Search results: 50.
Work Ethic, Employment Contracts, and Firm Value
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01449.x | Cited by: 83
BRUCE IAN CARLIN, SIMON GERVAIS
We analyze how the work ethic of managers impacts a firm's employment contracts, riskiness, growth potential, and organizational structure. Flat contracts are optimal for diligent managers because they reduce risk‐sharing costs, but they attract egoistic agents who shirk and unskilled agents who add no value. Stable, bureaucratic firms with low growth potential are more likely to gain value from managerial diligence. Firms that hire from a virtuous pool of agents are more conservative in their investments and have a horizontal corporate structure. Our theory also yields several testable implications that distinguish it from standard agency models.
Trading Complex Assets
Published: 9/10/2013, Volume: 68, Issue: 5 | DOI: 10.1111/jofi.12029 | Cited by: 65
BRUCE IAN CARLIN, SHIMON KOGAN, RICHARD LOWERY
We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them less inclined to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.
Episodic Liquidity Crises: Cooperative and Predatory Trading
Published: 9/4/2007, Volume: 62, Issue: 5 | DOI: 10.1111/j.1540-6261.2007.01274.x | Cited by: 226
BRUCE IAN CARLIN, MIGUEL SOUSA LOBO, S. VISWANATHAN
We describe how episodic illiquidity arises from a breakdown in cooperation between market participants. We first solve a one‐period trading game in continuous‐time, using an asset pricing equation that accounts for the price impact of trading. Then, in a multi‐period framework, we describe an equilibrium in which traders cooperate most of the time through repeated interaction, providing apparent liquidity to one another. Cooperation breaks down when the stakes are high, leading to predatory trading and episodic illiquidity. Equilibrium strategies that involve cooperation across markets lead to less frequent episodic illiquidity, but cause contagion when cooperation breaks down.
Information Consumption and Asset Pricing
Published: 10/9/2020, Volume: 76, Issue: 1 | DOI: 10.1111/jofi.12975 | Cited by: 98
AZI BEN‐REPHAEL, BRUCE I. CARLIN, ZHI DA, RYAN D. ISRAELSEN
We study whether firm and macroeconomic announcements that convey systematic information generate a return premium for firms that experience information spillovers. We use information consumption to proxy for investor learning during these announcements and construct ex ante measures of expected information consumption (EIC) to calibrate whether learning is priced. On days when there are information spillovers, affected stocks earn a significant return premium (5% annualized) and the capital asset pricing model performs better. The positive effect of the Federal Reserve Open Market Committee announcements on the risk premia of individual stocks appears to be modulated by EIC. Our findings are most consistent with a risk‐based explanation.
Uncovering the Hidden Effort Problem
Published: 2/17/2025, Volume: 80, Issue: 2 | DOI: 10.1111/jofi.13429 | Cited by: 11
AZI BEN‐REPHAEL, BRUCE I. CARLIN, ZHI DA, RYAN D. ISRAELSEN
We analyze minute‐by‐minute Bloomberg online status and study how the effort provision of executives in public corporations affects firm value. While executives spend most of their time doing other activities, patterns of Bloomberg usage allow us to characterize their work habits as measures of effort provision. We document a positive effect of effort on unexpected earnings and cumulative abnormal returns following earnings announcements, and a reduction in credit default swap spreads. This is robust to using exogenous weather patterns as an instrument. Long‐short, calendar‐time effort portfolios earn significant average daily returns. Finally, we revisit important agency issues from the literature.
Discretionary Announcement Timing and Stock Returns
Published: 9/3/2026, Volume: , Issue: | DOI: 10.1111/jofi.70073 | Cited by: 0
KERRY BACK, BRUCE I. CARLIN, SEYED M. KAZEMPOUR, CHLOE L. XIE
Discretionary announcement timing generates high conditional risk premia of stock returns and a pattern of negative drifts followed by positive jumps. Average announcement returns are much larger than unconditional risk premia. Capital Asset Pricing Model alphas turn negative when conditioning on nondisclosure because betas rise faster than risk premia prior to disclosures, but average announcement returns may appear to be too large relative to market risk when betas are estimated from past returns. The effects are amplified when multiple firms exercise discretion over the timing of correlated announcements. We present evidence that firms time earnings announcements in a manner consistent with our model.
