Search results: 50.
Microstructure and Ambiguity
Published: 9/21/2010, Volume: 65, Issue: 5 | DOI: 10.1111/j.1540-6261.2010.01595.x | Cited by: 113
DAVID EASLEY, MAUREEN O'HARA
A goal for stock exchanges is to increase participation by firms and investors. We show how specific features of the microstructure can reduce perceived ambiguity, and induce participation by both investors and issuers. We develop a model with sophisticated traders, who we view as expected utility maximizers with rational expectations, and unsophisticated traders, who we view as rational traders facing ambiguity about the payoffs to participating in the market. We show how designing markets to reduce ambiguity can benefit investors through greater liquidity, exchanges through greater volume, and issuing firms through a lower cost of capital.
Order Form and Information in Securities Markets
Published: 7/1991, Volume: 46, Issue: 3 | DOI: 10.1111/j.1540-6261.1991.tb03771.x | Cited by: 57
DAVID EASLEY, MAUREEN O'HARA
This paper examines the effects of price‐contingent orders on security prices. We show that a market maker who knows the type and composition of trades will set larger spreads and adjust prices faster than if price‐contingent orders were not allowed. Because traders have rational expectations over the book, we demonstrate that uncertainty over order type reduces the variance of prices but with a corresponding loss in price informativeness. We also show that the sequence property of price‐contingent orders increases the probability of large price movements. This distinction between variance and episodic price volatility has important policy implications.
Time and the Process of Security Price Adjustment
Published: 6/1992, Volume: 47, Issue: 2 | DOI: 10.1111/j.1540-6261.1992.tb04402.x | Cited by: 802
DAVID EASLEY, MAUREEN O'HARA
This paper delineates the link between the existence of information, the timing of trades, and the stochastic process of prices. We show that time affects prices, with the time between trades affecting spreads. Because the absence of trades is correlated with volume, our model predicts a testable relation between spreads and normal and unexpected volume, and demonstrates how volume affects the speed of price adjustment. Our model also demonstrates how the transaction price series will be a biased representation of the true price process, with the variance being both overstated and heteroskedastic.
Information and the Cost of Capital
Published: 8/2004, Volume: 59, Issue: 4 | DOI: 10.1111/j.1540-6261.2004.00672.x | Cited by: 2309
David Easley, Maureen O'hara
We investigate the role of information in affecting a firm's cost of capital. We show that differences in the composition of information between public and private information affect the cost of capital, with investors demanding a higher return to hold stocks with greater private information. This higher return arises because informed investors are better able to shift their portfolio to incorporate new information, and uninformed investors are thus disadvantaged. In equilibrium, the quantity and quality of information affect asset prices. We show firms can influence their cost of capital by choosing features like accounting treatments, analyst coverage, and market microstructure.
Consensus Beliefs Equilibrium and Market Efficiency
Published: 6/1983, Volume: 38, Issue: 3 | DOI: 10.1111/j.1540-6261.1983.tb02509.x | Cited by: 4
DAVID EASLEY, ROBERT A. JARROW
This paper presents an analysis of the concept of consensus beliefs and its relation to market efficiency. We show that unless traders have rational expectations, the two published interpretations of consensus beliefs are not useful for considerations of market efficiency. One interpretation (see Verrecchia [6]) has no implication for market efficiency. Under the second interpretation (see Verrecchia [7], [8]) consensus beliefs equilibria are efficient, but they typically do not exist unless traders have rational expectations.
Market Statistics and Technical Analysis: The Role of Volume
Published: 3/1994, Volume: 49, Issue: 1 | DOI: 10.1111/j.1540-6261.1994.tb04424.x | Cited by: 739
LAWRENCE BLUME, DAVID EASLEY, MAUREEN O'HARA
We investigate the informational role of volume and its applicability for technical analysis. We develop a new equilibrium model in which aggregate supply is fixed and traders receive signals with differing quality. We show that volume provides information on information quality that cannot be deduced from the price statistic. We show how volume, information precision, and price movements relate, and demonstrate how sequences of volume and prices can be informative. We also show that traders who use information contained in market statistics do better than traders who do not. Technical analysis thus arises as a natural component of the agents' learning process.
Is Information Risk a Determinant of Asset Returns?
