The Journal of Finance

Implications of the Discreteness of Observed Stock Prices

Published: 3/1985,  Volume: 40,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1985.tb04941.x  |  Cited by: 125

GARY GOTTLIEB, AVNER KALAY

Stock prices on the organized exchanges are restricted to be divisible by ⅛. Therefore, the “true” price usually differs from the observed price. This paper examines the biases resulting from the discreteness of observed stock prices. It is shown that the natural estimators of the variance and all of the higher order moments of the rate of returns are biased. An approximate set of correction factors is derived and a procedure is outlined to show how the correction can be made. The natural estimators of the “beta” and of the variance of the market portfolio, on the other hand, are “nearly” unbiased.

THE CAPITAL LEVY AND DEADWEIGHT DEBT IN ENGLAND—1815–40

Published: 3/1953,  Volume: 8,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1953.tb01134.x  |  Cited by: 4

Manuel Gottlieb

Asset Market Participation and Portfolio Choice over the Life‐Cycle

Published: 3/21/2017,  Volume: 72,  Issue: 2  |  DOI: 10.1111/jofi.12484  |  Cited by: 275

ANDREAS FAGERENG, CHARLES GOTTLIEB, LUIGI GUISO

Using error‐free data on life‐cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life‐cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per‐period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway.

Further Evidence on the Value of a Priori Information

Published: 3/1980,  Volume: 35,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1980.tb03481.x  |  Cited by: 1

GARY SMITH

DISCUSSION

Published: 5/1983,  Volume: 38,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1983.tb02244.x  |  Cited by: 0

GARY W. EMERY

THE INVESTMENT PERFORMANCE OF STOCK PROPERTY‐LIABILITY INSURANCE COMPANIES: 1948–1967*

Published: 3/1972,  Volume: 27,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1972.tb00637.x  |  Cited by: 0

Gary G. Schlarbaum

EVALUATING CAPITAL BUDGETING MODELS IN SIMULATED ENVIRONMENTS

Published: 9/1975,  Volume: 30,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1975.tb01015.x  |  Cited by: 4

Gary L. Sundem

AN ECONOMETRIC EQUITY‐MARKET MODEL: COBWEBS IN THE STOCK MARKET*

Published: 6/1971,  Volume: 26,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1971.tb01741.x  |  Cited by: 0

Gary Allan McCue

PREDICTING DE NOVO EXPANSION IN BANK MERGER CASES

Published: 3/1974,  Volume: 29,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1974.tb00031.x  |  Cited by: 6

Gary G. Gilbert

ESTIMATING A GENERAL DISEQUILIBRIUM MODEL OF THE FINANCIAL SECTOR*

Published: 12/1973,  Volume: 28,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1973.tb01475.x  |  Cited by: 0

Gary N. Smith

Interest Rate Term Structure Estimation with Exponential Splines: A Note

Published: 3/1985,  Volume: 40,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1985.tb04952.x  |  Cited by: 71

GARY S. SHEA

Vasicek and Fong [11] developed exponential spline functions as models of the interest rate term structure and claim such models are superior to polynomial spline models. It is found empirically that i) exponential spline term structure estimates are no more stable than estimates from a polynomial spline model, ii) data transformations implicit in the exponential spline model frequently condition the data so that it is difficult to obtain approximations in which one can place confidence, and iii) the asymptotic properties of the exponential spline model frequently are unrealistic. Estimation with exponential splines is no more convenient than estimation with polynomial splines and gives substantially identical estimates of the interest rate term structure as well.

Financial Intermediaries and Liquidity Creation

Published: 3/1990,  Volume: 45,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1990.tb05080.x  |  Cited by: 667

GARY GORTON, GEORGE PENNACCHI

Trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets. These securities, which can arise endogenously, have values that do not depend on the information known only to informed agents. Bank debt (deposits) is an example of this type of liquid security which protect relatively uninformed agents, and we provide a rationale for deposit insurance in this content. High‐grade corporate debt and government bonds are other examples, implying that a money market mutual fund‐based payments system may be an alternative to one based on insured bank deposits.

Stock Market Efficiency and Economic Efficiency: Is There a Connection?

Published: 7/1997,  Volume: 52,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1997.tb02726.x  |  Cited by: 515

JAMES DOW, GARY GORTON

In a capitalist economy, prices serve to equilibrate supply and demand for goods and services, continually changing to reallocate resources to their most efficient uses. However, secondary stock market prices, often viewed as the most “informationally efficient” prices in the economy, have no direct role in the allocation of equity capital since managers have discretion in determining the level of investment. What is the link between stock price informational efficiency and economic efficiency? We present a model of the stock market in which: (i) managers have discretion in making investments and must be given the right incentives; and (ii) stock market traders may have important information that managers do not have about the value of prospective investment opportunities. In equilibrium, information in stock prices will guide investment decisions because managers will be compensated based on informative stock prices in the future. The stock market indirectly guides investment by transferring two kinds of information: information about investment opportunities and information about managers' past decisions. However, because this role is only indirect, the link between price efficiency and economic efficiency is tenuous. We show that stock price efficiency is not sufficient for economic efficiency by showing that the model may have another equilibrium in which prices are strong‐form efficient, but investment decisions are suboptimal. We also suggest that stock market efficiency is not necessary for investment efficiency by considering a banking system that can serve as an alternative institution for the efficient allocation of investment resources.