Managerial Opportunism during Corporate Litigation
Published: 8/2005, Volume: 60, Issue: 4 | DOI: 10.1111/j.1540-6261.2005.00786.x | Cited by: 70
BRUCE HASLEM
Using a large sample of litigation events involving publicly listed defendants, we document a surprising fact. The resolution of litigation through a court's decision dominates settlement of litigation from the shareholders' point of view, even when the firm loses. We develop a model using agency costs within the firm to explain why the market views settlement as a negative outcome on average and find empirical evidence supporting the implications of the model. Specifically, firms with weak corporate governance settle litigation more quickly, and the market reacts more negatively to settlements involving firms with higher agency costs.
TIME DEPOSIT BUILDING BY COMMERCIAL BANKS A PROBLEM ANALYSIS*
Published: 3/1963, Volume: 18, Issue: 1 | DOI: 10.1111/j.1540-6261.1963.tb01629.x | Cited by: 0
Bruce H. Olson
Orthogonal Frontiers and Alternative Mean‐Variance Efficiency Tests
Published: 7/1987, Volume: 42, Issue: 3 | DOI: 10.1111/j.1540-6261.1987.tb04571.x | Cited by: 3
BRUCE N. LEHMANN
This paper catalogues properties of minimum norm orthogonal portfolios: portfolios which minimize a quadratic objective function and have returns uncorrelated with those of a candidate portfolio that is not mean‐variance efficient. The analysis shows that the dollar versions of these portfolios correspond to estimators of zero beta rates based on alternative statistical criteria and grouping procedures while costless orthogonal portfolios represent candidate mean‐variance efficiency tests. It also develops inference procedures for zero and unit net investment portfolios of individual securities (instead of grouped portfolios) that have zero expected betas. The resulting mean‐variance efficiency tests are reasonably insensitive to the underlying statistical assumptions.
CORPORATE DEBT AND THE EVALUATION OF CORPORATE EARNINGS*
Published: 3/1967, Volume: 22, Issue: 1 | DOI: 10.1111/j.1540-6261.1967.tb01668.x | Cited by: 0
Bruce W. Morgan
IMPUTED EQUITY RETURNS ON REAL ESTATE FINANCED WITH LIFE INSURANCE COMPANY LOANS
Published: 12/1969, Volume: 24, Issue: 5 | DOI: 10.1111/j.1540-6261.1969.tb01703.x | Cited by: 7
R. Bruce Ricks
Borrower Risk under Alternative Mortgage Instruments
Published: 3/1982, Volume: 37, Issue: 1 | DOI: 10.1111/j.1540-6261.1982.tb01102.x | Cited by: 30
BRUCE G. WEBB
This paper analyzes differences in borrower risk under alternative mortgage instruments and various borrower characteristics. The traditional approach of measuring borrower risk in terms of actual delinquency and foreclosure data is rejected in favor of a model based on potential delinquency‐that is, changes in the mortgage payment to income ratio. The combinations of mortgage terms and borrower characteristics that are most likely to produce a potential delinquency are isolated based on the calculation of hypothetical payment to income ratios over an eight year period.
