We examine how mutual fund managers' performance incentives generated speculative demand during the 2020-2022 cryptocurrency boom and bust. Managers with strong relative performance incentives began investing in crypto after their competitors began investing in it, consistent with a model of competitive performance hedging. In contrast, managers with personal wealth invested in the funds they manage, who had strong direct performance incentives, responded much less to their competitors' investment decisions. Our findings suggest that relative performance incentives can encourage managers to mimic their competitors instead of trading on their beliefs, which can magnify the scope of speculative demand.

To understand their financial position, universities need to understand the long-term implications of their operating revenues and costs in relation to the financial assets they have available. Standard budgeting procedures that focus on one or two years at a time and use generally accepted accounting principles (GAAP) do not do this. We present an alternative framework that discounts cash flow forecasts over the infinite future and compares the present value of operating obligations to the value of the university’s endowment net of any debt it has issued. We illustrate the potential of this framework using recent data from Harvard’s Faculty of Arts and Sciences (FAS).

Motivated by novel survey evidence, this paper develops a theory of political behavior in which values are a luxury good: the relative weight voters place on values rather than material considerations increases in income. The model predicts (i) voters who are sufficiently rich to afford voting left; (ii) that more rich than poor people vote against their material interests; (iii) that Democrats are internally more fragmented than Republicans; (iv) that income and voting Republican are positively correlated across voters but negatively across states; and (v) the realignment of rich moral liberals and poor moral conservatives. We test our predictions empirically.

Index funds are one of the most common ways investors access financial markets and are perceived to be a transparent and low-cost alternative to active investment management. Despite these purported virtues of index fund investing and the introduction of new products and competitors, many funds remain expensive and fund managers appear to exercise substantial market power. Why do index funds have market power? We develop a
novel quantitative dynamic model of demand for and supply of index funds. In the model, investors are subject to inertia, search frictions, and have heterogeneous preferences. These frictions on the demand side create market power for index fund managers, which fund managers can further exploit by price discriminating and charging higher expense ratios to retail investors. Our results suggest that the average expense ratios paid by retail investors are roughly 45% higher as a result of search frictions and are 40% higher as a result of inertia compared to the friction-less baseline. In our counterfactuals, we find an interaction between search frictions and inertia—inertia imposes higher (lower) costs on investors when search frictions are low (high).