Publications

Stock momentum, long-term reversal, and other past return characteristics that predict future returns also predict future realized betas, suggesting these characteristics capture time-varying risk compensation. We formalize this argument with a conditional factor pricing model. Using instrumented principal components analysis, we estimate latent fac- tors with time-varying factor loadings that depend on observable firm characteristics. We show that factor loadings vary significantly over time, even at short horizons over which the momentum phenomenon operates (one year), and this variation captures reliable con- ditional risk premia missed by other factor models commonly used in the literature. Our estimates of conditional risk exposure can explain a sizable fraction of momentum and long-term reversal returns and can be used to generate even stronger return predictions.

Value stocks sharply underperformed growth stocks from 2017 to 2020, exacerbating a lon- ger period of lackluster performance that dates back to the Global Financial Crisis for some value factors. Some have blamed the interest rate environment—the low level of interest rates, falling bond yields, or the flattening yield curve. The authors examine these claims. Theory suggests the link between value and interest rates is ambiguous and complicated. Empirically, the authors find fairly modest links that change for different specifications. Evidence of a mild relationship between interest rate variables and value’s performance is found for some specifications but not others. Despite eye-catching patterns during a few episodes in recent years, related to changes in bond yields or the yield curve slope, the economic significance of any relationship is small and not robust in other samples. The authors conclude that the performance of value is not easily assessed based on the interest rate environment and that factor timing strategies based on interest rate–related signals are likely to perform poorly.

Based on a survey of AFA members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls more for women and faculty with young children. Independently, and novel, extra time spent teaching (much more likely for women) negatively affects research productivity. Also novel, concerns about feedback, isolation, and health have large negative research effects, which disproportionately affect junior faculty and PhD students. Finally, faculty who express greater concerns about employers’ finances report larger negative research effects and more concerns about feedback, isolation, and health.

We study when pure bundling, i.e., offering only the grand bundle of all products, is optimal for a multi-product monopolist. Pure bundling is optimal if consumers with higher values for the grand bundle have higher relative values for smaller bundles compared to the grand bundle. Conversely, pure bundling is not optimal if consumers with higher values for the grand bundle have lower relative values. We prove the results by decomposing the problem into simpler ones in which types can be ranked according to their values for the grand bundle.

Young workers' early years in the labor market are a key and formative time. Using data from 31 countries, this article documents the selection of labor market entrants into large firms, which existing literature associates with propitious environments for young workers. The young and inexperienced are underrepresented at large firms compared to experienced and older workers. Entrants who do get their first job at large firms are positively selected in terms of education and cognitive skills. The patterns of large-firm selection (i.e., importance of education vs. skills) somewhat differ between Europe, East and Southeast Asia, and North America.

Many studies report that audit fees are discounted in the year of an auditor change and regulators have long been concerned that such fee discounting could impair audit quality. We find significant bias in the way studies have tested for fee discounting. The bias exists because interim procedures are usually performed by both the predecessor and successor auditors but only the successor's fee needs to be disclosed. Accordingly, the disclosed fee during the auditor change year usually relates to a partial year of auditing services. We find that the evidence for fee discounting disappears after correcting for this measurement bias.