Pages: fmi-fmvii | Published: 11/2013 | DOI: 10.1111/jofi.12116 | Cited by: 0
Pages: bmi-bmiii | Published: 11/2013 | DOI: 10.1111/jofi.12115 | Cited by: 0
Pages: 2223-2267 | Published: 11/2013 | DOI: 10.1111/jofi.12082 | Cited by: 148
ULF AXELSON, TIM JENKINSON, PER STRĂMBERG, MICHAEL S. WEISBACH
Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, international sample of buyouts from 1980 to 2008, we find that buyout leverage is unrelated to the crossâsectional factors, suggested by traditional capital structure theories, that drive public firm leverage. Instead, variation in economyâwide credit conditions is the main determinant of leverage in buyouts. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.
Pages: 2269-2308 | Published: 11/2013 | DOI: 10.1111/jofi.12081 | Cited by: 83
TAREK A. HASSAN
Differences in real interest rates across developed economies are puzzlingly large and persistent. I propose a simple explanation: bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy. I show that, indeed, differences in the size of economies explain a large fraction of the crossâsectional variation in currency returns. The data also support additional implications of the model: the introduction of a currency union lowers interest rates in participating countries, and stocks in the nontraded sector of larger economies pay lower expected returns.
Pages: 2309-2340 | Published: 11/2013 | DOI: 10.1111/jofi.12080 | Cited by: 246
NICOLAE GĂRLEANU, LASSE HEJE PEDERSEN
We derive a closedâform optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with different meanâreversion speeds. The optimal strategy is characterized by two principles: (1) aim in front of the target, and (2) trade partially toward the current aim. Specifically, the optimal updated portfolio is a linear combination of the existing portfolio and an âaim portfolio,â which is a weighted average of the current Markowitz portfolio (the moving target) and the expected Markowitz portfolios on all future dates (where the target is moving). Intuitively, predictors with slower meanâreversion (alpha decay) get more weight in the aim portfolio. We implement the optimal strategy for commodity futures and find superior net returns relative to more naive benchmarks.
Pages: 2341-2382 | Published: 11/2013 | DOI: 10.1111/jofi.12083 | Cited by: 210
GRACE XING HU, JUN PAN, JIANG WANG
We propose a marketâwide liquidity measure by exploiting the connection between the amount of arbitrage capital in the market and observed ânoiseâ in U.S. Treasury bondsâthe shortage of arbitrage capital allows yields to deviate more freely from the curve, resulting in more noise in prices. Our noise measure captures episodes of liquidity crises of different origins across the financial market, providing information beyond existing liquidity proxies. Moreover, as a priced risk factor, it helps to explain crossâsectional returns on hedge funds and currency carry trades, both known to be sensitive to the general liquidity conditions of the market.
Pages: 2383-2434 | Published: 11/2013 | DOI: 10.1111/jofi.12062 | Cited by: 65
ITZHAK BEN-DAVID, FRANCESCO FRANZONI, AUGUSTIN LANDIER, RABIH MOUSSAWI
We provide evidence suggesting that some hedge funds manipulate stock prices on critical reporting dates. Stocks in the top quartile of hedge fund holdings exhibit abnormal returns of 0.30% on the last day of the quarter and a reversal of 0.25% on the following day. A significant part of the return is earned during the last minutes of trading. Analysis of intraday volume and order imbalance provides further evidence consistent with manipulation. These patterns are stronger for funds that have higher incentives to improve their ranking relative to their peers.
Pages: 2435-2470 | Published: 11/2013 | DOI: 10.1111/jofi.12070 | Cited by: 93
I examine the timeâseries variation in corporate credit rating standards from 1985 to 2007. A divergent pattern exists between investmentâgrade and speculativeâgrade rating standards from 1985 to 2002 as investmentâgrade standards tighten and speculativeâgrade loosen. In 2002, a structural shift occurs toward more stringent ratings. Holding characteristics constant, firms experience a drop of 1.5 notches in ratings due to tightened standards from 2002 to 2007. Credit spread tests suggest that the variation in standards is not completely due to changes in the economic climate. Rating standards affect credit spreads. Loose ratings are associated with higher default rates.
