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AN NBER PUBLICATION ISSUE: No. 5, May 2013

The Digest

A free monthly publication featuring non-technical summaries of research on topics of broad public interest
Stocks with the greatest information asymmetry have annualized returns that are 10.8 percentage points higher than stocks with the least information asymmetry. In Informed Trading and Expected Returns (NBER Working Paper No. 18680), co-authors James Choi, Li Jin, and Hongjun Yan use daily institutional ownership data from the Shanghai Stock Exchange to examine whether information asymmetry affects expected stock returns. They argue that focusing on China is useful...

Research Summaries

Article
While relative automobile prices do move substantially in response to gasoline prices, they do not move as much as one might expect. U.S. consumers spent $286 billion on gasoline in 2007, which suggests that the potential savings from buying more fuel-efficient vehicles is easily in the billions of dollars. In justifying regulations such as Corporate Average Fuel Economy standards, some U.S. policymakers argue that consumers do not fully consider these potential...
Article
American mathematicians ... 'reallocated themselves in idea space' in response to an influx of Soviet mathematicians to the United States. Workers may not only move physically from one job to another or one geographic area to another, they may also move in the more abstract space of ideas. In Cognitive Mobility: Labor Market Responses to Supply Shocks in the Space of Ideas (NBER Working Paper No. 18614), authors George Borjas and Kirk Doran focus on American...
Article
Many low-income high achievers never think of applying to selective schools. In The Missing "One-Offs": The Hidden Supply of High-Achieving, Low Income Students (NBER Working Paper No. 18586), Caroline Hoxby and Christopher Avery study every student in the high school graduating class of 2008 who scored at the 90th percentile or above on the SAT or ACT and whose high school GPA was A- or above. They show that despite the fact that these high-achievers are well...
Article
Adherence to the Community Reinvestment Act led to riskier lending by banks. The Community Reinvestment Act of 1977 (CRA) instructs federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of the communities in which they are chartered, while also conforming to "safe and sound" lending standards. To enforce the statute, federal regulatory agencies periodically examine banking institutions for CRA compliance. In Did...
Article
Higher-than-normal disagreement is linked to a positive risk premium. When Wall Street traders disagree about the prospects for an asset, do investors who buy that asset receive a risk premium? In Disagreement and Asset Prices (NBER Working Paper No. 18619), authors Bruce Carlin, Francis Longstaff, and Kyle Matoba suggest that they do. Specifically, they show that market disagreement is associated with higher expected returns, higher return volatility, and more...

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