The Journal of Finance

Mortgage Design in an Equilibrium Model of the Housing Market

Published: 8/4/2020,  Volume: 76,  Issue: 1  |  DOI: 10.1111/jofi.12963  |  Cited by: 84

ADAM M. GUREN, ARVIND KRISHNAMURTHY, TIMOTHY J. MCQUADE

How can mortgages be redesigned to reduce macrovolatility and default? We address this question using a quantitative equilibrium life‐cycle model. Designs with countercyclical payments outperform fixed payments. Among those, designs that front‐load payment reductions in recessions outperform those that spread relief over the full term. Front‐loading alleviates liquidity constraints when they bind most, reducing default and stimulating housing demand. To illustrate, a fixed‐rate mortgage (FRM) with an option to convert to adjustable‐rate mortgage, which front‐loads payment reductions relative to an FRM with an option to refinance underwater, reduces price and consumption declines six times as much and default three times as much.

A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market

Published: 3/7/2013,  Volume: 68,  Issue: 2  |  DOI: 10.1111/jofi.12007  |  Cited by: 180

ADAM C. KOLASINSKI, ADAM V. REED, MATTHEW C. RINGGENBERG

Using unique data from 12 lenders, we examine how equity lending fees respond to demand shocks. We find that, when demand is moderate, fees are largely insensitive to demand shocks. However, at high demand levels, further increases in demand lead to significantly higher fees and the extent to which demand shocks impact fees is also related to search frictions in the loan market. Moreover, consistent with search models, we find significant dispersion in loan fees, with this dispersion increasing in loan scarcity and search frictions. Our findings imply that search frictions significantly impact short selling costs.

THE INVESTMENTS OF SEVEN NEGRO LIFE INSURANCE COMPANIES*

Published: 3/1954,  Volume: 9,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1954.tb01208.x  |  Cited by: 0

Adam Shirley Arnold

Risk and Return

Published: 9/1979,  Volume: 34,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1979.tb03455.x  |  Cited by: 0

ADAM K. GEHR

Financial Sophistication and Consumer Spending

Published: 10/17/2024,  Volume: 79,  Issue: 6  |  DOI: 10.1111/jofi.13393  |  Cited by: 21

ADAM TEJS JØRRING

Using detailed account‐level data, this paper explores how financial sophistication affects consumers' spending responses to changes in income. I document that, controlling for liquidity, financially unsophisticated consumers display significant spending responses to predictable decreases in their disposable income. Furthermore, they have lower savings rates, fewer liquid savings, and higher debt‐to‐income ratios, leaving them more exposed to income shocks. Robustness tests, supported by anecdotal survey evidence, indicate that these results are driven by some consumers' lack of financial sophistication and their consequent failure to understand their financial contracts, rather than by random idiosyncratic shocks, rational liquidity management, or optimal inattention.

Personal Lending Relationships

Published: 12/14/2017,  Volume: 73,  Issue: 1  |  DOI: 10.1111/jofi.12589  |  Cited by: 136

STEPHEN ADAM KAROLYI

I identify the effects of personal relationships on loan contracting using executive deaths and retirements at other firms as a source of exogenous variation in executive turnover. After plausibly exogenous turnover, borrowers choose lenders with which their new executives have personal relationships 4.1 times as frequently, and loans from these lenders have 20 basis points lower spreads and 12.5% larger amounts. Personal relationships benefit firms across loan terms, especially during macroeconomic downturns. Increased financial flexibility from personal relationships insulated firms from financial shocks during the recent financial crisis: they exhibited less constrained investment and were less likely to layoff employees.

Repo over the Financial Crisis

Published: 2/10/2025,  Volume: 80,  Issue: 2  |  DOI: 10.1111/jofi.13406  |  Cited by: 3

ADAM COPELAND, ANTOINE MARTIN

This paper uses new data to provide a comprehensive view of repo activity during the 2007 global financial crisis. We show that activity declined much more in the bilateral segment of the market than in the tri‐party segment. Surprisingly, a large share of the decline in activity is driven by repos backed by Treasury securities. Further, a disproportionate share of the decline in repo activity is connected to securities dealer's market‐making activity. In particular, the evidence suggests that at least part of the decline is not driven by clients pulling away from securities dealers because of counterparty credit concerns.

Dividend Changes and the Persistence of Past Earnings Changes

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00693.x  |  Cited by: 94

ADAM S. KOCH, AMY X. SUN

We examine whether the market interprets changes in dividends as a signal about the persistence of past earnings changes. Prior to observing this signal, investors may believe that past earnings changes are not necessarily indicative of future earnings levels. We empirically investigate whether a change in dividends alters investors' assessments about the valuation implications of past earnings. Results confirm the hypothesis that changes in dividends cause investors to revise their expectations about the persistence of past earnings changes. This effect varies predictably with the magnitude of the dividend change and the sign of the past earnings change.

Repo Runs: Evidence from the Tri‐Party Repo Market

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12205  |  Cited by: 235

ADAM COPELAND, ANTOINE MARTIN, MICHAEL WALKER

The repo market has been viewed as a potential source of financial instability since the 2007 to 2009 financial crisis, based in part on findings that margins increased sharply in a segment of this market. This paper provides evidence suggesting that there was no system‐wide run on repo. Using confidential data on tri‐party repo, a major segment of this market, we show that, the level of margins and the amount of funding were surprisingly stable for most borrowers during the crisis. However, we also document a sharp decline in the tri‐party repo funding of Lehman in September 2008.