Published: 10/2002, Volume: 57, Issue: 5 | DOI: 10.1111/1540-6261.00493 | Cited by: 1338
David Easley, Soeren Hvidkjaer, Maureen O'Hara
We investigate the role of information‐based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information‐based trading, and we estimate this measure using data for individual NYSE‐listed stocks for 1983 to 1998. We then incorporate our estimates into a Fama and French (1992) asset‐pricing framework. Our main result is that information does affect asset prices. A difference of 10 percentage points in the probability of information‐based trading between two stocks leads to a difference in their expected returns of 2.5 percent per year.
Option Volume and Stock Prices: Evidence on Where Informed Traders Trade
Published: 4/1998, Volume: 53, Issue: 2 | DOI: 10.1111/0022-1082.194060 | Cited by: 942
David Easley, Maureen O'Hara, P.S. Srinivas
This paper investigates the informational role of transactions volume in options markets. We develop an asymmetric information model in which informed traders may trade in option or equity markets. We show conditions under which informed traders trade options, and we investigate the implications of this for the linkage between markets. Our model predicts an important informational role for the volume of particular types of option trades. We empirically test our model's hypotheses with intraday option data. Our main empirical result is that negative and positive option volumes contain information about future stock prices.
Cream‐Skimming or Profit‐Sharing? The Curious Role of Purchased Order Flow
Published: 7/1996, Volume: 51, Issue: 3 | DOI: 10.1111/j.1540-6261.1996.tb02708.x | Cited by: 248
DAVID EASLEY, NICHOLAS M. KIEFER, MAUREEN O'HARA
Purchased order flow refers to the practice of dealers or trading locales paying brokers for retail order flow. It is alleged that such agreements are used to “cream skim” uninformed liquidity trades, leaving the information‐based trades to established markets. We develop a test of this hypothesis, using a model of the stochastic process of trades. We then estimate the model for a sample of stocks known to be used in order purchase agreements that trade on the New York Stock Exchange (NYSE) and the Cincinnati Stock Exchange. Our main empirical result is that there is a significant difference in the information content of orders executed in New York and Cincinnati, and that this difference is consistant with cream‐skimming.
Liquidity, Information, and Infrequently Traded Stocks
Published: 9/1996, Volume: 51, Issue: 4 | DOI: 10.1111/j.1540-6261.1996.tb04074.x | Cited by: 1249
DAVID EASLEY, NICHOLAS M. KIEFER, MAUREEN O'HARA, JOSEPH B. PAPERMAN
This article investigates whether differences in information‐based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information‐based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume‐decile stocks. Our most important empirical result is that the probability of information‐based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information‐based trading on spreads.
The Term Structure of Interest Rates in a Partially Observable Economy
Published: 7/1989, Volume: 44, Issue: 3 | DOI: 10.1111/j.1540-6261.1989.tb04391.x | Cited by: 29
DAVID FELDMAN
This paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information. Unable to observe their stochastic investment opportunities, investors engage in dynamic Bayesian inference. This results in the endogenous identification of a more complex production function which generates a richer term structure, resembling the one that actual market prices imply. In addition, this paper introduces a characteristic function of the term structure and demonstrates that, in contrast with a fully observable economy, the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic.
Transactions Costs and the Theory of Portfolio Selection
Published: 9/1976, Volume: 31, Issue: 4 | DOI: 10.1111/j.1540-6261.1976.tb01964.x | Cited by: 26
David Goldsmith
Heterogeneous Beliefs, Speculation, and the Equity Premium
Published: 1/10/2008, Volume: 63, Issue: 1 | DOI: 10.1111/j.1540-6261.2008.01310.x | Cited by: 211
ALEXANDER DAVID
Agents with heterogeneous beliefs about fundamental growth do not share risks perfectly but instead speculate with each other on the relative accuracy of their models' predictions. They face the risk that market prices move more in line with the trading models of competing agents than with their own. Less risk‐averse agents speculate more aggressively and demand higher risk premiums. My calibrated model generates countercyclical consumption volatility, earnings forecast dispersion, and cross‐sectional consumption dispersion. With a risk aversion coefficient less than one, agents' speculation causes half the observed equity premium and lowers the riskless rate by about 1%.
DISCUSSION
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03648.x | Cited by: 0
DAVID EMANUEL
A QUARTERLY SERIES OF CORPORATE BASIC YIELDS, 1952–57, AND SOME ATTENDANT RESERVATIONS*
Published: 9/1958, Volume: 13, Issue: 3 | DOI: 10.1111/j.1540-6261.1958.tb04200.x | Cited by: 3
David Durand
Political Connections and Allocative Distortions
Published: 1/7/2019, Volume: 74, Issue: 2 | DOI: 10.1111/jofi.12751 | Cited by: 295
DAVID SCHOENHERR
Exploiting a unique institutional setting in Korea, this paper documents that politicians can increase the amount of government resources allocated through their social networks to the benefit of private firms connected to these networks. After winning the election, the new president appoints members of his networks as CEOs of state‐owned firms that act as intermediaries in allocating government contracts to private firms. In turn, these state firms allocate significantly more procurement contracts to private firms with a CEO from the same network. Contracts allocated to connected private firms are executed systematically worse and exhibit more frequent cost increases through renegotiations.