A Test of the Modigliani‐Miller Invariance Theorem and Arbitrage in Experimental Asset Markets

Published: 12/12/2018,  Volume: 74,  Issue: 1  |  DOI: 10.1111/jofi.12736  |  Cited by: 40

GARY CHARNESS, TIBOR NEUGEBAUER

Modigliani and Miller show that the total market value of a firm is unaffected by a repackaging of asset return streams to equity and debt if pricing is arbitrage‐free. We investigate this invariance theorem in experimental asset markets, finding value‐invariance for assets of identical risks when returns are perfectly correlated. However, exploiting price discrepancies has risk when returns have the same expected value but are uncorrelated, in which case the law of one price is violated. Discrepancies shrink in consecutive markets, but persist even with experienced traders. In markets where overall trader acuity is high, assets trade closer to parity.

THE VALUE OF A PRIORI INFORMATION IN ESTIMATING A FINANCIAL MODEL*

Published: 12/1976,  Volume: 31,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1976.tb03215.x  |  Cited by: 9

Gary Smith, William Brainard

Arbitrage Chains

Published: 7/1994,  Volume: 49,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1994.tb00080.x  |  Cited by: 125

JAMES DOW, GARY GORTON

Abstract A privately informed trader will engage in costly arbitrage, that is, trade on his knowledge that the price of an asset is different from the fundamental value if: (1) his order does not move the price immediately to reflect the information; and (2) he can hold the asset until the date when the information is reflected in the price. We study a general equilibrium model in which all agents optimize. In each period, there may be a trader with a limited horizon who has private information about a distant event. Whether he acts on his information, and whether subsequent informed traders act, is shown to depend on the possibility of a sequence or chain of future informed traders spanning the event date. An arbitrageur who receives good news will buy only if it is likely that, at the end of his trading horizon, a subsequent arbitrageur's buying will have pushed up the expected price. We show that limited trading horizons result in inefficient prices, because informed traders do not act on their information until the event date is sufficiently close. We also show that limited horizons can arise because of the cost‐carry associated with holding an arbitrage portfolio over an extended period of time.

“q” and the Theory of Investment

Published: 5/1979,  Volume: 34,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1979.tb02120.x  |  Cited by: 1

JOHN CICCOLO, GARY FROMM

Corporate Control, Portfolio Choice, and the Decline of Banking

Published: 12/1995,  Volume: 50,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1995.tb05183.x  |  Cited by: 207

GARY GORTON, RICHARD ROSEN

In the 1980s, U.S. banks became systematically less profitable and riskier as nonbank competition eroded the profitability of banks' traditional activities. Bank failures rose exponentially during this decade. The leading explanation for the persistence of these trends centers on fixed‐rate deposit insurance: the insurance gives bank equityholders an incentive to take on risk when the value of bank charters falls. We propose and test an alternative explanation based on corporate control considerations. We show that managerial entrenchment played a more important role than did the moral hazard associated with deposit insurance in explaining the recent behavior of the banking industry.

A Disequilibrium Model of Savings and Loan Associations

Published: 12/1982,  Volume: 37,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1982.tb03618.x  |  Cited by: 1

GARY SMITH, WILLIAM BRAINARD

This paper discusses the consistent specification and estimation of asset demand equations in a disequilibrium model of financial markets. We estimate the effective asset demands of savings and loan associations, allowing for rationing in the mortgage market. These disequilibrium estimates are not very different from the estimates of notional demands with no rationing assumed. Savings and loans seem to be least affected by excess demand situations in that they are apparently not reluctant to raise mortgage rates and/or to ration borrowers.

The Calculation of Implied Variances from the Black‐Scholes Model: A Note

Published: 3/1982,  Volume: 37,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1982.tb01105.x  |  Cited by: 67

STEVEN MANASTER, GARY KOEHLER

Firm Size and Turn‐of‐the‐Year Effects in the OTC/NASDAQ Market

Published: 12/1989,  Volume: 44,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1989.tb02651.x  |  Cited by: 51

CHRISTOPHER G. LAMOUREUX, GARY C. SANGER

This paper examines the turn‐of‐the‐year effect, the firm size effect, and the relation between these two effects for a sample of OTC stocks traded via the NASDAQ reporting system over the period 1973–1985. We find results similar to those based solely on listed stocks. The importance of these findings stems from the existence of nontrivial differences between the characteristics of the OTC/NASDAQ sample and the samples of listed firms examined previously in the literature. We also find that NASDAQ quoted bid‐ask spreads are highly negatively correlated with firm size, are not highly seasonal, and are large enough to preclude trading profits based upon a knowledge of the seasonality of small firms' returns.