Financial Constraints, Competition, and Hedging in Industry Equilibrium

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01280.x  |  Cited by: 117

TIM ADAM, SUDIPTO DASGUPTA, SHERIDAN TITMAN

We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

The Effect of Housing on Portfolio Choice

Published: 4/21/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12500  |  Cited by: 241

RAJ CHETTY, LÁSZLÓ SÁNDOR, ADAM SZEIDL

We show that characterizing the effects of housing on portfolios requires distinguishing between the effects of home equity and mortgage debt. We isolate exogenous variation in home equity and mortgages by using differences across housing markets in house prices and housing supply elasticities as instruments. Increases in property value (holding home equity constant) reduce stockholdings, while increases in home equity wealth (holding property value constant) raise stockholdings. The stock share of liquid wealth would rise by 1 percentage point—6% of the mean stock share—if a household were to spend 10% less on its house, holding fixed wealth.

Stock Market Volatility and Learning

Published: 1/14/2016,  Volume: 71,  Issue: 1  |  DOI: 10.1111/jofi.12364  |  Cited by: 227

KLAUS ADAM, ALBERT MARCET, JUAN PABLO NICOLINI

We show that consumption‐based asset pricing models with time‐separable preferences generate realistic amounts of stock price volatility if one allows for small deviations from rational expectations. Rational investors with subjective beliefs about price behavior optimally learn from past price observations. This imparts momentum and mean reversion into stock prices. The model quantitatively accounts for the volatility of returns, the volatility and persistence of the price‐dividend ratio, and the predictability of long‐horizon returns. It passes a formal statistical test for the overall fit of a set of moments provided one excludes the equity premium.

The New Game in Town: Competitive Effects of IPOs

Published: 3/19/2010,  Volume: 65,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2009.01542.x  |  Cited by: 184

HUNG‐CHIA HSU, ADAM V. REED, JÖRG ROCHOLL

We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO‐related competitive advantages through the loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross‐section of underperformance as well as survival probabilities for competing firms.

Sparse Signals in the Cross‐Section of Returns

Published: 11/14/2018,  Volume: 74,  Issue: 1  |  DOI: 10.1111/jofi.12733  |  Cited by: 271

ALEX CHINCO, ADAM D. CLARK‐JOSEPH, MAO YE

This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling one‐minute‐ahead return forecasts using the entire cross‐section of lagged returns as candidate predictors. The LASSO increases both out‐of‐sample fit and forecast‐implied Sharpe ratios. This out‐of‐sample success comes from identifying predictors that are unexpected, short‐lived, 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.

Short‐Selling Risk

Published: 2/13/2018,  Volume: 73,  Issue: 2  |  DOI: 10.1111/jofi.12601  |  Cited by: 234

JOSEPH E. ENGELBERG, ADAM V. REED, MATTHEW C. RINGGENBERG

Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short‐selling risk affects prices among the cross‐section of stocks. Stocks with more short‐selling risk have lower returns, less price efficiency, and less short selling.

Pockets of Predictability: A Replication

Published: 8/25/2025,  Volume: 80,  Issue: 6  |  DOI: 10.1111/jofi.13484  |  Cited by: 5

NUSRET CAKICI, CHRISTIAN FIEBERG, TOBIAS NEUMAIER, THORSTEN PODDIG, ADAM ZAREMBA

Farmer, Schmidt, and Timmermann (FST) document time‐variation in market return predictability, identifying “pockets” of significant predictability through kernel regressions. However, our analysis reveals a critical discrepancy between the method outlined by FST and the code actually implemented. Instead of using a one‐sided kernel, which guarantees out‐of‐sample forecasts, they perform in‐sample estimation with a two‐sided kernel. As a result, future information leaks into the forecasting model, undermining its reliability. Rectifying this error qualitatively alters the findings, invalidating most conclusions of the FST study. Thus, attempts to exploit such “pockets”—should they exist—offer little help in forecasting market returns.

Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds

Published: 4/2002,  Volume: 57,  Issue: 2  |  DOI: 10.1111/1540-6261.00438  |  Cited by: 312

Mark M. Carhart, Ron Kaniel, David K. Musto, Adam V. Reed

We present evidence that fund managers inflate quarter‐end portfolio prices with last‐minute purchases of stocks already held. The magnitude of price inflation ranges from 0.5 percent per year for large‐cap funds to well over 2 percent for small‐cap funds. We find that the cross section of inflation matches the cross section of incentives from the flow/performance relation, that a surge of trading in the quarter's last minutes coincides with a surge in equity prices, and that the inflation is greatest for the stocks held by funds with the most incentive to inflate, controlling for the stocks' size and performance.

Anomaly Time

Published: 7/18/2024,  Volume: 79,  Issue: 5  |  DOI: 10.1111/jofi.13372  |  Cited by: 22

BOONE BOWLES, ADAM V. REED, MATTHEW C. RINGGENBERG, JACOB R. THORNOCK

We examine the timing of returns around the publication of anomaly trading signals. Using a database that captures when information is first publicly released, we show that anomaly returns are concentrated in the first month after information release dates, and these returns decay soon thereafter. We also show that the academic convention of forming portfolios in June underestimates predictability because it uses stale information, which makes some anomalies appear insignificant. In contrast, we show many anomalies do predict returns if portfolios are formed immediately after information releases. Finally, we develop guidance on forming portfolios without using stale information.

Vote Trading and Information Aggregation

Published: 11/28/2007,  Volume: 62,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2007.01296.x  |  Cited by: 138

SUSAN E.K. CHRISTOFFERSEN, CHRISTOPHER C. GECZY, DAVID K. MUSTO, ADAM V. REED

The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one share‐one vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higher‐spread and worse‐performing firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.