Pages: 2471-2514 | Published: 11/2013 | DOI: 10.1111/jofi.12086 | Cited by: 95
I. SERDAR DINC, ISIL EREL
This paper studies government reactions to large corporate merger attempts in the European Union during 1997 to 2006 using handâcollected data. We document widespread economic nationalism in which the government prefers that target companies remain domestically owned rather than foreignâowned. This preference is stronger in times and countries with strong farâright parties and weak governments. Nationalist government reactions have both direct and indirect economic impacts on mergers. In particular, these reactions not only affect the outcome of the mergers that they target but also deter foreign companies from bidding for other companies in that country in the future.
Pages: 2515-2547 | Published: 11/2013 | DOI: 10.1111/jofi.12073 | Cited by: 139
SREEDHAR T. BHARATH, SUDARSHAN JAYARAMAN, VENKY NAGAR
Pages: 2549-2587 | Published: 11/2013 | DOI: 10.1111/jofi.12087 | Cited by: 165
RICARDO J. CABALLERO, ALP SIMSEK
We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel complexity externality.
Pages: 2589-2615 | Published: 11/2013 | DOI: 10.1111/jofi.12058 | Cited by: 82
OLIVER BOGUTH, LARS-ALEXANDER KUEHN
We show that time variation in macroeconomic uncertainty affects asset prices. Consumption volatility is a negatively priced source of risk for a wide variety of test portfolios. At the firm level, exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually. This premium is explained by crossâsectional differences in the sensitivity of dividend volatility to consumption volatility. Stocks with volatile cash flows in uncertain aggregate times require higher expected returns.
Pages: 2617-2649 | Published: 11/2013 | DOI: 10.1111/jofi.12035 | Cited by: 108
RAYMOND KAN, CESARE ROBOTTI, JAY SHANKEN
Over the years, many asset pricing studies have employed the sample crossâsectional regression (CSR) R2 as a measure of model performance. We derive the asymptotic distribution of this statistic and develop associated model comparison tests, taking into account the impact of model misspecification on the variability of the CSR estimates. We encounter several examples of large R2 differences that are not statistically significant. A version of the intertemporal capital asset pricing model (CAPM) exhibits the best overall performance, followed by the FamaâFrench threeâfactor model. Interestingly, the performance of prominent consumption CAPMs is sensitive to variations in experimental design.
Pages: 2651-2686 | Published: 11/2013 | DOI: 10.1111/jofi.12088 | Cited by: 89
RICCARDO COLACITO, MARIANO M. CROCE
Focusing on data from the United States and the United Kingdom, we document that both the anomaly identified by Backus and Smith, which concerns the low correlation between consumption differentials and exchange rates, and the forward premium anomaly, which concerns the tendency of high interest rate currencies to appreciate, have become more severe over time. Taking into account different capital mobility regimes, we show that these anomalies turn into general equilibrium regularities in a twoâcountry and twoâgood economy with Epstein and Zin preferences, frictionless markets, and correlated longârun growth prospects.
Pages: 2687-2688 | Published: 11/2013 | DOI: 10.1111/jofi.12112 | Cited by: 0
Pages: 2689-2689 | Published: 11/2013 | DOI: 10.1111/jofi.12177 | Cited by: 0
Pages: 2690-2690 | Published: 11/2013 | DOI: 10.1111/jofi.fp468 | Cited by: 0
Pages: 2691-2693 | Published: 11/2013 | DOI: 10.1111/jofi.12113 | Cited by: 0
Pages: 2695-2697 | Published: 11/2013 | DOI: 10.1111/jofi.12114 | Cited by: 0
Pages: 2698-2729 | Published: 11/2013 | DOI: 10.1111/jofi.fe470 | Cited by: 0
Pages: 2730-2772 | Published: 11/2013 | DOI: 10.1111/jofi.fe469 | Cited by: 0