The Journal of Finance

Efficient Analytic Approximation of American Option Values

Published: 6/1987,  Volume: 42,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1987.tb02569.x  |  Cited by: 529

GIOVANNI BARONE‐ADESI, ROBERT E. WHALEY

This paper provides simple, analytic approximations for pricing exchange‐traded American call and put options written on commodities and commodity futures contracts. These approximations are accurate and considerably more computationally efficient than finite‐difference, binomial, or compound‐option pricing methods.

Interlocking Directorates and Competition in Banking

Published: 5/27/2025,  Volume: 80,  Issue: 4  |  DOI: 10.1111/jofi.13464  |  Cited by: 16

GUGLIELMO BARONE, FABIANO SCHIVARDI, ENRICO SETTE

We study the effects on corporate loan rates of an unexpected change in the Italian legislation that forbade interlocking directorates between banks. Exploiting multiple firm‐bank relationships to fully account for all unobserved heterogeneity, we find that prohibiting interlocks decreased the interest rates of previously interlocked banks by 14 basis points relative to other banks. The effect is stronger for high‐quality firms and for loans extended by interlocked banks with a large joint market share. Interest rates on loans from previously interlocked banks become more dispersed. Finally, firms borrowing more from previously interlocked banks expand investment, employment, and sales.

Information Sales and Insider Trading with Long‐Lived Information

Published: 4/2008,  Volume: 63,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2008.01327.x  |  Cited by: 58

GIOVANNI CESPA

Fundamental information resembles in many respects a durable good. Hence, the effects of its incorporation into stock prices depend on who is the agent controlling its flow. Like a durable goods monopolist, a monopolistic analyst selling information intertemporally competes against herself. This forces her to partially relinquish control over the information flow to traders. Conversely, an insider solves the intertemporal competition problem through vertical integration, thus exerting tighter control over the information flow. Comparing market patterns I show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades.

The Beauty Contest and Short‐Term Trading

Published: 9/3/2015,  Volume: 70,  Issue: 5  |  DOI: 10.1111/jofi.12279  |  Cited by: 100

GIOVANNI CESPA, XAVIER VIVES

Short‐termism need not breed informational price inefficiency even when generating beauty contests. We demonstrate this claim in a two‐period market with persistent liquidity trading and risk‐averse, privately informed, short‐term investors and find that prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in “retrospective” learning to reassess inferences (about fundamentals) made during the trading game's early stages. This behavior introduces strategic complementarities in the use of information and can yield two stable equilibria that can be ranked in terms of liquidity, volatility, and informational efficiency. We derive implications that explain market anomalies as well as empirical regularities.

Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market

Published: 5/5/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12494  |  Cited by: 94

GIOVANNI FAVARA, MARIASSUNTA GIANNETTI

We provide evidence that lenders differ in their ex post incentives to internalize price‐default externalities associated with the liquidation of collateralized debt. Using the mortgage market as a laboratory, we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and thus are less inclined to foreclose. We provide evidence consistent with our conjecture. Arguably as a consequence, zip codes with a higher concentration of outstanding mortgages experience smaller house prices declines. These results are not driven by unobservable zip code or lender characteristics.

Lending Booms and Lending Standards

Published: 9/19/2006,  Volume: 61,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2006.01065.x  |  Cited by: 590

GIOVANNI DELL'ARICCIA, ROBERT MARQUEZ

We examine how the informational structure of loan markets interacts with banks' strategic behavior in determining lending standards, lending volume, and the aggregate allocation of credit. We show that, as banks obtain private information about borrowers and information asymmetries across banks decrease, banks may loosen their lending standards, leading to an equilibrium with deteriorated bank portfolios, lower profits, and expanded aggregate credit. These lower standards are associated with greater aggregate surplus and greater risk of financial instability. We therefore provide an explanation for the sequence of financial liberalization, lending booms, and banking crises observed in many emerging markets.

Risk and the Corporate Structure of Banks

Published: 5/7/2010,  Volume: 65,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2010.01561.x  |  Cited by: 67

GIOVANNI DELL'ARICCIA, ROBERT MARQUEZ

We identify different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary‐based corporate structures benefit from greater protection against economic risk because of affiliate‐level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch‐based structures are preferred to subsidiary‐based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross‐country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, a bank's corporate structure affects its risk taking and affiliate size.

Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy

Published: 10/10/2022,  Volume: 77,  Issue: 6  |  DOI: 10.1111/jofi.13181  |  Cited by: 70

JULIAN DI GIOVANNI, GALINA HALE

We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks on country‐sector stock returns. We estimate a structural spatial autoregression (SAR) model that is consistent with an open‐economy production network framework. Using the SAR model, we decompose the total impact of U.S. monetary policy on global stock returns into direct and network effects. Nearly 70% of the total impact is due to the network effect of global production linkages. Empirical counterfactuals show that shutting down global production linkages halves the total impact of U.S. monetary policy shocks.

Strategic Default and Equity Risk Across Countries

Published: 11/19/2012,  Volume: 67,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2012.01781.x  |  Cited by: 94

GIOVANNI FAVARA, ENRIQUE SCHROTH, PHILIP VALTA

We show that the prospect of a debt renegotiation favorable to shareholders reduces the firm's equity risk. Equity beta and return volatility are lower in countries where the bankruptcy code favors debt renegotiations and for firms with more shareholder bargaining power relative to debt holders. These relations weaken as the country's insolvency procedure favors liquidations over renegotiations. In the limit, when debt contracts cannot be renegotiated, equity risk is independent of shareholders' incentives to default strategically. We argue that these findings support the hypothesis that the threat of strategic default can reduce the firm's equity risk.

Bank Leverage and Monetary Policy's Risk‐Taking Channel: Evidence from the United States

Published: 3/21/2017,  Volume: 72,  Issue: 2  |  DOI: 10.1111/jofi.12467  |  Cited by: 392

GIOVANNI DELL'ARICCIA, LUC LAEVEN, GUSTAVO A. SUAREZ

We present evidence of a risk‐taking channel of monetary policy for the U.S. banking system. We use confidential data on banks’ internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's Survey of Terms of Business Lending. We find that ex ante risk‐taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short‐term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.

An Economic View of Corporate Social Impact

Published: 12/15/2025,  Volume: 81,  Issue: 1  |  DOI: 10.1111/jofi.70004  |  Cited by: 2

HUNT ALLCOTT, GIOVANNI MONTANARI, BORA OZALTUN, BRANDON TAN

Growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact, suggesting that consumer impacts deserve more attention from impact investors. Existing environmental, social, and governance (ESG) and social impact ratings are essentially unrelated to our economically grounded measures.