Pages: 1-3 | Published: 1/2019 | DOI: 10.1111/jofi.12624 | Cited by: 0
Pages: 5-53 | Published: 11/2018 | DOI: 10.1111/jofi.12740 | Cited by: 8
SHAI BERNSTEIN, EMANUELE COLONNELLI, BENJAMIN IVERSON
This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the longârun utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.
Pages: 55-90 | Published: 1/2019 | DOI: 10.1111/jofi.12735 | Cited by: 45
BERNARDO MORAIS, JOSĂâLUIS PEYDRĂ, JESSICA ROLDĂNâPEĂA, CLAUDIA RUIZâORTEGA
We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firmâlevel real effects. Results support an international riskâtaking channel and spillovers of core countriesâ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity riskâtaking by foreign banks) and in the tightening part (with negative local firmâlevel real effects).
Pages: 91-144 | Published: 11/2018 | DOI: 10.1111/jofi.12728 | Cited by: 61
DAN LI, NORMAN SCHĂRHOFF
Dealers in the overâtheâcounter municipal bond market form trading networks with other dealers to mitigate search frictions. Regulatory data show that this network has a coreâperiphery structure with 10 to 30 hubs and over 2,000 peripheral brokerâdealers in which bonds flow from periphery to core and partially back. Central dealers charge investors up to double the roundâtrip markups compared to peripheral dealers. In turn, central dealers provide immediacy by matching buyers with sellers more directly and prearranging fewer trades, especially during stress times. Investors thus face a tradeâoff between execution cost and speed, consistent with network models of decentralized trade.
Pages: 145-192 | Published: 12/2018 | DOI: 10.1111/jofi.12739 | Cited by: 51
LEIF ANDERSEN, DARRELL DUFFIE, YANG SONG
In this paper, we demonstrate that the funding value adjustments (FVAs) of major dealers are debt overhang costs to their shareholders. To maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case studies include interestârate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment.
Pages: 193-238 | Published: 11/2018 | DOI: 10.1111/jofi.12732 | Cited by: 5
DAVID S. BATES
This paper explores whether affine models with volatility jumps estimated on intradaily S&P 500 futures data over 1983 to 2008 can capture major daily outliers such as the 1987 stock market crash. Intradaily jumps in futures prices are typically small; selfâexciting but shortâlived volatility spikes capture intradaily and daily returns better. Multifactor models of the evolution of diffusive variance and jump intensities improve fits substantially, including outâofâsample over 2009 to 2016. The models capture reasonably well the conditional distributions of daily returns and realized variance outliers, but underpredict realized variance inliers. I also examine option pricing implications.
Pages: 239-279 | Published: 11/2018 | DOI: 10.1111/jofi.12738 | Cited by: 30
MARTIJN BOONS, MELISSA PORRAS PRADO
We introduce a return predictor related to the slope and curvature of the futures term structure: basisâmomentum. Basisâmomentum strongly outperforms benchmark characteristics in predicting commodity spot and term premiums in both the time series and the cross section. Exposure to basisâmomentum is priced among commodityâsorted portfolios and individual commodities. We argue that basisâmomentum captures imbalances in the supply and demand of futures contracts that materialize when the marketâclearing ability of speculators and intermediaries is impaired, and that it represents compensation for priced risk. Our findings are inconsistent with alternative explanations based on storage, inventory, and hedging pressure.
Pages: 281-321 | Published: 12/2018 | DOI: 10.1111/jofi.12730 | Cited by: 7
GIAN LUCA CLEMENTI, BERARDINO PALAZZO
The data show that, upon being hit by adverse profitability shocks, large public firms have ample latitude to divest their least productive assets, reducing the risk faced by shareholders and the returns that they are likely to demand. In the oneâfactor productionâbased asset pricing model, when the frictions to capital adjustment are shaped to respect the evidence on investment, the modelâgenerated crossâsectional dispersion of returns is only a small fraction of that documented in the data. Our conclusions hold even when operating or labor leverage is modeled in ways shown to be promising in the extant literature.
Pages: 323-370 | Published: 11/2018 | DOI: 10.1111/jofi.12737 | Cited by: 26
PAUL SCHNEIDER, FABIO TROJANI
Under mild assumptions, we recover the modelâfree conditional minimum variance projection of the pricing kernel on various tradeable realized moments of market returns. Recovered conditional moments predict future realizations and give insight into the cyclicality of equity premia, variance risk premia, and the highest attainable Sharpe ratios under the minimum variance probability. The pricing kernel projections are often Uâshaped and give rise to optimal conditional portfolio strategies with plausible market timing properties, moderate countercyclical exposures to higher realized moments, and favorable outâofâsample Sharpe ratios.
Pages: 371-399 | Published: 10/2018 | DOI: 10.1111/jofi.12729 | Cited by: 32
ERIK EYSTER, MATTHEW RABIN, DIMITRI VAYANOS
Pages: 401-448 | Published: 12/2018 | DOI: 10.1111/jofi.12731 | Cited by: 12
RAVI JAGANNATHAN, BINYING LIU
We present a latent variable model of dividends that predicts, outâofâsample, 39.5% to 41.3% of the variation in annual dividend growth rates between 1975 and 2016. Further, when learning about dividend dynamics is incorporated into a longârun risks model, the model predicts, outâofâsample, 25.3% to 27.1% of the variation in annual stock index returns over the same time horizon, with learning contributing approximately half of the predictability in returns. These findings support the view that investors' aversion to longârun risks and their learning about these risks are important in determining stock index prices and expected returns.
Pages: 449-492 | Published: 11/2018 | DOI: 10.1111/jofi.12733 | Cited by: 31
ALEX CHINCO, ADAM D. CLARKâJOSEPH, MAO YE
This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling oneâminuteâahead return forecasts using the entire crossâsection of lagged returns as candidate predictors. The LASSO increases both outâofâsample fit and forecastâimplied Sharpe ratios. This outâofâsample success comes from identifying predictors that are unexpected, shortâlived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.
Pages: 493-529 | Published: 12/2018 | DOI: 10.1111/jofi.12736 | Cited by: 7
GARY CHARNESS, TIBOR NEUGEBAUER
Modigliani and Miller show that the total market value of a firm is unaffected by a repackaging of asset return streams to equity and debt if pricing is arbitrageâfree. We investigate this invariance theorem in experimental asset markets, finding valueâinvariance for assets of identical risks when returns are perfectly correlated. However, exploiting price discrepancies has risk when returns have the same expected value but are uncorrelated, in which case the law of one price is violated. Discrepancies shrink in consecutive markets, but persist even with experienced traders. In markets where overall trader acuity is high, assets trade closer to parity.
Pages: 531-532 | Published: 1/2019 | DOI: 10.1111/jofi.12621 | Cited by: 0
Pages: 533-533 | Published: 1/2019 | DOI: 10.1111/jofi.12622 | Cited by: 0
Pages: 535-535 | Published: 1/2019 | DOI: 10.1111/jofi.12623 | Cited by: 0
Pages: 537-538 | Published: 1/2019 | DOI: 10.1111/jofi.12625 | Cited by: 0