Abstract: I construct firm-quarter measures of perceived risk and ambiguity from management sentences in earnings calls to test predictions from existing theories. Risk captures explicit uncertainty around a retained forecast, whereas ambiguity captures statements that uncertainty prevents management from forming or providing one. The measures are positively correlated but distinct, with most variation within firms and little linear association with existing uncertainty proxies. Both predict lower investment and equity valuations. Risk’s negative investment correlation strengthens when assets are harder to redeploy, consistent with greater incentives to wait when investment is costly to reverse. Ambiguity shows no such pattern. Ambiguity predicts fewer repurchases and more dividend decreases than risk, contrary to predictions of higher distributions. Risk predicts a higher implied cost of capital, while ambiguity’s correlation falls from positive to negative as net liquidity rises. This decline is consistent with greater compensation for ambiguity among firms with fewer liquid resources. These findings suggest that how managers describe their ability to forecast is an economically meaningful dimension of uncertainty.

Abstract: Geopolitical risk reaches firms through multiple channels, so its economic significance depends not only on how salient it is but also on its interrelation with other risks. Using over three million risk factor disclosures from 10-K filings from 2010 to 2024, we develop network-based measures of geopolitical risk. These measures capture how closely a firm’s risk disclosure resembles the average geopolitical risk profile, how closely it is connected to other risk topics, and whether it is linked to highly central risk topics. These geopolitical risk connections vary substantially across industries, although environmental and cybersecurity risks remain strongly interrelated with geopolitical risk across industries. We show that firms' risk network structure moderates the association between geopolitical risk and future investment and valuation. The negative association between geopolitical risk and future investment is stronger when geopolitical risk is linked to highly central risks; the negative association between geopolitical risk and future valuation is stronger when geopolitical risk is more closely connected to other risks. Furthermore, following Russia’s invasion of Ukraine, Russia-exposed firms’ risk networks change differentially relative to other firms. Firms whose pre-war disclosures placed geopolitical risk closer to other risk topics were more likely to report subsequent war-attributed asset impairments, particularly when their disclosures linked geopolitical risk to natural resource production and macroeconomic risks. Using network and textual analysis on risk disclosures, we make relationships across corporate risks observable at scale and show how these relationships help explain differences in firms’ vulnerability to geopolitical shocks.

Abstract: We propose a new method to separately quantify investor disagreement and subjective uncertainty at the firm level using equity analyst forecasts. Our approach exploits variation in how much forecast dispersion falls after the arrival of a signal that most agents use and interpret in the same way. Intuitively, for a given level of disagreement in point forecasts, a larger decrease in dispersion after the signal indicates greater subjective uncertainty in agents' prior beliefs. Using these measures, we document differences in the economic roles of disagreement and uncertainty. In the cross-section, stocks with higher disagreement earn lower subsequent returns and exhibit higher trading volume. Both effects are attenuated when uncertainty is high. In contrast, higher uncertainty is associated with higher expected returns and lower trading volume. Stock return volatility is strongly related to disagreement but only weakly related to uncertainty. We extend the extrapolative bubbles framework to show that the model's predictions closely match our empirical findings and provide intuition for the observed relationships. Finally, firm characteristics are more closely linked to disagreement than to uncertainty: smaller, less profitable, and more R&D-intensive firms exhibit systematically higher levels of disagreement.

Abstract: Modern economics assumes that firms have always used disciplined investment rules based on the cost of capital. However, these rules were only developed in the 1960s and diffused into practice slowly. We study their adoption using a text-based proxy from the annual reports of large U.S. firms. A quarter of firms had adopted by 1990. The rules were taught relatively intensely at Chicago GSB and firms employing Chicago-educated executives adopted sooner. After adoption, firms had higher market valuations (relative to book assets), higher returns on invested capital, and lower capital stocks in the subsequent years, because previous accounting-based rules had led to value-destroying overinvestment. The findings can explain the failure of standard models in explaining pre-1990 investment and highlight the importance of firms’ investment rules.

Abstract: Using the universe of account-level transactions in KOSPI 200 index options from 2010 to 2014—then one of the world’s largest option markets—we examine how retail demand shapes option prices and investor performance. Retail investors buy to open over 80% of their positions, calls and puts alike, whereas institutional opening trades are balanced between buys and sells. The buying tendency is a highly persistent retail investor trait: reforms that raised the cost of buying reshaped participation but barely moved this tilt, consistent with leverage demand rather than directional views or capital constraints. Options with greater retail net demand have higher implied volatility and larger variance risk premia. Following a 2011 reform that sharply reduced retail participation, implied volatility fell 5–7% where retail demand had concentrated. Buy-opened positions lose on average for retail and institutions alike, reflecting the side taken rather than timing or contract choice. Because retail investors overwhelmingly buy while institutions supply most opening sales, 76% of retail accounts lose money over their observed option-trading histories, whereas more than 60% of institutional accounts profit. The findings reveal a hidden cost of leverage: collective demand raises the price of the convex exposure retail investors seek.

Abstract: I show that dispersion among equity analysts' forecasts increases following earnings announcements. I provide evidence that this is due to information selection: analysts rely on different subsets of public information revealed in earnings announcements when revising their forecasts in a high-dimensional setting. Using text data from analysts' reports, I show that analysts cite different information when they revise their forecasts following earnings announcements, providing evidence of information selection. Results from elastic net regressions corroborate these findings but further imply the existence of a common benchmark to which analysts can compare their forecasts. The existence of a common benchmark explains the decrease in forecast dispersion in the periods between earnings announcements. To formalize these findings, I develop a simple model of forecast-making processes under a common benchmark to explain the dynamics of forecast dispersion. My results highlight the importance of information selection as a driver of disagreement, especially in high-dimensional environments.