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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Corporate Events, Trading Activity, and the Estimation of Systematic Risk: Evidence From Equity Offerings and Share Repurchases
Published: 12/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb04781.x
DAVID J. DENIS, GREGORY B. KADLEC
We investigate the relation between trading activity, the measurement of security returns, and the evolution of security prices by examining estimates of systematic risk surrounding equity offerings and share repurchases. In contrast to prior studies, we find no evidence of changes in systematic risk following either equity offerings or share repurchases after correcting for biases caused by infrequent trading and price adjustment delays. Moreover, changes in ordinary least squares beta estimates are significantly related to contemporaneous changes in trading activity. Our results have implications for studies interested in the properties of security returns, particularly those examining periods in which trading activity changes.
The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings
Published: 06/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb05154.x
GREGORY B. KADLEC, JOHN J. MCCONNELL
This article documents the effect on share value of listing on the New York Stock Exchange and reports the results of a joint test of Merton's (1987) investor recognition factor and Amihud and Mendelson's (1986) liquidity factor as explanations of the change in share value. We find that during the 1980s stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid‐ask spreads. Cross‐sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing.
On the Perils of Financial Intermediaries Setting Security Prices: The Mutual Fund Wild Card Option
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00403
John M. R. Chalmers, Roger M. