qualities are more susceptible. For nonstandardized assets, opacity ensures active trading of all assets, which explains why their trading is decentralized and suggests that trade centralization should come with greater standardization.
Pages: 2875-2920 | Published: 8/2025 | DOI: 10.1111/jofi.13476 | Cited by: 0
CLÁUDIA CUSTÓDIO, DIOGO MENDES, DANIEL METZGER
We study the impact of an MBA‐style executive education course in finance on corporate policies and firm performance targeting top managers of medium and large Mozambican enterprises. Using a randomized controlled trial, we find that the educational treatment induces changes in financial policies that improve firm performance. Specifically, a reduction in working capital (0.4 to 0.5 standard deviations) increases cash flow, and in turn long‐term investments. This effect operates primarily through a reduction in accounts receivable (0.4 to 1 standard deviations). Our findings show that targeted educational interventions can build managerial capital and enhance corporate performance by improving financial decision making among executives.
Too Much, Too Soon, for Too Long: The Dynamics of Competitive Executive Compensation
Pages: 2921-2970 | Published: 7/2025 | DOI: 10.1111/jofi.13470 | Cited by: 0
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.
Thirty Years of Change: The Evolution of Classified Boards
Pages: 2971-3020 | Published: 8/2025 | DOI: 10.1111/jofi.13485 | Cited by: 0
SCOTT GUERNSEY, FENG GUO, TINGTING LIU, MATTHEW SERFLING
Based on a comprehensive data set of classified (staggered) boards covering nearly all U.S. public firms from 1991 to 2020, we show that contrary to conventional wisdom, the use of classified boards remains widespread. Moreover, classified board usage over a firm's life cycle depends significantly on the decade the firm matured or year it went public. While classified boards were rarely removed in the 1990s, firms became more likely to declassify as they matured during the following decades. Decreased collective action costs and increased innovation‐related investments, institutional ownership, and scrutiny of governance contributed to this more dynamic adjustment.
Baby Booms and Asset Booms: Demographic Change and the Housing Market
Pages: 3021-3056 | Published: 8/2025 | DOI: 10.1111/jofi.13480 | Cited by: 0
MARC FRANCKE, MATTHIJS KOREVAAR
Based on centuries of data, we demonstrate that demographics have been a major, predictable driver of house prices. High birth rates 25 to 29 (60 to 64) years ago predict declining (rising) rent‐price ratios today. This pattern arises from age‐concentrated entry into and exit from homeownership affecting house prices, rather than changes in housing consumption that could also impact rents. We provide evidence for possible mechanisms: slow responses of other market participants to shifts in homeownership demand, and geographic segmentation between rental and owner‐occupied markets. Evidence for age‐dependent demand effects on yields of bonds and stocks is significantly weaker.
Superstar Returns? Spatial Heterogeneity in Returns to Housing
Pages: 3057-3094 | Published: 8/2025 | DOI: 10.1111/jofi.13479 | Cited by: 0
FRANCISCO AMARAL, MARTIN DOHMEN, SEBASTIAN KOHL, MORITZ SCHULARICK
This paper makes the first comprehensive attempt to study within‐country heterogeneity of housing returns. We introduce a new city‐level data set covering 15 OECD countries over 150 years and show that national housing markets are characterized by systematic spatial variation in housing returns. Total returns in large agglomerations are close to 100 basis points lower per year than in other parts of the same country. Excess returns outside the large cities can be rationalized as compensation for higher risk, especially higher covariance with income growth and lower liquidity. Real estate in diversified large agglomerations is comparatively safe.
Pages: 3096-3097 | Published: 9/2025 | DOI: 10.1111/jofi.13490 | Cited by: 0