The Journal of Finance

Style‐Related Comovement: Fundamentals or Labels?

Published: 01/06/2011   |   DOI: 10.1111/j.1540-6261.2010.01633.x

BRIAN H. BOYER

I find that economically meaningless index labels cause stock returns to covary in excess of fundamentals. S&P/Barra follow a simple mechanical procedure to define their Value and Growth indices. In doing so, they reclassify some stocks from Value to Growth even after their book‐to‐market ratios have risen, and vice versa. Such stocks begin to covary more with the index they join and less with the index they leave. Backdated constituent data from Barra reveal no such label‐related shifts in comovement during the 10 years prior to the actual introduction of the indices in 1992.

Stock Options as Lotteries

Published: 03/27/2014   |   DOI: 10.1111/jofi.12152

BRIAN H. BOYER, KEITH VORKINK

We investigate the relationship between ex ante total skewness and holding returns on individual equity options. Recent theoretical developments predict a negative relationship between total skewness and average returns, in contrast to the traditional view that only coskewness is priced. We find, consistent with recent theory, that total skewness exhibits a strong negative relationship with average option returns. Differences in average returns for option portfolios sorted on ex ante skewness range from 10% to 50% per week, even after controlling for risk. Our findings suggest that these large premiums compensate intermediaries for bearing unhedgeable risk when accommodating investor demand for lottery‐like options.

How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices

Published: 03/09/2006   |   DOI: 10.1111/j.1540-6261.2006.00860.x

BRIAN H. BOYER, TOMOMI KUMAGAI, KATHY YUAN

We provide empirical evidence that stock market crises are spread globally through asset holdings of international investors. By separating emerging market stocks into two categories, namely, those that are eligible for purchase by foreigners (accessible) and those that are not (inaccessible), we estimate and compare the degree to which accessible and inaccessible stock index returns co‐move with crisis country index returns. Our results show greater co‐movement during high volatility periods, especially for accessible stock index returns, suggesting that crises spread through the asset holdings of international investors rather than through changes in fundamentals.

Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions

Published: 01/15/2023   |   DOI: 10.1111/jofi.13202

BRIAN H. BOYER, TAYLOR D. NADAULD, KEITH P. VORKINK, MICHAEL S. WEISBACH

Measures of private equity (PE) performance based on cash flows do not account for a discount‐rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.