Pages: 1199-1220 | Published: 8/1999 | DOI: 10.1111/0022-1082.00144 | Cited by: 432
Edwin J. Elton
Pages: 1221-1248 | Published: 8/1999 | DOI: 10.1111/0022-1082.00145 | Cited by: 58
Raymond Kan, Guofu Zhou
In this paper, we point out that the widely used stochastic discount factor (SDF) methodology ignores a fully specified model for asset returns. As a result, it suffers from two potential problems when asset returns follow a linear factor model. The first problem is that the risk premium estimate from the SDF methodology is unreliable. The second problem is that the specification test under the SDF methodology has very low power in detecting misspecified models. Traditional methodologies typically incorporate a fully specified model for asset returns, and they can perform substantially better than the SDF methodology.
Pages: 1249-1290 | Published: 8/1999 | DOI: 10.1111/0022-1082.00146 | Cited by: 1142
Tobias J. Moskowitz, Mark Grinblatt
This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book‐to‐market equity, individual stock momentum, the cross‐sectional dispersion in mean returns, and potential microstructure influences.
Pages: 1291-1323 | Published: 8/1999 | DOI: 10.1111/0022-1082.00147 | Cited by: 92
Bruno Biais, Catherine Casamatta
We analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures. Optimal financial contracts can be implemented by a combination of debt and equity when the risk‐shifting problem is the most severe while stock options are also needed when the effort problem is the most severe. Worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level. Moreover, aggregate leverage decreases with the risk‐shifting problem and increases with the effort problem.
Pages: 1325-1360 | Published: 8/1999 | DOI: 10.1111/0022-1082.00148 | Cited by: 572
Wayne E. Ferson, Campbell R. Harvey
Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross‐sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost‐of‐capital calculations, and other applications.
Pages: 1361-1395 | Published: 8/1999 | DOI: 10.1111/0022-1082.00149 | Cited by: 261
This paper applies to interest rate models the theoretical method developed in Aït‐Sahalia (1998) to generate accurate closed‐form approximations to the transition function of an arbitrary diffusion. While the main focus of this paper is on the maximum‐likelihood estimation of interest rate models with otherwise unknown transition functions, applications to the valuation of derivative securities are also briefly discussed.
Pages: 1397-1438 | Published: 8/1999 | DOI: 10.1111/0022-1082.00150 | Cited by: 352
Juliet D'souza, William L. Megginson
This study compares the pre‐ and postprivatization financial and operating performance of 85 companies from 28 industrialized countries that were privatized through public share offerings for the period from 1990 through 1996. We document significant increases in profitability, output, operating efficiency, and dividend payments—and significant decreases in leverage ratios—for our full sample of firms after privatization, and for most subsamples examined. Capital expenditures increase significantly in absolute terms, but not relative to sales. Employment declines, but insignificantly. Combined with results from two previous, directly comparable studies, these findings strongly suggest that privatization yields significant performance improvements.
Pages: 1439-1464 | Published: 8/1999 | DOI: 10.1111/0022-1082.00151 | Cited by: 585
K. Geert Rouwenhorst
The factors that drive cross‐sectional differences in expected stock returns in emerging equity markets are qualitatively similar to those that have been documented for developed markets. Emerging market stocks exhibit momentum, small stocks outperform large stocks, and value stocks outperform growth stocks. There is no evidence that high beta stocks outperform low beta stocks. A Bayesian analysis of the return premiums shows that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world. Finally, there exists a strong cross‐sectional correlation between the return factors and share turnover.
Pages: 1465-1499 | Published: 8/1999 | DOI: 10.1111/0022-1082.00152 | Cited by: 153
T. Clifton Green, Stephen Figlewski
Derivatives valuation and risk management involve heavy use of quantitative models. To develop a quantitative assessment of model risk as it affects the basic option writing strategy that might be followed by a financial institution, we conduct an empirical simulation, with and without hedging, using data from 1976 to 1996. Results indicate that imperfect models and inaccurate volatility forecasts create sizable risk exposure for option writers. We consider to what extent the damage due to model risk can be limited by pricing options using a higher volatility than the best estimate from historical data.
Pages: 1501-1507 | Published: 8/1999 | DOI: 10.1111/0022-1082.00153 | Cited by: 0
David M. Jones
Pages: 1508-1521 | Published: 8/1999 | DOI: 10.1111/0022-1082.00154 | Cited by: 90
Joseph E. Stiglitz
Pages: 1523-1524 | Published: 8/1999 | DOI: 10.1111/0022-1082.00155 | Cited by: 0
David H. Pyle
Pages: 1525-1529 | Published: 8/1999 | DOI: 10.1111/1467-6419.00062-i1 | Cited by: 0
Pages: 1531-1546 | Published: 8/1999 | DOI: 10.1111/0022-1082.00157 | Cited by: 0
René M. Stultz
Pages: 1547-1548 | Published: 8/1999 | DOI: 10.1111/0022-1082.00158 | Cited by: 0
Robert S. Hamada
Pages: 1549-1550 | Published: 8/1999 | DOI: 10.1111/1540-6261.00159 | Cited by: 0
Pages: 1549-1550 | Published: 8/1999 | DOI: 10.1111/0022-1082.00159 | Cited by: 0
Pages: 1551-1552 | Published: 8/1999 | DOI: 10.1111/1540-6261.00160 | Cited by: 0
Pages: 1551-1552 | Published: 8/1999 | DOI: 10.1111/0022-1082.00160 | Cited by: 0