Intangible capital and the investment-q relation

The neoclassical theory of investment has mainly been tested with physical investment, but we show that it also helps explain intangible investment. At the firm level, Tobin’s q explains physical and intangible investment roughly equally well, and it explains total investment even better. Compared with physical capital, intangible capital adjusts more slowly to changes in investment opportunities. The classic q theory performs better in firms and years with more intangible capital: Total and even physical investment are better explained by Tobin’s q and are less sensitive to cash flow. At the macro level, Tobin’s q explains intangible investment many times better than physical investment. We propose a simple, new Tobin’s q proxy that accounts for intangible capital, and we show that it is a superior proxy for both physical and intangible investment opportunities

Scale and Skill in Active Management

We empirically analyze the nature of returns to scale in active mutual fund management. We find strong evidence of decreasing returns at the industry level. As the size of the active mutual fund industry increases, a fund׳s ability to outperform passive benchmarks declines. At the fund level, all methods considered indicate decreasing returns, though estimates that avoid econometric biases are insignificant. We also find that the active management industry has become more skilled over time. This upward trend in skill coincides with industry growth, which precludes the skill improvement from boosting fund performance. Finally, we find that performance deteriorates over a typical fund׳s lifetime. This result can also be explained by industry-level decreasing returns to scale

Do Funds Make More When They Trade More?

We model fund turnover in the presence of time-varying profit opportunities. Our model predicts a positive relation between an active fund\u27s turnover and its subsequent benchmark-adjusted return. We find such a relation for equity mutual funds. This time-series relation between turnover and performance is stronger than the cross-sectional relation, as the model predicts. Also as predicted, the turnover-performance relation is stronger for funds trading less-liquid stocks and funds likely to possess greater skill. Turnover is correlated across funds. The common component of turnover is positively correlated with proxies for stock mispricing. Turnover of similar funds helps predict a fund\u27s performance

Dynamic debt runs and financial fragility: Evidence from the 2007 ABCP crisis

We use the 2007 asset-backed commercial paper (ABCP) crisis as a laboratory to study the determinants of debt runs. Our model features dilution risk: maturing short-term lenders demand higher yields in compensation for being diluted by future lenders, making runs more likely. The model explains the observed tenfold increase in yield spreads leading to runs and the positive relation between yield spreads and future runs. Results from structural estimation show that runs are very sensitive to leverage, asset values, and asset liquidity, but less sensitive to the degree of maturity mismatch, the strength of guarantees, and asset volatility

Warm Molecular Gas in Dwarf Starburst Galaxies: CO(3-2) Observations

Eight dwarf starburst galaxies have been observed with the Caltech Submillimeter Observatory (CSO) telescope in the CO J= 3 - 2 transition. The galaxies observed are He 2-10, NGC 5253, NGC 1569, NGC 3077, Haro 2, Haro 3, II Zw 40 and Mrk 86; all but the last two are detected. The central regions of He 2-10 and NGC 5253 were mapped and a CO(2-1) spectrum of NGC 5253 was obtained. The error weighted mean CO(3-2)/CO(1-0) ratio of the detected galaxies is 0.60$\pm$0.06, which is virtually identical to what is found for starbursts in the nuclei of nearby spirals, and suggests that the molecular gas is optically thick, warm (T$_{k}>$20 K), and moderately dense ($n_{H_{2}}\sim 10^{3-4} cm^{-3}$). The CO(3-2)/CO(1-0) ratio peaks at or close to the starburst in all cases. CO emission does not appear to be optically thin in these dwarfs, despite the low metallicity and intense radiation fields, which is probably because in order for CO to exist in detectable amounts it must be self-shielding and hence optically thick. Physical properties of the molecular clouds in these dwarf starbursts appear to be essentially the same as nearby spiral nuclei, with the possible exception that CO is more confined to the cloud cores.Comment: 21 pages, 8 figures; Accepted for publication by the Astronomical Journa