At the moment, all of academic finance revolves around present-value logic. Every model starts this way. No one feels compelled to justify the choice. Researchers view the positive-NPV rule as the gold standard of financial decision-making. What … [Continue reading]
Why max EPS Persists: Ba (AER 2026) Interpretation
The question Researchers currently take it for granted that CEOs should maximize PV[Shareholder Payouts]. Suppose we agree. Under this premise, max EPS is the wrong objective. It's a misspecified model for how to run a firm. In work with Itzhak … [Continue reading]
Behavioral finance and corporate finance are both organized in the exact same way
Behavioral finance and corporate finance are both organized in the exact same way. Neither is based on a grand unified theory. Instead, both fields proceed by looking for deviations from a benchmark model. The behavioral-finance literature is a list … [Continue reading]
Asset-pricing models as theories of good synthetic controls
In 1988, California passed a major piece of tobacco-control legislation called Proposition 99. This bill increased the tax on cigarettes by \$0.25 a pack and triggered a wave of bans on smoking indoors throughout the state. After the bill was passed … [Continue reading]
Interpreting the LASSO as a *really* simple neural network
Suppose you want to forecast the return of a particular stock using many different predictors (think: past returns, market cap, asset growth, etc...). One way to do this would be to use the LASSO. Alternatively, you could use a neural network to make … [Continue reading]