Resolving Macroeconomic Uncertainty in Stock and Bond Markets

We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets. We measure macroeconomic uncertainty using prices of economic derivatives and relate this measure to changes in implied volatilities of stock and bond options when the economic data is released. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities following the news release. It is also associated with increased volume and decreased open interest in option markets after the release, consistent with market participants using financial options to hedge or speculate on macroeconomic news.

Need health care? Try Planned Parenthood
As the recession leaves more people without insurance, family planning clinics across the country have become, for many, the first option for general medical checkups.

Managerial Incentives and Corporate Fraud: The Sources of Incentives Matter

Operating performance and stock return results imply that managers who commit fraud anticipate large stock price declines if they were to report truthfully, which would cause greater losses for managerial stockholdings than for options because of differences in convexity. Fraud firms have significantly greater incentives from unrestricted stockholdings than control firms do, and unrestricted stockholdings are their largest incentive source. Our results emphasize the importance of the shape and vesting status of incentive payoffs in providing incentives to commit fraud. Fraud firms also have characteristics that suggest a lower likelihood of fraud detection, which implies lower expected costs of fraud.

The real unemployment rate? Try 15.6%
The official US jobless rate, now 8.5%, excludes millions of people — among them those who have given up on finding work and those forced into working fewer hours than they’d like.

Shareholder Rights, Boards, and CEO Compensation

I analyze the role of executive compensation in corporate governance. As proxies for corporate governance, I use board size, board independence, CEO-chair duality, institutional ownership concentration, CEO tenure, and an index of shareholder rights. The results from a broad cross-section of large U.S. public firms are inconsistent with recent claims that entrenched managers design their own compensation contracts. The interactions of the corporate governance mechanisms with total pay-for-performance and excess compensation can be explained by governance substitution. If a firm has generally weaker governance, the compensation contract helps better align the interests of shareholders and the CEO.

Editorial Statistics

Dow up 153 as hope trumps bad news
Weak news on home and auto sales and manufacturing is nonetheless better than expected and gives bulls a reason to buy. Banks may get a break on accounting rules. Thornburg Mortgage will file for bankruptcy protection. Is a Facebook IPO in the offing?

11 banks likely to bounce back first
Sure, they’ve been beaten up, but banks aren’t going away. How can investors spot the best buys? One tip: Look for regional banks, which probably will recover sooner.

US debt sets stage for inflation
Weakening the dollar will help us dig out from a mountain of debt, but it may also hasten an already wary world’s move away from the dollar as the currency of choice.

How GM and Ford protection plans stack up
The beleaguered automakers make unprecedented offers to stimulate sales of new cars, offering protection against job loss and the likelihood that the car will lose value faster than the buyer can pay the loan. We compare the plans.