Testing the Efficiency of the Canadian‐U.S. Exchange Market under the Assumption of no Risk Premium
Published: 3/1981, Volume: 36, Issue: 1 | DOI: 10.1111/j.1540-6261.1981.tb03533.x | Cited by: 45
DAVID LONGWORTH
The efficiency of the Canadian‐U.S. exchange market for the current float is examined more extensively than previously. Semi‐strong‐form tests which admit the lagged spot rate as a predictor are considered in addition to the standard weak‐form test. These stronger tests reject the joint null hypothesis of an efficient exchange market and no risk premium for the period ending in October 1976, although not for the entire period. For almost every year the current spot rate provided a better forecast of the future spot rate than did the current forward rate.
GROWTH STOCKS AND THE PETERSBURG PARADOX*
Published: 9/1957, Volume: 12, Issue: 3 | DOI: 10.1111/j.1540-6261.1957.tb04143.x | Cited by: 13
David Durand
DISCUSSION
Published: 7/1986, Volume: 41, Issue: 3 | DOI: 10.1111/j.1540-6261.1986.tb04539.x | Cited by: 0
DAVID FELDMAN
MERGERS, DIVERSIFICATION AND THE THEORIES OF THE FIRM
Published: 3/1973, Volume: 28, Issue: 1 | DOI: 10.1111/j.1540-6261.1973.tb01368.x | Cited by: 0
David Gilbert
STATE OF THE FINANCE FIELD: FURTHER COMMENT
Published: 12/1968, Volume: 23, Issue: 5 | DOI: 10.1111/j.1540-6261.1968.tb00322.x | Cited by: 10
David Durand
Presidential Address: Social Transmission Bias in Economics and Finance
Published: 5/27/2020, Volume: 75, Issue: 4 | DOI: 10.1111/jofi.12906 | Cited by: 266
DAVID HIRSHLEIFER
I discuss a new intellectual paradigm, social economics and finance—the study of the social processes that shape economic thinking and behavior. This emerging field recognizes that people observe and talk to each other. A key, underexploited building block of social economics and finance is social transmission bias: systematic directional shift in signals or ideas induced by social transactions. I use five “fables” (models) to illustrate the novelty and scope of the transmission bias approach, and offer several emergent themes. For example, social transmission bias compounds recursively, which can help explain booms, bubbles, return anomalies, and swings in economic sentiment.
Good Timing: CEO Stock Option Awards and Company News Announcements
Published: 6/1997, Volume: 52, Issue: 2 | DOI: 10.1111/j.1540-6261.1997.tb04809.x | Cited by: 622
DAVID YERMACK
This article analyzes the timing of CEO stock option awards, as a method of investigating corporate managers' influence over the terms of their own compensation. In a sample of 620 stock option awards to CEOs of Fortune 500 companies between 1992 and 1994, I find that the timing of awards coincides with favorable movements in company stock prices. Patterns of companies' quarterly earnings announcements are consistent with an interpretation that CEOs receive stock option awards shortly before favorable corporate news. I evaluate and reject several alternative explanations of the results, including insider trading and the manipulation of news announcement dates.
Remuneration, Retention, and Reputation Incentives for Outside Directors
Published: 10/2004, Volume: 59, Issue: 5 | DOI: 10.1111/j.1540-6261.2004.00699.x | Cited by: 624
DAVID YERMACK
I study incentives received by outside directors in Fortune 500 firms from compensation, replacement, and the opportunity to obtain other directorships. Previous research has only shown these relations to apply under limited circumstances such as financial distress. Together these incentive mechanisms provide directors with wealth increases of approximately 11 cents per $1,000 rise in firm value. Although smaller than the performance sensitivities of CEOs, outside directors' incentives imply a change in wealth of about $285,000 for a 1 standard deviation (SD) change in typical firm performance. Cross‐sectional patterns of director equity awards conform to agency and financial theories.