UNCERTAINTY AND RELATIVE RATES OF RETURN ON SECURITIES: A THEORETICAL AND EMPIRICAL ANALYSIS*
Published: 6/1974, Volume: 29, Issue: 3 | DOI: 10.1111/j.1540-6261.1974.tb01504.x | Cited by: 0
Bruce C. Dieffenbach
INCOME VELOCITY AND MONETARY POLICIES IN THE UNITED STATES, 1951–1960*
Published: 3/1964, Volume: 19, Issue: 1 | DOI: 10.1111/j.1540-6261.1964.tb00755.x | Cited by: 0
Bruce T. McKim
DISCUSSION
Published: 5/1979, Volume: 34, Issue: 2 | DOI: 10.1111/j.1540-6261.1979.tb02109.x | Cited by: 0
BRUCE D. FIELITZ
Merton H. Miller: His Contribution to Financial Economics
Published: 8/2001, Volume: 56, Issue: 4 | DOI: 10.1111/0022-1082.00364 | Cited by: 7
Bruce D. Grundy
Merton Miller's status as a father of finance reflects the academic depth, breadth, and rigor of his writings and two important facets of his character. Merton was a man of great warmth and humor. He communicated his often challenging views via memorable phrases and anecdotes that have become part of the everyday language of the profession. Merton was also a man of great dedication. The whole profession has benefited from his devotion to his doctoral students, to his colleagues, and to his coauthors. This essay demonstrates how Merton's admiration for markets provided the foundation for all his research.
Option Prices and the Underlying Asset's Return Distribution
Published: 7/1991, Volume: 46, Issue: 3 | DOI: 10.1111/j.1540-6261.1991.tb03776.x | Cited by: 69
BRUCE D. GRUNDY
This work examines the relation between option prices and the true, as opposed to risk‐neutral, distribution of the underlying asset. If the underlying asset follows a diffusion with an instantaneous expected return at least as large as the instantaneous risk‐free rate, observed option prices can be used to place bounds on the moments of the true distribution. An illustration of the paper's results is provided by the analysis of the information concerning the mean and standard deviation of market returns contained in the prices of S&P 100 Index Options.
Admissible Rate Bases, Fair Rates of Return and the Structure of Regulation
Published: 5/1980, Volume: 35, Issue: 2 | DOI: 10.1111/j.1540-6261.1980.tb02165.x | Cited by: 13
BRUCE C. GREENWALD
DISCUSSION
Published: 6/1978, Volume: 33, Issue: 3 | DOI: 10.1111/j.1540-6261.1978.tb02042.x | Cited by: 0
Ian H. Giddy
Deviations from Purchasing Power Parity in the Long Run
Published: 12/1983, Volume: 38, Issue: 5 | DOI: 10.1111/j.1540-6261.1983.tb03835.x | Cited by: 305
MICHAEL ADLER, BRUCE LEHMANN
This paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods, for a wide variety of countries, and in both monthly and annual data. Since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage, the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism.
Optimal Distribution‐Free Tests and Further Evidence of Heteroscedasticity in the Market Model: A Comment
Published: 6/1985, Volume: 40, Issue: 2 | DOI: 10.1111/j.1540-6261.1985.tb04979.x | Cited by: 2
BRUCE LEHMANN, ARTHUR WARGA
The Limits of Limited Liability: Evidence from Industrial Pollution
Published: 10/13/2020, Volume: 76, Issue: 1 | DOI: 10.1111/jofi.12978 | Cited by: 275
PAT AKEY, IAN APPEL
We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference‐in‐differences framework, we find that stronger liability protection for parents leads to a 5% to 9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than increased production. Cross‐sectional tests suggest convexities associated with insolvency and executive compensation drive heterogeneous effects. Overall, our findings highlight the moral hazard problem associated with limited liability.
THE EFFECT OF DEPOSIT RATE CEILINGS ON AGGREGATE INCOME
Published: 12/1972, Volume: 27, Issue: 5 | DOI: 10.1111/j.1540-6261.1972.tb03020.x | Cited by: 1
Gordon Pye, Ian Young
Trading Patterns and Prices in the Interbank Foreign Exchange Market
Published: 9/1993, Volume: 48, Issue: 4 | DOI: 10.1111/j.1540-6261.1993.tb04760.x | Cited by: 258
TIM BOLLERSLEV, IAN DOMOWITZ
The behavior of quote arrivals and bid‐ask spreads is examined for continuously recorded deutsche mark‐dollar exchange rate data over time, across locations, and by market participants. A pattern in the intraday spread and intensity of market activity over time is uncovered and related to theories of trading patterns. Models for the conditional mean and variance of returns and bid‐ask spreads indicate volatility clustering at high frequencies. The proposition that trading intensity has an independent effect on returns volatility is rejected, but holds for spread volatility. Conditional returns volatility is increasing in the size of the spread.
