The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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An Examination of Uncovered Interest Rate Parity in Segmented International Commodity Markets
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb02756.x
BURTON HOLLIFIELD, RAMAN UPPAL
We examine the effect of segmented commodity markets on the relation between forward and future spot exchange rates in a dynamic economy. We calculate the slope coefficient in our theoretical economy from regressing exchange rate changes on forward premia. With reasonable parameter values, the slope coefficient is less than unity. However, even for extreme parameters the slope is not less than zero, as found in the data. A negative slope coefficient in a nominal version of the model requires the covariance between monetary shocks and relative output shocks to be significantly negative, in contrast to the covariance in the data.
When Will Mean‐Variance Efficient Portfolios Be Well Diversified?
Published: 12/01/1992 | DOI: 10.1111/j.1540-6261.1992.tb04683.x
RICHARD C. GREEN, BURTON HOLLIFIELD
We characterize the conditions under which efficient portfolios put small weights on individual assets. These conditions bound mean returns with measures of average absolute covariability between assets. The bounds clarify the relationship between linear asset pricing models and well‐diversified efficient portfolios. We argue that the extreme weightings in sample efficient portfolios are due to the dominance of a single factor in equity returns. This makes it easy to diversify on subsets to reduce residual risk, while weighting the subsets to reduce factor risk simultaneously. The latter involves taking extreme positions. This behavior seems unlikely to be attributable to sampling error.
Defensive Mechanisms and Managerial Discretion
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01117.x
RONALD GIAMMARINO, ROBERT HEINKEL, BURTON HOLLIFIELD
We study a model where firms may possess free cash flow and takeovers may be disruptive. We show that the possibility of a takeover, combined with defensive mechanisms and the ability to pay greenmail, can solve the free cash flow problem in an efficient way. The payment of greenmail reveals information that generates a stock price decline that exceeds the value of the greenmail payment, even though the payment of greenmail is value maximizing. Optimal defensive measures limit takeover attempts if the target stock price is too low. We also provide cross‐sectional implications of the analysis.
Estimating the Gains from Trade in Limit‐Order Markets
Published: 01/11/2007 | DOI: 10.1111/j.1540-6261.2006.01004.x
BURTON HOLLIFIELD, ROBERT A. MILLER, PATRIK SANDÅS, JOSHUA SLIVE
We present a method to estimate the gains from trade in limit‐order markets and provide empirical evidence that the limit‐order market is a good market design. Using observations on order submissions and execution and cancellation histories, we estimate both the distribution of traders' unobserved valuations for the stock and latent trader arrival rates. We use the resulting estimates to compute the current gains from trade, the gains from trade in a perfectly liquid market, and the gains from trade with a monopoly liquidity supplier. The current gains are 90% of the maximum gains and 150% of the monopolist gains.