Individual Investors and Volatility
Published: 7/19/2011, Volume: 66, Issue: 4 | DOI: 10.1111/j.1540-6261.2011.01668.x | Cited by: 316
THIERRY FOUCAULT, DAVID SRAER, DAVID J. THESMAR
We show that retail trading activity has a positive effect on the volatility of stock returns, which suggests that retail investors behave as noise traders. To identify this effect, we use a reform of the French stock market that raises the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by 20 basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades.
A Theoretical Model for Valuing Preferred Stock
Published: 9/1983, Volume: 38, Issue: 4 | DOI: 10.1111/j.1540-6261.1983.tb02288.x | Cited by: 19
DAVID EMANUEL
This paper develops a model of preferred stock value which includes the possibility of dividends on the preferred stock being omitted. The analytical framework used is based on the option‐hedging methodology of Black and Scholes. Precise valuation formulae are obtained for cumulative and noncumulative preferred stock in a variety of contexts. The values obtained are quite different from those for either riskless or risky perpetual bonds, which have previously been proposed as being similar to preferred stock.
Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France
Published: 2/5/2020, Volume: 75, Issue: 3 | DOI: 10.1111/jofi.12880 | Cited by: 125
JOHAN HOMBERT, ANTOINETTE SCHOAR, DAVID SRAER, DAVID THESMAR
We evaluate the effect of downside insurance on self‐employment. We exploit a large‐scale reform of French unemployment benefits that insured unemployed workers starting businesses. The reform significantly increased firm creation without decreasing the quality of new entrants. Firms started postreform were initially smaller, but their employment growth, productivity, and survival rates are similar to those prereform. New entrepreneurs' characteristics and expectations are also similar. Finally, jobs created by new entrants crowd out employment in incumbent firms almost one‐for‐one, but have a higher productivity than incumbents. These results highlight the benefits of encouraging experimentation by lowering barriers to entry.
Housing Collateral and Entrepreneurship
Published: 1/12/2017, Volume: 72, Issue: 1 | DOI: 10.1111/jofi.12468 | Cited by: 343
MARTIN C. SCHMALZ, DAVID A. SRAER, DAVID THESMAR
We show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross‐sectional variation in local house‐price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.
Minutes of the Annual Membership Meeting,
Published: 8/2004, Volume: 59, Issue: 4 | DOI: 10.1111/j.1540-6261.2004.00685.x | Cited by: 0
David H. Pyle
Report of the Executive Secretary and Treasurer
Published: 8/2002, Volume: 57, Issue: 4 | DOI: 10.1111/0022-1082.00381 | Cited by: 0
David H. Pyle
ON THE THEORY OF FINANCIAL INTERMEDIATION
Published: 6/1971, Volume: 26, Issue: 3 | DOI: 10.1111/j.1540-6261.1971.tb01727.x | Cited by: 156
David H. Pyle
Report of the Executive Secretary and Treasurer
Published: 8/2002, Volume: 57, Issue: 4 | DOI: 10.1111/0022-1082.00380-i1 | Cited by: 0
David H. Pyle
DISCUSSION
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03668.x | Cited by: 1
DAVID S. KIDWELL
The Manipulation of Executive Stock Option Exercise Strategies: Information Timing and Backdating
Published: 11/25/2009, Volume: 64, Issue: 6 | DOI: 10.1111/j.1540-6261.2009.01513.x | Cited by: 70
DAVID C. CICERO
I identify three option exercise strategies executives engage in, including (i) exercising with cash and immediately selling the shares, (ii) exercising with cash and holding the shares, and (iii) delivering some shares to the company to cover the exercise costs and holding the remaining shares. Stock price patterns suggest executives manipulate option exercises. They use private information to increase the profitability of all three strategies, and likely backdated some exercise dates in the pre‐Sarbanes‐Oxley period to enhance the profitability of the latter two strategies, where the executive's company is the only counterparty. Backdating is associated with reporting of internal control weaknesses.
Investment Decisions Depend on Portfolio Disclosures
Published: 6/1999, Volume: 54, Issue: 3 | DOI: 10.1111/0022-1082.00132 | Cited by: 145
David K. Musto
Abstract
A weekly database of retail money fund portfolio statistics is uneconomical for retail investors to observe, so it allows direct comparison of disclosed and undisclosed portfolios. This makes possible a more direct and unambiguous test for “window dressing” than elsewhere in the literature. The analysis shows that funds allocating between government and private issues hold more in government issues around disclosures than at other times, consistent with the theory that intermediaries prefer to disclose safer portfolios. Cross‐sectional comparisons locate the most intense rebalancing in the worst recent performers.