Arbitrage With Holding Costs: A Utility‐Based Approach
Published: 9/1992, Volume: 47, Issue: 4 | DOI: 10.1111/j.1540-6261.1992.tb04658.x | Cited by: 33
BRUCE TUCKMAN, JEAN‐LUC VILA
Unit time costs, or holding costs, are incurred in many arbitrage contexts. Examples include losing the use of short sale proceeds and lending funds at below market rates in reverse repurchase agreements. This paper analyzes the investment problem of a risk averse arbitrageur who faces holding costs. The model allows prices to deviate from “fundamental” values without allowing for riskless arbitrage opportunities. After characterizing an arbitrageur's optimal strategy, the model is examined in the context of the Treasury market. The analysis reveals that holding costs are an important friction in this market and that they can significantly affect arbitrageur behavior.
TESTS OF THEORIES OF EXCHANGE RATE DETERMINATION
Published: 5/1977, Volume: 32, Issue: 2 | DOI: 10.1111/j.1540-6261.1977.tb03290.x | Cited by: 0
Robert Z. Aliber, Bruce Brittain
Disappearing Call Delay and Dividend‐Protected Convertible Bonds
Published: 1/14/2016, Volume: 71, Issue: 1 | DOI: 10.1111/jofi.12363 | Cited by: 20
BRUCE D. GRUNDY, PATRICK VERWIJMEREN
Firms do not historically call their convertible bonds as soon as conversion can be forced. A number of explanations for the delay rely on the size of the dividends that bondholders forgo so long as they do not convert. We investigate an important change in convertible security design, namely, dividend protection of convertible bond issues. Dividend protection means that the conversion value of the convertible bond is unaffected by dividend payments and thus dividend‐related rationales for call delay become moot. We document that call delay is near zero for dividend‐protected convertible bonds.
The Informational Content of Initial Public Offerings
Published: 6/1989, Volume: 44, Issue: 2 | DOI: 10.1111/j.1540-6261.1989.tb05066.x | Cited by: 40
IAN GALE, JOSEPH E. STIGLITZ
The ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once. A model is developed in which there is price risk from holding equity between periods. When the uncertainty is small, there must be pooling in the first period. When uncertainty is large, the pooling equilibria dominate the separating equilibrium.
Determinants of the Consumer Bankruptcy Decision
Published: 2/1999, Volume: 54, Issue: 1 | DOI: 10.1111/0022-1082.00110 | Cited by: 199
Ian Domowitz, Robert L. Sartain
Qualitative choice models of consumers' decisions to file for bankruptcy and their choice of bankruptcy chapter are estimated jointly, combining choice‐based sampling techniques with a nested estimation procedure. Medical and credit card debt are found to be the strongest contributors to bankruptcy, with homeownership playing an important role with respect to both the decision to declare bankruptcy and the choice of bankruptcy alternative. The potential effects of legal changes relating to property exemptions and dischargeable debt categories are found to encourage debt repayment through Chapter 13.
FACTORS DETERMINING BANK DEPOSIT GROWTH BY STATE: AN EMPIRICAL ANALYSIS*
Published: 3/1965, Volume: 20, Issue: 1 | DOI: 10.1111/j.1540-6261.1965.tb00184.x | Cited by: 6
Bruce C. Cohen, George G. Kaufman
Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection
Published: 3/1988, Volume: 43, Issue: 1 | DOI: 10.1111/j.1540-6261.1988.tb02597.x | Cited by: 247
CHEOL S. EUN, BRUCE G. RESNICK
In this paper, ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates. It is shown that exchange rate uncertainty is a largely nondiversifiable factor adversely affecting the performance of international portfolios. Therefore, it is essential to effectively control exchange rate volatility. For that purpose, two methods of exchange risk reduction are simultaneously employed: multicurrency diversification and hedging via forward exchange contracts. The empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the U.S. domestic portfolio in out‐of‐sample periods.
Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons
Published: 6/1987, Volume: 42, Issue: 2 | DOI: 10.1111/j.1540-6261.1987.tb02566.x | Cited by: 326
BRUCE N. LEHMANN, DAVID M. MODEST
The authors' main goal in this paper is to ascertain whether conventional measures of abnormal mutual fund performance are sensitive to the benchmark chosen to measure normal performance. They employ the standard CAPM benchmarks and a variety of APT benchmarks to investigate this question. They find little similarity between the absolute and relative mutual fund rankings obtained from these alternative benchmarks, which suggests the importance of knowing the appropriate model for risk and return in this context. In addition, the rankings are not insensitive to the method used to construct the APT benchmark. Finally, they find statistically significant measured abnormal performance using all the benchmarks. The economic explanation for this phenomenon appears to be an open question.
The Financing and Redeployment of Specific Assets
Published: 4/1999, Volume: 54, Issue: 2 | DOI: 10.1111/0022-1082.00122 | Cited by: 73
Michel A. Habib, D. Bruce Johnsen
We model the role various forms of nonrecourse secured debt play in efficiently redeploying assets whose value is state‐specific. Ex ante, an entrepreneur and an asset redeployer make noncontractible state‐specific investments in the primary and next‐best uses of an asset, respectively. The redeployer provides a secured nonrecourse loan equal to the value of the asset in the critical state that separates the good and bad states. In the event of a bad state, this contract averts ex post bargaining over the asset's quasi‐rents on redeployment and leaves the parties' ex ante investments undistorted.
Estimating the Correlation Structure of International Share Prices
Published: 12/1984, Volume: 39, Issue: 5 | DOI: 10.1111/j.1540-6261.1984.tb04909.x | Cited by: 51
CHEOL S. EUN, BRUCE G. RESNICK
Recently, the case for international portfolio diversification has been convincingly argued in the framework of mean‐variance portfolio analysis by a number of researchers. However, virtually no empirical documentation exists concerning the best method for estimating the correlation structure of international share prices. In this paper, 12 models for estimating the international correlation matrix are presented and empirically tested relative to full historical extrapolation. The major evaluation criteria are the mean squared error and stochastic dominance based on the frequency distribution of the squared forecast errors. The results indicate that the National Mean Model strictly dominates all the others in terms of forecasting accuracy.
Put‐Call Parity and Market Efficiency
Published: 12/1979, Volume: 34, Issue: 5 | DOI: 10.1111/j.1540-6261.1979.tb00061.x | Cited by: 70
ROBERT C. KLEMKOSKY, BRUCE G. RESNICK
Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View
Published: 7/1994, Volume: 49, Issue: 3 | DOI: 10.1111/j.1540-6261.1994.tb00084.x | Cited by: 63
BRUCE N. LEHMANN, DAVID M. MODEST
AbstractThe trading mechanism for equities on the Tokyo Stock Exchange (TSE) stands in sharp contrast to the primary mechanisms used to trade stocks in the United States. In the United States, exchange‐designated specialists have affirmative obligations to provide continuous liquidity to the market. Specialists offer simultaneous and tight quotes to both buy and sell and supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions. In contradistinction, the TSE has no exchange‐designated liquidity suppliers. Instead, liquidity is provided through a public limit order book, and liquidity is organized through restrictions on maximum price changes between trades that serve to slow down trading. In this article, we examine the efficacy of the TSE's trading mechanisms at providing liquidity. Our analysis is based on a complete record of transactions and best‐bid and best‐offer quotes for most stocks in the First Section of the TSE over a period of 26 months. We study the size of the bid‐ask spread and its cross‐sectional and intertemporal stability; intertemporal patterns in returns, volatility, volume, trade size, and the frequency of trades; and market depth based on the response of quotes to trades and the frequency of trading halts and warning quotes.
