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The recent financial crisis highlights the importance of market crashes and the subsequent market illiquidity for optimal portfolio selection. We propose a tractable and flexible portfolio choice model where market crashes can trigger switching into another regime with a different investment opportunity set. We characterize the optimal trading strategy in terms of coupled integro-differential equations and develop a quite general iterative numerical solution procedure. We conduct an extensive analysis of the optimal trading strategy. In contrast to standard portfolio choice models, changes in the investment opportunity set in one regime can affect the optimal trading strategy in another regime even in the absence of transaction costs. In addition, an increase in the expected jump size can increase stock investment even when the expected return remains the same and the volatility increases. Moreover, we show that misestimating the correlation between market crashes and market illiquidity can be costly to investors. This paper was accepted by Wei Xiong, finance.

This article examines the relationship between workers ability to work at home, as captured in job characteristics measured by the Occupational Information Network, and the actual incidence of working at home, as measured by the American Time Use Survey and the National Longitudinal Survey of Youth 1979. For occupations in which telework is feasible, the article also estimates the proportion of workers who actually teleworked for a substantial amount of time prior to the coronavirus disease 2019 (COVID-19) pandemic. The article concludes by examining recent (April 2020) employment estimates from the Current Population Survey, aiming to gauge how the initial employment effects of the pandemic differed between occupations in which telework is feasible and occupations in which it is not.

This paper examines employment patterns by wage group over the course of the coronavirus pandemic in the United States using microdata from two well-known data sources from the U.S. Bureau of Labor Statistics: the Current Employment Statistics and the Current Population Survey. We find establishments paying the lowest average wages and the lowest wage workers had the steepest decline in employment and experienced the most persistent losses. We disentangle the extent to which the effect observed for low wage workers is due to these workers being concentrated within a few low wage sectors of the economy versus the pandemic affecting low wage workers in a number of sectors across the economy. Our results indicate that the experience of low wage workers is not entirely due to these workers being concentrated in low wage sectors — for many sectors, the lowest wage quintiles in that sector also has had the worst employment outcomes. From April 2020 to May 2021, between 23% and 46% of the decline in employment among the lowest wage establishments was due to within-industry changes. Another important finding is that even for those who remain employed during the pandemic, the probability of becoming part-time for economic reasons increased, especially for low-wage workers.

Standard literature concludes that transaction costs only have a second-order effect on liquidity premia. We show that this conclusion depends crucially on the assumption of a constant investment opportunity set. In a regime-switching model in which the investment opportunity set varies over time, we explicitly characterize the optimal consumption and investment strategy. In contrast to the standard literature, we find that transaction costs can have a first-order effect on liquidity premia. However, with reasonably calibrated parameters, the presence of transaction costs still cannot fully explain the equity premium puzzle.

This article examines the labor market impacts of establishment shutdowns implemented in response to coronavirus disease 2019 (COVID-19). The analysis focuses on sectors directly exposed to the shutdowns and uses data from the Quarterly Census of Employment and Wages and Occupational Employment Statistics programs of the U.S. Bureau of Labor Statistics.

We examine the optimal trading strategy for a CRRA investor who maximizes the expected utility of wealth on a finite date and faces transaction costs. Closed-form solutions are obtained when this date is uncertain. We then show a sequence of analytical solutions converge to the solution to the problem with a deterministic finite horizon. Consistent with the common life-cycle investment advice, the optimal trading strategy is found to be horizon dependent and largely buy and hold. Moreover, it might be optimal for the investor in our model not to buy any stock, even when the risk premium is positive. Further analysis of the optimal policy is also provided.

The Black-Scholes-Merton option valuation method involves deriving and solving a partial differential equation (PDE). But this method can generate multiple values for an option. We provide new solutions for the Cox-Ingersoll-Ross (CIR) term structure model, the constant elasticity of variance (CEV) model, and the Heston stochastic volatility model. Multiple solutions reflect asset pricing bubbles, dominated investments, and (possibly infeasible) arbitrages. We provide conditions to rule out bubbles on underlying prices. If they are not satisfied, put-call parity might not hold, American calls have no optimal exercise policy, and lookback calls have infinite value. We clarify a longstanding conjecture of Cox, Ingersoll, and Ross.

This article considers the status of workers in the \"new economy,\" defined as the sharing economy (e.g., Uber, Lyft) and the on-demand economy. The latter refers to the extensive and growing use of staffing companies by established businesses in many different industries to provide all or a portion of their workforce. Workers in both the sharing economy and the on-demand economy are, generally speaking, at a disadvantage in comparison to traditional employees. Uber drivers, for example, are typically considered independent contractors, not employees, and therefore are not covered under federal and state laws that protect or provide benefits to employees. Similarly, employees of a staffing company may consider themselves employees of the client company and, therefore, entitled to negotiate collectively with the client company and receive the same benefits as the client company's employees, yet the client company may take the position that it is not the employer or even a \"joint employer\" of such workers. Courts considering the claims of these workers typically look to the common-law definition of \"employee,\" as legislatures have typically neglected to define \"employee\" when drafting laws to protect employees. The resulting litigation has generated judicial decisions that are difficult to parse and often treat workers unfairly. This article takes a fresh approach to this problem, considering the shortcomings of the common-law definition and suggesting solutions.

Benefit corporations are a new form of business entity that is rapidly being adopted around the country. Though the legislation varies from jurisdiction to jurisdiction, most statutes are based on a model proposed and promoted by B Lab, itself a nonprofit corporation. The essence of these statutes is that, in making business judgments, the directors of a benefit corporation must consider the impact of their decisions on the environment and society. The model legislation, though, may create serious governance issues for the directors of benefit corporations that operate under these laws. This article analyzes the model legislation and identifies its weaknesses, particularly with respect to governance issues.

[This corrects the article DOI: 10.1007/s10888-021-09506-6.].