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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More Powerful Portfolio Approaches to Regressing Abnormal Returns on Firm‐Specific Variables for Cross‐Sectional Studies
Published: 12/01/1992 | DOI: 10.1111/j.1540-6261.1992.tb04697.x
RAMESH CHANDRA, BALA V. BALACHANDRAN
OLS regression ignores both heteroscedasticity and cross‐correlations of abnormal returns; therefore, tests of regression coefficients are weak and biased. A Portfolio OLS (POLS) regression accounts for correlations and ensures unbiasedness of tests, but does not improve their power. We propose Portfolio Weighted Least Squares (PWLS) and Portfolio Constant Correlation Model (PCCM) regressions to improve the power. Both utilize the heteroscedasticity of abnormal returns in estimating the coefficients; PWLS ignores the correlations, while PCCM uses intra‐and inter‐industry correlations. Simulation results show that both lead to more powerful tests of regression coefficients than POLS.
An Investigation of the Informational Role of Short Interest in the Nasdaq Market
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00495
Hemang Desai, K. Ramesh, S. Ramu Thiagarajan, Bala V. Balachandran
This paper examines the relationship between the level of short interest and stock returns in the Nasdaq market from June 1988 through December 1994. We find that heavily shorted firms experience significant negative abnormal returns ranging from −0.76 to −1.13 percent per month after controlling for the market, size, book‐to‐market, and momentum factors. These negative returns increase with the level of short interest, indicating that a higher level of short interest is a stronger bearish signal. We find that heavily shorted firms are more likely to be delisted compared to their size, book‐to‐market, and momentum matched control firms.