More on Estimation Risk and Simple Rules for Optimal Portfolio Selection
Published: 3/1985, Volume: 40, Issue: 1 | DOI: 10.1111/j.1540-6261.1985.tb04940.x | Cited by: 21
GORDON J. ALEXANDER, BRUCE G. RESNICK
For the risk‐averse investor, consideration of estimation risk is important in selecting an expected‐utility‐maximizing portfolio. It has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the Full Covariance Model is used. Alternatively, if the Market Model is used, the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk. However, as is demonstrated in this paper, the effect will generally not be as substantive as previously believed and in many situations can be safely ignored.
SYSTEMATIC RISK FOR HETEROGENEOUS TIME HORIZONS
Published: 5/1975, Volume: 30, Issue: 2 | DOI: 10.1111/j.1540-6261.1975.tb01838.x | Cited by: 3
John M. Hasty, Bruce D. Fielitz
ESTIMATION AND USES OF THE TERM STRUCTURE OF INTEREST RATES
Published: 9/1976, Volume: 31, Issue: 4 | DOI: 10.1111/j.1540-6261.1976.tb01960.x | Cited by: 68
Willard T. Carleton, Ian A. Cooper
The Default Risk of Swaps
Published: 6/1991, Volume: 46, Issue: 2 | DOI: 10.1111/j.1540-6261.1991.tb02676.x | Cited by: 86
IAN A. COOPER, ANTONIO S. MELLO
We characterize the exchange of financial claims from risky swaps. These transfers are among three groups: shareholders, debtholders, and the swap counterparty. From this analysis we derive equilibrium swap rates and relate them to debt market spreads. We then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders. In a simplified case, we obtain closed‐form solutions for the value of the default risk in the swap. For interest‐rate swaps, we obtain numerical solutions for the equilibrium swap rate, including default risk. We compare these with equilibrium debt market default risk spreads.
What Is the Expected Return on a Stock?
Published: 5/22/2019, Volume: 74, Issue: 4 | DOI: 10.1111/jofi.12778 | Cited by: 198
IAN W. R. MARTIN, CHRISTIAN WAGNER
We derive a formula for the expected return on a stock in terms of the risk‐neutral variance of the market and the stock's excess risk‐neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.
Volatility, Valuation Ratios, and Bubbles: An Empirical Measure of Market Sentiment
Published: 8/31/2021, Volume: 76, Issue: 6 | DOI: 10.1111/jofi.13068 | Cited by: 70
CAN GAO, IAN W. R. MARTIN
We define a sentiment indicator based on option prices, valuation ratios, and interest rates. The indicator can be interpreted as a lower bound on the expected growth in fundamentals that a rational investor would have to perceive to be happy to hold the market. The bound was unusually high in the late 1990s, reflecting dividend growth expectations that in our view were unreasonably optimistic. Our approach exploits two key ingredients. First, we derive a new valuation ratio decomposition that is related to the Campbell–Shiller loglinearization but that resembles the Gordon growth model more closely and has certain other advantages. Second, we introduce a volatility index that provides a lower bound on the market's expected log return.
Disasters Implied by Equity Index Options
Published: 11/14/2011, Volume: 66, Issue: 6 | DOI: 10.1111/j.1540-6261.2011.01697.x | Cited by: 238
DAVID BACKUS, MIKHAIL CHERNOV, IAN MARTIN
We use equity index options to quantify the distribution of consumption growth disasters. The challenge lies in connecting the risk‐neutral distribution of equity returns implied by options to the true distribution of consumption growth. First, we compare pricing kernels constructed from macro‐finance and option‐pricing models. Second, we compare option prices derived from a macro‐finance model to those we observe. Third, we compare the distribution of consumption growth derived from option prices using a macro‐finance model to estimates based on macroeconomic data. All three perspectives suggest that options imply smaller probabilities of extreme outcomes than have been estimated from macroeconomic data.
