34 research outputs found
Rational Attention Allocation over the Business Cycle
The literature assessing whether mutual fund managers have skill
typically regards skill as an immutable attribute of the manager or the
fund. Yet, many measures of skill, such as returns, alphas, and measures
of stock-picking and market-timing, appear to vary over the business
cycle. Because time-varying ability seems far-fetched, these results
call into question the existence of skill itself. This paper offers a
rational explanation, arguing that skill is a general cognitive ability
that can be applied to different tasks, such as picking stocks or market
timing. Using tools from the rational inattention literature, we show
that the relative value of these tasks varies cyclically. The model
generates indirect predictions for the dispersion and returns of fund
portfolios that distinguish this explanation from others and which are
supported by the data. In turn, these findings offer useful evidence to
support the notion of rational attention allocation
Rational Attention Allocation over the Business Cycle
The literature assessing whether mutual fund managers have skill
typically regards skill as an immutable attribute of the manager or the
fund. Yet, many measures of skill, such as returns, alphas, and measures
of stock-picking and market-timing, appear to vary over the business
cycle. Because time-varying ability seems far-fetched, these results
call into question the existence of skill itself. This paper offers a
rational explanation, arguing that skill is a general cognitive ability
that can be applied to different tasks, such as picking stocks or market
timing. Using tools from the rational inattention literature, we show
that the relative value of these tasks varies cyclically. The model
generates indirect predictions for the dispersion and returns of fund
portfolios that distinguish this explanation from others and which are
supported by the data. In turn, these findings offer useful evidence to
support the notion of rational attention allocation
The Central-Bank Balance Sheet as an Instrument of Monetary Policy
While many analyses of monetary policy consider only a target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between "quantitative easing" in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves; in our model, this requires that the interest rate on reserves be kept near the target for the policy rate at all times
Mandatory corporate carbon disclosures and the path to net zero
Despite widespread concern about global climate change, the overwhelming majority of publicly listed companies around the world still do not disclose their carbon emissions. Even fewer privately held companies do. Making carbon disclosures mandatory for both public and private companies is an elementary but essential step in the drive towards a net zero carbon economy. Firms should be required to report their annual direct greenhouse gas emissions, called Scope 1 emissions, as measured in CO2 equivalents, with possible deductions for high quality offsets. Going forward, firms should also be required to report the history of their annual carbon emissions. Such a disclosure mandate is simple, transparent, and readily implemented. It will aid policy makers and asset managers alike in managing the risks of carbon transition and accelerate the pace of future carbon emission reductions