This paper analyzes how combining firms into either groups or conglomerates affects their credit standing, as measured by their de- fault probabilities, recovery rates and credit spreads. Each combina- tion offers protection against default to its affiliates, and issues debt to optimize the...

Household portfolios include risky bonds, beyond stocks, and respond to permanent labour income shocks. This paper brings these features into a life-cycle setting, and shows that optimal stock investment is constant or increasing in age before retirement for realistic parameter combinations. The...

This paper examines the ex-post performance of optimal portfolios with predictable returns, when the investor horizon ranges from one month to ten years. Due to the investor's ability to anticipate shifts from bull to bear markets, predictability involves the risk premium, volatility and...

Recent research [e.g., DeMiguel, Garlappi and Uppal, (2009a), Rev. Fin. Studies] has cast doubts on the out-of-sample performance of optimizing portfolio strategies relative to a naive, equally-weighted ones. However, most of the existing results concern the simple case in which an investor has...

Do equity markets help diversifying away industry-related labor income risk? This paper reconsiders the hedging role of stock markets by focusing on international equity diversification, rather than domestic asset allocation, and on industry wage, rather than individual labor income. We test for...

This paper develops a theory of corporate ownership and leverage of multi- ple firms under a tax-bankruptcy trade-off, allowing for internal bailouts. It then questions whether tax policy contributes to the default of the resulting complex or- ganization. Absent other taxes and non-financial...

This paper explores the relationship between optimal leverage and credit risk under ownership links. It develops a structural model of a parent and a subsidiary, which issues debt in its own name under a guarantee by the parent. We find that zero leverage can be optimal for the guarantor, while...

This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders....

This paper characterizes optimal intercorporate guarantees, under the classical trade-off between bankruptcy costs and taxation. Conditional guarantees, allowing the guarantor - or Holding company - to maintain limited liability vis-a-vis the beneficiary - or Subsidiary - maximize joint value....