What Drives Investors' Portfolio Choices? Separating Risk Preferences from Frictions
Pages: 5-48 | Published: 12/2025 | DOI: 10.1111/jofi.70013 | Cited by: 0
TAHA CHOUKHMANE, TIM DE SILVA
We study the role of risk preferences and frictions in portfolio choice using variation in 401(k) default options. Patterns of active choice in response to different default funds imply that, absent participation frictions, 94% of investors prefer holding stocks, with an equity share of retirement wealth declining with age—patterns markedly different from observed allocations. We use this quasi‐experiment to estimate a life‐cycle model and find a relative risk aversion of 2.5, elasticity of intertemporal substitution (EIS) of 0.25, and $160 portfolio adjustment cost. The results suggest that low levels of stock market participation in retirement accounts are due to participation frictions rather than nonstandard preferences such as loss aversion.
Paying Too Much? Borrower Sophistication and Overpayment in the U.S. Mortgage Market
Pages: 49-90 | Published: 12/2025 | DOI: 10.1111/jofi.70001 | Cited by: 0
NEIL BHUTTA, ANDREAS FUSTER, AUREL HIZMO
Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers' mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the U.S. mortgage market, limited borrower sophistication may provide lenders with market power.
Can Social Media Inform Corporate Decisions? Evidence from Merger Withdrawals
Pages: 91-142 | Published: 11/2025 | DOI: 10.1111/jofi.13508 | Cited by: 1
J. ANTHONY COOKSON, MARINA NIESSNER, CHRISTOPH SCHILLER
This paper studies whether social media sentiment predicts merger withdrawals. We find that a one‐standard‐deviation increase in social media sentiment after a merger announcement is associated with a 0.64 percentage point lower probability of withdrawal (16.6% of the average). This effect is unexplained by abnormal price reactions, traditional news, and analyst recommendations. Consistent with manager learning, the informativeness of social media strengthens after firms start corporate Twitter accounts. The informativeness is driven by longer acquisition‐related tweets by fundamental investors, rather than memes and price trend tweets. These findings suggest that social media signals can be important for corporate decisions.
Asset Pricing and Risk‐Sharing Implications of Alternative Pension Plan Systems
Pages: 143-188 | Published: 10/2025 | DOI: 10.1111/jofi.13507 | Cited by: 0
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.
Dynamic Trading with Realization Utility
Pages: 189-238 | Published: 2/2026 | DOI: 10.1111/jofi.13472 | Cited by: 0
MIN DAI, CONG QIN, NENG WANG
An investor receives utility bursts from realizing gains and losses at the individual stock level and dynamically allocates his mental budget between risky and risk‐free assets at the trading account level. Using savings, he reduces his stockholdings and is more willing to realize losses. Using leverage, he increases his stockholdings beyond his mental budget and is more reluctant to realize losses. While leverage strengthens the disposition effect, introducing leverage constraints mitigates it. Our model predicts that investors with stocks in deep losses sell them either immediately or after stocks rebound a little.
Adverse Selection in Corporate Loan Markets
Pages: 239-284 | Published: 12/2025 | DOI: 10.1111/jofi.70011 | Cited by: 1
MEHDI BEYHAGHI, CESARE FRACASSI, GREGORY WEITZNER
Theories of competition typically predict a positive relationship between market concentration and prices. However, in loan markets, adverse selection can reverse this relationship as riskier borrowers become more likely to receive funding. Using supervisory data, we show that interest rates, borrower risk, and lending volume are higher in markets with more banks. We also create a novel measure of markup that is orthogonal to borrower risk, and find that, consistent with adverse selection, markups are higher after repeated borrowing relationships. Finally, we use a shock to large banks' lending costs to provide further support for the adverse selection channel.
An Economic View of Corporate Social Impact
Pages: 285-328 | Published: 12/2025 | DOI: 10.1111/jofi.70004 | Cited by: 0
HUNT ALLCOTT, GIOVANNI MONTANARI, BORA OZALTUN, BRANDON TAN
Growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact, suggesting that consumer impacts deserve more attention from impact investors. Existing environmental, social, and governance (ESG) and social impact ratings are essentially unrelated to our economically grounded measures.
Pages: 329-369 | Published: 10/2025 | DOI: 10.1111/jofi.13506 | Cited by: 1
ELENA S. PIKULINA, DANIEL FERREIRA
We introduce the concept of
Losing Control? The Two‐Decade Decline in Loan Covenant Violations
Pages: 371-412 | Published: 12/2025 | DOI: 10.1111/jofi.70005 | Cited by: 0
THOMAS P. GRIFFIN, GREG NINI, DAVID C. SMITH
The annual proportion of U.S. public firms that reported a financial covenant violation fell roughly 70% between 1997 and 2019. To understand this trend, we develop an estimable model of covenant design that depends on the ability to differentiate between distressed and nondistressed borrowers and the relative costs associated with screening incorrectly. We find that the drop in violations is best explained by an increased willingness to forgo early detection of distressed borrowers in exchange for fewer inconsequential violations, which we attribute largely to a shift in the composition of public borrowers and partly to heightened investor sentiment during the 2010s.
Investment under Upstream and Downstream Uncertainty
Pages: 413-457 | Published: 12/2025 | DOI: 10.1111/jofi.70010 | Cited by: 0
FOTIS GRIGORIS, GILL SEGAL
The impact of uncertainty shocks on firm‐level economic activity depends on their origin in supply chains. Upstream (downstream) uncertainty from suppliers (customers) is associated with variability over future input (output) prices. Consequently, a real‐option production model with time‐to‐build suggests that only upstream uncertainty suppresses investment, since upstream (downstream) uncertainty affects the shorter (longer) run. Production network data show that upstream uncertainty negatively affects firm‐level outcomes. Conversely, downstream uncertainty affects firm‐level outcomes more weakly but positively. At the macro level, these two uncertainties oppositely predict aggregate growth and asset prices. Overall, downstream uncertainty has an expansionary effect, in contrast to other facets of uncertainty.
Going Public and the Internal Organization of the Firm
Pages: 459-505 | Published: 12/2025 | DOI: 10.1111/jofi.70012 | Cited by: 1
DANIEL BIAS, BENJAMIN LOCHNER, STEFAN OBERNBERGER, MERIH SEVILIR
This paper examines how initial public offerings (IPOs) affect firms' internal organization. We find that IPO firms become more hierarchical and standardized organizations, characterized by additional layers, more managers, smaller control spans, and larger administrative functions. These changes occur mostly in preparation for the IPO and can be only partially explained by growth. IPO firms with greater human capital risk experience larger hierarchical changes. Hierarchical changes help firms standardize employee roles and formalize internal processes. Our results suggest that firms reorganize to reduce their dependence on key individuals' human capital when transitioning to public markets.
Second Chance: Life with Less Student Debt
Pages: 507-550 | Published: 12/2025 | DOI: 10.1111/jofi.70002 | Cited by: 0
MARCO DI MAGGIO, ANKIT KALDA, VINCENT YAO
We exploit an episode of plausibly random debt discharge due to the loss of paperwork for thousands of defaulted borrowers to examine the effects of private student debt relief on borrower outcomes. We find that borrowers who receive debt relief (treated) experience declines in debt balances and delinquency rates on
Pages: 552-553 | Published: 2/2026 | DOI: 10.1111/jofi.13346 | Cited by: 0