Mutual Fund Flows and Performance in Rational Markets

We develop a simple rational model of active portfolio management that provides a natural benchmark against which to evaluate observed relationship between returns and fund flows. We show that many effects widely regarded as anomalous are consistent with this simple explanation. In the model, investments with active managers do not outperform passive benchmarks because of the competitive market for capital provision, combined with decreasing returns to scale in active portfolio management. Consequently, past performance cannot be used to predict future returns, or to infer the average skill level of active managers. The lack of persistence in active manager returns does not imply that differential ability across managers is nonexistent or unrewarded, that gathering information about performance is socially wasteful, or that chasing performance is pointless. A strong relationship between past performance and the ow of funds exists in our model, indeed this is the market mechanism that ensures that no predictability in performance exists. Calibrating the model to the fund flows and survivorship rates, we nd these features of the data are consistent with the vast majority (80%) of active managers having at least enough skill to make back their fees.

Human Capital, Bankruptcy and Capital Structure

We derive a firm's optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk, while equity holders can diversify this risk away. In the presence of corporate taxes, our model delivers optimal debt levels consistent with those observed in practice. It also makes a number of predictions for the cross-sectional distribution of firm leverage. Consistent with existing empirical evidence, it implies persistent idiosyncratic differences in leverage across firms. An important new empirical prediction of the model is that, ceteris paribus, firms with more leverage should pay higher wages.

Past trauma and future choices: Differences in discounting in low-income, urban African Americans

AbstractBackgroundExposure to traumatic events is surprisingly common, yet little is known about its effect on decision making beyond the fact that those with post-traumatic stress disorder are more likely to have substance-abuse problems. We examined the effects of exposure to severe trauma on decision making in low-income, urban African Americans, a group especially likely to have had such traumatic experiences.MethodParticipants completed three decision-making tasks that assessed the subjective value of delayed monetary rewards and payments and of probabilistic rewards. Trauma-exposed cases and controls were propensity-matched on demographic measures, treatment for psychological problems, and substance dependence.ResultsTrauma-exposed cases discounted the value of delayed rewards and delayed payments, but not probabilistic rewards, more steeply than controls. Surprisingly, given previous findings that suggested women are more affected by trauma when female and male participants’ data were analyzed separately, only the male cases showed steeper delay discounting. Compared with nonalcoholic males who were not exposed to trauma, both severe trauma and alcohol-dependence produced significantly steeper discounting of delayed rewards.ConclusionsThe current study shows that exposure to severe trauma selectively affects fundamental decision-making processes. Only males were affected, and effects were observed only on discounting delayed outcomes (i.e. intertemporal choice) and not on discounting probabilistic outcomes (i.e. risky choice). These findings are the first to show significant differences in the effects of trauma on men's and women's decision making, and the selectivity of these effects has potentially important implications for treatment and also provides clues as to underlying mechanisms.</jats:sec

CXCL7-Mediated Stimulation of Lymphangiogenic Factors VEGF-C, VEGF-D in Human Breast Cancer Cells

Increased expression of lymphangiogenesis factors VEGF-C/D and heparanase has been correlated with the invasion of cancer. Furthermore, chemokines may modify matrix to facilitate metastasis, and they are associated with VEGF-C and heparanase. The chemokine CXCL7 binds heparin and the G-protein-linked receptor CXCR2. We investigated the effect of CXCR2 blockade on the expression of VEGF-C/D, heparanase, and on invasion. CXCL7 siRNA and a specific antagonist of CXCR2 (SB225002) were used to treat CXCL7 stably transfected MCF10AT cells. Matrigel invasion assays were performed. VEGF-C/D expression and secretion were determined by real-time PCR and ELISA assay, and heparanase activity was quantified by ELISA. SB225002 blocked VEGF-C/D expression and secretion (P < .01). CXCL7 siRNA knockdown decreased heparanase (P < .01). Both SB225002 and CXCL7 siRNA reduced the Matrigel invasion (P < .01). The MAP kinase signaling pathway was not involved. The CXCL7/CXCR2 axis is important for cell invasion and the expression of VEGF-C/D and heparanase, all linked to invasion