The Puzzle in Post‐Listing Common Stock Returns

Published: 3/1987,  Volume: 42,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1987.tb02554.x  |  Cited by: 39

JOHN J. McCONNELL, GARY C. SANGER

Prior studies indicate that common stocks tend to earn negative returns immediately following listing on the NYSE. The authors document the phenomenon in detail and investigate a number of possible explanations. No full explanation is discovered, although several are ruled out.

THE IMPACT OF CHANGES IN FEDERAL RESERVE MEMBERSHIP ON COMMERCIAL BANK PERFORMANCE

Published: 6/1975,  Volume: 30,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1975.tb01845.x  |  Cited by: 5

Gary G. Gilbert, Manferd O. Peterson

Eat or Be Eaten: A Theory of Mergers and Firm Size

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01465.x  |  Cited by: 204

GARY GORTON, MATTHIAS KAHL, RICHARD J. ROSEN

We propose a theory of mergers that combines managerial merger motives with an industry‐level regime shift that may lead to value‐increasing merger opportunities. Anticipation of these merger opportunities can lead to defensive acquisitions, where managers acquire other firms to avoid losing private benefits if their firms are acquired, or “positioning” acquisitions, where firms position themselves as more attractive takeover targets to earn takeover premia. The identity of acquirers and targets and the profitability of acquisitions depend on the distribution of firm sizes within an industry, among other factors. We find empirical support for some unique predictions of our theory.

The Turn‐of‐the‐Year in Canada

Published: 3/1984,  Volume: 39,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1984.tb03867.x  |  Cited by: 77

ANGEL BERGES, JOHN J. McCONNELL, GARY G. SCHLARBAUM

A number of investigators have reported that January stock returns in the U.S. exceed returns for other months of the year. This paper documents a similar finding for Canadian stocks over the period 1951–1980. However, Canada did not introduce a capital gains tax until 1973 and the paper reports that January returns in Canada exceed returns for other months of the year before and after this date. Thus, these data do not support the tax‐loss‐selling‐pressure hypothesis as the entire explanation for the turn‐of‐the‐year effect in stock returns, nor, by implication, do they support the tax‐loss‐selling‐pressure hypothesis as the complete explanation for the “small firm” effect in U.S. stocks returns.

THE COMMON‐STOCK‐PORTFOLIO PERFORMANCE RECORD OF INDIVIDUAL INVESTORS: 1964–70

Published: 5/1978,  Volume: 33,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1978.tb04859.x  |  Cited by: 39

Gary G. Schlarbaum, Wilbur G. Lewellen, Ronald C. Lease

SURVEY AND ANALYSIS OF CAPITAL BUDGETING METHODS

Published: 3/1978,  Volume: 33,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1978.tb03404.x  |  Cited by: 174

Lawrence D. Schall, Gary L. Sundem, William R. Geijsbeek

DURATION AND RISK ASSESSMENT FOR BONDS AND COMMON STOCKS

Published: 12/1975,  Volume: 30,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1975.tb01062.x  |  Cited by: 45

John A. Boquist, George A. Racette, Gary G. Schlarbaum

THE INDIVIDUAL INVESTOR: ATTRIBUTES AND ATTITUDES

Published: 5/1974,  Volume: 29,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1974.tb03055.x  |  Cited by: 111

Ronald C. Lease, Wilbur G. Lewellen, Gary G. Schlarbaum

FEDERAL RESERVE MEMBERSHIP AND BANK PERFORMANCE: THE EVIDENCE FROM TEXAS

Published: 5/1975,  Volume: 30,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1975.tb01837.x  |  Cited by: 2

Donald R. Fraser, Peter S. Rose, Gary L. Schugart

INDIVIDUAL INVESTOR RISK AVERSION AND INVESTMENT PORTFOLIO COMPOSITION

Published: 5/1975,  Volume: 30,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1975.tb01834.x  |  Cited by: 274

Richard A. Cohn, Wilbur G. Lewellen, Ronald C. Lease, Gary G. Schlarbaum

SOME DIRECT EVIDENCE ON THE DIVIDEND CLIENTELE PHENOMENON

Published: 12/1978,  Volume: 33,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1978.tb03427.x  |  Cited by: 70

Wilbur G. Lewellen, Kenneth L. Stanley, Ronald C. Lease, Gary G. Schlarbaum