Financial distress and the cross section of equity returns,”

Abstract In this paper, we provide a new perspective for understanding cross-sectional properties of equity returns. We explicitly introduce financial leverage in a simple equity valuation model and consider the likelihood of a firm defaulting on its debt obligations as well as potential deviations from the absolute priority rule (APR) upon the resolution of financial distress. We show that financial leverage amplifies the magnitude of the book-to-market effect and hence provide an explanation for the empirical evidence that value premia are larger among firms with a higher likelihood of financial distress. By further allowing for APR violations, our model generates two novel predictions about the cross section of equity returns: (i) the value premium (computed as the difference between expected returns on mature and growth firms), is humpshaped with respect to default probability, and (ii) firms with a higher likelihood of deviation from the APR upon financial distress generate stronger momentum profits. Both predictions are confirmed in our empirical tests. These results emphasize the unique role of financial distressand the nonlinear relationship between equity risk and firm characteristics-in understanding cross-sectional properties of equity returns. JEL Classification Codes: G12, G14, G3

Re-localization of Cellular Protein SRp20 during Poliovirus Infection: Bridging a Viral IRES to the Host Cell Translation Apparatus

Poliovirus IRES-mediated translation requires the functions of certain canonical as well as non-canonical factors for the recruitment of ribosomes to the viral RNA. The interaction of cellular proteins PCBP2 and SRp20 in extracts from poliovirus-infected cells has been previously described, and these two proteins were shown to function synergistically in viral translation. To further define the mechanism of ribosome recruitment for the initiation of poliovirus IRES-dependent translation, we focused on the role of the interaction between cellular proteins PCBP2 and SRp20. Work described here demonstrates that SRp20 dramatically re-localizes from the nucleus to the cytoplasm of poliovirus-infected neuroblastoma cells during the course of infection. Importantly, SRp20 partially co-localizes with PCBP2 in the cytoplasm of infected cells, corroborating our previous in vitro interaction data. In addition, the data presented implicate the presence of these two proteins in viral translation initiation complexes. We show that in extracts from poliovirus-infected cells, SRp20 is associated with PCBP2 bound to poliovirus RNA, indicating that this interaction occurs on the viral RNA. Finally, we generated a mutated version of SRp20 lacking the RNA recognition motif (SRp20ΔRRM) and found that this protein is localized similar to the full length SRp20, and also partially co-localizes with PCBP2 during poliovirus infection. Expression of this mutated version of SRp20 results in a ∼100 fold decrease in virus yield for poliovirus when compared to expression of wild type SRp20, possibly via a dominant negative effect. Taken together, these results are consistent with a model in which SRp20 interacts with PCBP2 bound to the viral RNA, and this interaction functions to recruit ribosomes to the viral RNA in a direct or indirect manner, with the participation of additional protein-protein or protein-RNA interactions

Episodic liquidity crises: cooperative and predatory trading,”

ABSTRACT We describe how episodic illiquidity arises from a breakdown in cooperation between market participants. We first solve a one-period trading game in continuous-time, using an asset pricing equation that accounts for the price impact of trading. Then, in a multi-period framework, we describe an equilibrium in which traders cooperate most of the time through repeated interaction and provide 'apparent liquidity' to each other. Cooperation breaks down when the stakes are high, leading to predatory trading and episodic illiquidity. Equilibrium strategies involving cooperation across markets lead to less frequent episodic illiquidity, but cause contagion when cooperation breaks down. * Bruce Ian Carlin, Miguel Sousa Lobo, and S. Viswanathan are from the Fuqua School of Business at Duke University. The authors would like to than