The Journal of Finance

The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.

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Using Generalized Method of Moments to Test Mean‐Variance Efficiency

Published: 06/01/1991   |   DOI: 10.1111/j.1540-6261.1991.tb02672.x

A. CRAIG MACKINLAY, MATTHEW P. RICHARDSON

This paper develops tests of unconditional mean‐variance efflciency under weak distributional assumptions using a Generalized Method of Moments framework. These tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i.i.d. Using returns for size‐based portfolios from 1926 to 1988 we show that the conclusion concerning the mean‐variance effilciency of market indexes can be sensitive to the test considered.


The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00057

Marshall E. Blume, Felix Lim, A. Craig Mackinlay

In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating agencies are now using more stringent standards in assigning ratings. An ordered probit analysis of a panel of firms from 1978 through 1995 suggests that rating standards have indeed become more stringent, implying that at least part of the downward trend in ratings is the result of changing standards.


Order Imbalances and Stock Price Movements on October 19 and 20, 1987

Published: 09/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb02626.x

MARSHALL E. BLUME, A. CRAIG MACKINLAY, BRUCE TERKER

On October 19, 1987, NYSE stocks in the S&P index declined seven percentage points more than NYSE stocks not in this index. In the first hour of trading on October 20, the S&P stocks virtually recovered to the level of the non‐S&P stocks. There is a strong relation between order imbalances and stock price movements, both in analyses of time series and cross‐sections. Thus, in addition to the breakdown in the linkage between future prices and the spot index on these two days, there were also breakdowns in the linkage among NYSE stocks.