Subscribe: Review of Financial Studies - Advance Access
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The Review of Financial Studies Advance Access

Published: Fri, 22 Sep 2017 00:00:00 GMT

Last Build Date: Fri, 22 Sep 2017 22:54:57 GMT


Robust Bond Risk Premia


A consensus has recently emerged that variables beyond the level, slope, and curvature of the yield curve can help predict bond returns. This paper shows that the statistical tests underlying this evidence are subject to serious small-sample distortions. We propose more robust tests, including a novel bootstrap procedure specifically designed to test the spanning hypothesis. We revisit the analysis in six published studies and find that the evidence against the spanning hypothesis is much weaker than it originally appeared. Our results pose a serious challenge to the prevailing consensus.

Why Does Fast Loan Growth Predict Poor Performance for Banks?


From 1973 to 2014, the common stock of U.S. banks with loan growth in the top quartile of banks over a three-year period significantly underperformed the common stock of banks with loan growth in the bottom quartile over the next three years. After the period of high growth, these banks have a lower return on assets and increase their loan loss reserves. The poorer performance of fast-growing banks is not explained by merger activity. The evidence is consistent with banks, analysts, and investors being overoptimistic about the risk of loans extended during bank-level periods of high loan growth.

Financial Frictions and the Stock Price Reaction to Monetary Policy


I show that the stock prices of firms subject to greater information frictions have a weaker reaction to monetary policy. The claim is robust to a broad set of proxies for financial constraints and information frictions. Moreover, I use the Enron accounting scandal and Arthur Andersen’s demise as a large exogenous shock, temporarily raising other Andersen clients’ information frictions and, thereby, their financial constraints. The scandal’s disclosure lowered Andersen’s clients’ stock price sensitivity to monetary policy to about half that of other firms.