Search results: 39.
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.
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
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.
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.
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: 324
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 FEDERAL MUNICIPAL BANKRUPTCY ACT
Published: 9/1950, Volume: 5, Issue: 3 | DOI: 10.1111/j.1540-6261.1950.tb03787.x | Cited by: 5
Henry W. Lehmann
Managerial Opportunism during Corporate Litigation
Published: 8/2005, Volume: 60, Issue: 4 | DOI: 10.1111/j.1540-6261.2005.00786.x | Cited by: 69
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
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
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.
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
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: 5/1979, Volume: 34, Issue: 2 | DOI: 10.1111/j.1540-6261.1979.tb02109.x | Cited by: 0
BRUCE D. FIELITZ
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
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.
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.
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
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.
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.
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.
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
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
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.
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.
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.
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.
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
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.
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.
Law, Stock Markets, and Innovation
Published: 7/16/2013, Volume: 68, Issue: 4 | DOI: 10.1111/jofi.12040 | Cited by: 444
JAMES R. BROWN, GUSTAV MARTINSSON, BRUCE C. PETERSEN
We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long‐run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.
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.
DISCUSSION
Published: 5/1972, Volume: 27, Issue: 2 | DOI: 10.1111/j.1540-6261.1972.tb00956.x | Cited by: 0
James Gillies, Leo Grebler, R. Bruce Ricks, Lawrence Smith
The Effects of Stock Splits on Bid‐Ask Spreads
Published: 9/1990, Volume: 45, Issue: 4 | DOI: 10.1111/j.1540-6261.1990.tb02437.x | Cited by: 80
ROBERT M. CONROY, ROBERT S. HARRIS, BRUCE A. BENET
This paper examines the effects of stock splits on bid‐ask spreads for NYSE‐listed companies. Percentage spreads increase after splits, representing a liquidity cost to investors. These spread increases are directly related to decreases in share prices following splits and can explain part, but not all, of the observed increase in return variability after splits. The evidence thus suggests a liquidity cost of stock splits that must be weighed against any other perceived benefits of splits. Such a liquidity cost may validate that stock splits are a signal of favorable information about the firm.
Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom
Published: 1/23/2009, Volume: 64, Issue: 1 | DOI: 10.1111/j.1540-6261.2008.01431.x | Cited by: 1613
JAMES R. BROWN, STEVEN M. FAZZARI, BRUCE C. PETERSEN
The financing of R&D provides a potentially important channel to link finance and economic growth, but there is no direct evidence that financial effects are large enough to impact aggregate R&D. U.S. firms finance R&D from volatile sources: cash flow and stock issues. We estimate dynamic R&D models for high‐tech firms and find significant effects of cash flow and external equity for young, but not mature, firms. The financial coefficients for young firms are large enough that finance supply shifts can explain most of the dramatic 1990s R&D boom, which implies a significant connection between finance, innovation, and growth.
Uncovering the Hidden Effort Problem
Published: 2/17/2025, Volume: 80, Issue: 2 | DOI: 10.1111/jofi.13429 | Cited by: 10
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.
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.