A BEHAVIORAL MODEL FOR COMMERCIAL BANKING*
Published: 9/1971, Volume: 26, Issue: 4 | DOI: 10.1111/j.1540-6261.1971.tb00941.x | Cited by: 0
David Neil Hyman
LEGAL ASPECTS OF REVENUE BOND FINANCING*
Published: 5/1955, Volume: 10, Issue: 2 | DOI: 10.1111/j.1540-6261.1955.tb01266.x | Cited by: 0
David M. Wood
Capital Structure as a Strategic Variable: Evidence from Collective Bargaining
Published: 5/7/2010, Volume: 65, Issue: 3 | DOI: 10.1111/j.1540-6261.2010.01565.x | Cited by: 514
DAVID A. MATSA
I analyze the strategic use of debt financing to improve a firm's bargaining position with an important supplier—organized labor. Because maintaining high levels of corporate liquidity can encourage workers to raise their wage demands, a firm with external finance constraints has an incentive to use the cash flow demands of debt service to improve its bargaining position with workers. Using both firm‐level collective bargaining coverage and state changes in labor laws to identify changes in union bargaining power, I show that strategic incentives from union bargaining appear to have a substantial impact on corporate financing decisions.
Report of the Executive Secretary and Treasurer for the Year Ending September 30, 1999
Published: 8/2000, Volume: 55, Issue: 4 | DOI: 10.1111/0022-1082.00272 | Cited by: 0
David H. Pyle
TRADE‐CREDIT MANAGEMENT: SELECTION OF ACCOUNTS RECEIVABLE USING A STATISTICAL MODEL*
Published: 12/1968, Volume: 23, Issue: 5 | DOI: 10.1111/j.1540-6261.1968.tb00331.x | Cited by: 0
David C. Ewert
RESTRICTIONS ON THE RATE OF INTEREST ON DEMAND DEPOSITS AND A THEORY OF COMPENSATING BALANCES
Published: 5/1976, Volume: 31, Issue: 2 | DOI: 10.1111/j.1540-6261.1976.tb01883.x | Cited by: 3
David Wiley Mullins
REDISTRIBUTION OF GOLD RESERVES BETWEEN FEDERAL RESERVE BANKS*
Published: 12/1961, Volume: 16, Issue: 4 | DOI: 10.1111/j.1540-6261.1961.tb04239.x | Cited by: 0
David B. McCalmont
Minutes of the Annual Membership Meeting
Published: 8/2000, Volume: 55, Issue: 4 | DOI: 10.1111/0022-1082.00271 | Cited by: 0
David H. Pyle
Financing Policy, Basis Risk, and Corporate Hedging: Evidence from Oil and Gas Producers
Published: 2/2000, Volume: 55, Issue: 1 | DOI: 10.1111/0022-1082.00202 | Cited by: 527
G. David Haushalter
This paper studies the hedging policies of oil and gas producers between 1992 and 1994. My evidence shows that the extent of hedging is related to financing costs. In particular, companies with greater financial leverage manage price risks more extensively. My evidence also shows that the likelihood of hedging is related to economies of scale in hedging costs and to the basis risk associated with hedging instruments. Larger companies and companies whose production is located primarily in regions where prices have a high correlation with the prices on which exchange‐traded derivatives are based are more likely to manage risks.
Minutes of the Annual Membership Meeting
Published: 8/2002, Volume: 57, Issue: 4 | DOI: 10.1111/0022-1082.00061-i1 | Cited by: 0
David H. Pyle
Tender Offers and Management Resistance
Published: 5/1983, Volume: 38, Issue: 2 | DOI: 10.1111/j.1540-6261.1983.tb02237.x | Cited by: 56
DAVID P. BARON
Presidential Address: Pension Policy and the Financial System
Published: 8/2018, Volume: 73, Issue: 4 | DOI: 10.1111/jofi.12710 | Cited by: 63
DAVID S. SCHARFSTEIN
In this paper, I examine the effect of pension policy on the structure of financial systems around the world. In particular, I explore the hypothesis that policies that promote pension savings also promote the development of capital markets. I present a model that endogenizes the extent to which savings are intermediated through banks or capital markets, and derive implications for corporate finance, household finance, banking, and the size of the financial sector. I then present a number of facts that are broadly consistent with the theory and examine a variety of alternative explanations of my findings.
Minutes of the Annual Membership Meeting, January 7, 2012
Published: 7/19/2012, Volume: 67, Issue: 4 | DOI: 10.1111/j.1540-6261.2012.01756.x | Cited by: 0
DAVID H. PYLE