The Journal of Finance

Beta Nonstationarity and the Use of the Chen and Lee Estimator: A Note

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02515.x  |  Cited by: 3

BILL McDONALD

Measuring Readability in Financial Disclosures

Published: 7/18/2014,  Volume: 69,  Issue: 4  |  DOI: 10.1111/jofi.12162  |  Cited by: 1390

TIM LOUGHRAN, BILL MCDONALD

Defining and measuring readability in the context of financial disclosures becomes important with the increasing use of textual analysis and the Securities and Exchange Commission's plain English initiative. We propose defining readability as the effective communication of valuation‐relevant information. The Fog Index—the most commonly applied readability measure—is shown to be poorly specified in financial applications. Of Fog's two components, one is misspecified and the other is difficult to measure. We report that 10‐K document file size provides a simple readability proxy that outperforms the Fog Index, does not require document parsing, facilitates replication, and is correlated with alternative readability constructs.

When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks

Published: 1/6/2011,  Volume: 66,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2010.01625.x  |  Cited by: 5409

TIM LOUGHRAN, BILL MCDONALD

Previous research uses negative word counts to measure the tone of a text. We show that word lists developed for other disciplines misclassify common words in financial text. In a large sample of 10‐Ks during 1994 to 2008, almost three‐fourths of the words identified as negative by the widely used Harvard Dictionary are words typically not considered negative in financial contexts. We develop an alternative negative word list, along with five other word lists, that better reflect tone in financial text. We link the word lists to 10‐K filing returns, trading volume, return volatility, fraud, material weakness, and unexpected earnings.

Nonnormalities and Tests of Asset Pricing Theories

Published: 9/1989,  Volume: 44,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1989.tb02629.x  |  Cited by: 76

JOHN AFFLECK‐GRAVES, BILL MCDONALD

The robustness of the multivariate test of Gibbons, Ross, and Shanken (1986) to nonnormalities in the residual covariance matrix is examined. After considering the relative performance of various tests of normality, simulation techniques are used to determine the effects of nonnormalities on the multivariate test. It is found that, where the sample nonnormalities are severe, the size and/or power of the test can be seriously misstated. However, it is also shown that these extreme sample values may overestimate the population parameters. Hence, we conclude that the multivariate test is reasonably robust with respect to typical levels of nonnormality.

Predicting Stock Returns in an Efficient Market

Published: 9/1990,  Volume: 45,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1990.tb02429.x  |  Cited by: 227

RONALD J. BALVERS, THOMAS F. COSIMANO, BILL MCDONALD

An intertemporal general equilibrium model relates financial asset returns to movements in aggregate output. The model is a standard neoclassical growth model with serial correlation in aggregate output. Changes in aggregate output lead to attempts by agents to smooth consumption, which affects the required rate of return on financial assets. Since aggregate output is serially correlated and hence predictable, the theory suggests that stock returns can be predicted based on rational forecasts of output. The empirical results confirm that stock returns are a predictable function of aggregate output and also support the accompanying implications of the model.

SOME FACTORS AFFECTING THE INCREASED RELATIVE USE OF CURRENCY SINCE 1939*

Published: 9/1956,  Volume: 11,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1956.tb00107.x  |  Cited by: 0

Stephen L. McDonald

DISCUSSION

Published: 5/1974,  Volume: 29,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1974.tb03056.x  |  Cited by: 0

John G. McDonald

STANFORD PORTFOLIO MANAGEMENT GAME: A PEDAGOGICAL NOTE

Published: 9/1970,  Volume: 25,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1970.tb00582.x  |  Cited by: 1

John G. McDonald

THE INTERNAL DRAIN AND BANK CREDIT EXPANSION*

Published: 12/1953,  Volume: 8,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1953.tb01187.x  |  Cited by: 0

Stephen L. McDonald

FRENCH MUTUAL FUND PERFORMANCE: EVALUATION OF INTERNATIONALLY‐DIVERSIFIED PORTFOLIOS

Published: 12/1973,  Volume: 28,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1973.tb01448.x  |  Cited by: 20

John G. McDonald

Option Pricing When the Underlying Asset Earns a Below‐Equilibrium Rate of Return: A Note

Published: 3/1984,  Volume: 39,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1984.tb03874.x  |  Cited by: 85

ROBERT MCDONALD, DANIEL SIEGEL

Market Efficiency and the Favorite‐Longshot Bias: The Baseball Betting Market

Published: 3/1994,  Volume: 49,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1994.tb04429.x  |  Cited by: 107

LINDA M. WOODLAND, BILL M. WOODLAND

This paper examines the efficiency of the legal gambling market for major league baseball. Weak‐form tests of market efficiency within and across odds lines are performed. Surprisingly, the consistently observed favorite‐longshot bias in racetrack betting is shown to exist in reverse for baseball bettors. However, these and other deviations from efficiency are shown to be insufficient to allow for profitable betting strategies when commissions are considered.

RISK AND RETURN ON SHORT POSITIONS IN COMMON STOCKS

Published: 3/1973,  Volume: 28,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1973.tb01348.x  |  Cited by: 11

John G. McDonald, Donald C. Baron

NEW‐ISSUE STOCK PRICE BEHAVIOR

Published: 3/1972,  Volume: 27,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1972.tb00624.x  |  Cited by: 86

J. G. McDonald, A. K. Fisher

Equity Issues and Stock Price Dynamics

Published: 9/1990,  Volume: 45,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1990.tb02425.x  |  Cited by: 474

DEBORAH J. LUCAS, ROBERT L. McDONALD

This paper presents an information‐theoretic, infinite horizon model of the equity issue decision. The model predicts that (a) equity issues on average are preceded by an abnormal positive return on the stock, although for some firms the issue is preceded by a loss; (b) equity issues on average are preceded by an abnormal rise in the market; and (c) the stock price drops at the announcement of an issue. The model provides a measure of the welfare cost of asymmetric information; the welfare loss may be small even if the price drop at issue announcement is large.

DIVIDEND POLICY AND NEW EQUITY FINANCING

Published: 5/1971,  Volume: 26,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1971.tb00911.x  |  Cited by: 14

James C. Van Horne, John G. McDonald

How Big is the Tax Advantage to Debt?

Published: 7/1984,  Volume: 39,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1984.tb03678.x  |  Cited by: 74

ALEX KANE, ALAN J. MARCUS, ROBERT L. McDONALD

This paper uses an option valuation model of the firm to answer the question, “What magnitude tax advantage to debt is consistent with the range of observed corporate debt ratios?” We incorporate into the model differential personal tax rates on capital gains and ordinary income. We conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms. When it is possible for the value of the underlying assets to jump discretely to zero, differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms. Moreover, if the tax advantage to debt is small, the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt‐to‐firm value ratios.