We examine investment behavior when firms face costs in the access to external funds. We find that despite the existence of liquidity constraints, standard investment regressions predict that cash flow is an important determinant of investment only if one ignores q. Conversely, we also obtain significant cash flow effects even in the absence of financial frictions. These findings provide support to the argument that the success of cash-flow-augmented investment regressions is probably due to a combination of measurement error in q and identification problems.

We construct a dynamic general equilibrium production economy to explicitly link expected stock returns to firm characteristics such as firm size and the book-to-market ratio. Stock returns in the model are completely characterized by a conditional capital asset pricing model (CAPM). Size and book-to-market are correlated with the true conditional market beta and therefore appear to predict stock returns. The cross-sectional relations between firm characteristics and returns can subsist even after one controls for typical empirical estimates of beta. These findings suggest that the empirical success of size and book-to-market can be consistent with a single-factor conditional CAPM model.We gratefully acknowledge the helpful comments of

Abstract:We use localization to evaluate the functional integral of string field theory on AdS 2 × S 2 background corresponding to the near horizon geometry of supersymmetric black holes in 4d compactifications with N = 2 supersymmetry. In particular, for a theory containing n v + 1 vector multiplets, we show that the functional integral localizes exactly onto an ordinary integral over a finite-dimensional submanifold in the field space labeling a continuous family of instanton solutions in which auxiliary fields in the vector multiplets are excited with nontrivial dependence on AdS 2 coordinates. These localizing solutions are universal in that they follow from the off-shell supersymmetry transformations and do not depend on the choice of the action. They are parametrized by n v + 1 real parameters {C I ; I = 0, . . . , n v } that correspond to the values of the auxiliary fields at the center of AdS 2 . In the Type-IIA frame, assuming D-terms evaluate to zero on the solutions for reasons of supersymmetry, the classical part of the integrand equals the absolute square of the partition function of the topological string as conjectured by Ooguri, Strominger, and Vafa; however evaluated at the off-shell values of scalar fields at the center of AdS 2 . In addition, there are contributions from one-loop determinants, brane-instantons, and nonperturbative orbifolds that are in principle computable. These results thus provide a concrete method to compute exact quantum entropy of these black holes including all perturbative and nonperturbative corrections and can be used to establish a precise relation between the quantum degeneracies of black holes and the topological string.