Dynamics of Borrower‐Lender Interaction: Partitioning Final Payoff in Venture Capital Finance
Published: 5/1979, Volume: 34, Issue: 2 | DOI: 10.1111/j.1540-6261.1979.tb02117.x | Cited by: 13
IAN A. COOPER, WILLARD T. CARLETON
Market Segmentation and Stock Prices: Evidence from an Emerging Market
Published: 7/1997, Volume: 52, Issue: 3 | DOI: 10.1111/j.1540-6261.1997.tb02725.x | Cited by: 170
IAN DOMOWITZ, JACK GLEN, ANANTH MADHAVAN
We examine the relationship between stock prices and market segmentation induced by ownership restrictions in Mexico. The focus is on multiple classes of equity that differentiate between foreign and domestic traders, and between domestic individuals and institutions. Significant stock price premia are documented for shares not restricted to a particular investor group. We analyze the theoretical and empirical determinants of premia across firms and over time. In addition to economy‐wide factors, segmentation reflects the relative scarcity of unrestricted shares. The results provide additional support for Stulz and Wasserfallen's (1995) hypothesis that firms discriminate between investor groups with different demand elasticities.
International Cross‐Listing and Order Flow Migration: Evidence from an Emerging Market
Published: 12/1998, Volume: 53, Issue: 6 | DOI: 10.1111/0022-1082.00081 | Cited by: 280
Ian Domowitz, Jack Glen, Ananth Madhavan
Policymakers in emerging markets are increasingly concerned about the consequences for the domestic equity market when companies list stock abroad. We show that the effects of cross‐listing depend on the quality of intermarket information linkages. We investigate these issues with unique data from the Mexican equity market. The impact of cross‐listing is complex—balancing the costs of order flow migration against the benefits of increased intermarket competition. These effects are exacerbated by equity investment barriers that induce segmentation of the domestic equity market. Consequently, the benefits and costs of cross‐listing are not evenly spread over all classes of shareholders.
An Empirical Analysis of the Dynamic Relation between Investment‐Grade Bonds and Credit Default Swaps
Published: 9/16/2005, Volume: 60, Issue: 5 | DOI: 10.1111/j.1540-6261.2005.00798.x | Cited by: 1031
ROBERTO BLANCO, SIMON BRENNAN, IAN W. MARSH
We test the theoretical equivalence of credit default swap (CDS) prices and credit spreads derived by
Duffie (1999)
, finding support for the parity relation as an equilibrium condition. We also find two forms of deviation from parity. First, for three firms, CDS prices are substantially higher than credit spreads for long periods of time, arising from combinations of imperfections in the contract specification of CDSs and measurement errors in computing the credit spread. Second, we find short‐lived deviations from parity for all other companies due to a lead for CDS prices over credit spreads in the price discovery process.
Order Imbalances and Stock Price Movements on October 19 and 20, 1987
Published: 9/1989, Volume: 44, Issue: 4 | DOI: 10.1111/j.1540-6261.1989.tb02626.x | Cited by: 122
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.
General Properties of Option Prices
Published: 12/1996, Volume: 51, Issue: 5 | DOI: 10.1111/j.1540-6261.1996.tb05218.x | Cited by: 85
YAACOV Z. BERGMAN, BRUCE D. GRUNDY, ZVI WIENER
When the underlying price process is a one‐dimensional diffusion, as well as in certain restricted stochastic volatility settings, a contingent claim's delta is bounded by the infimum and supremum of its delta at maturity. Further, if the claim's payoff is convex (concave), the claim's price is a convex (concave) function of the underlying asset's value. However, when volatility is less specialized, or when the underlying process is discontinuous or non‐Markovian, a call's price can be a decreasing, concave function of the underlying price over some range, increasing with the passage of time, and decreasing in the level of interest rates.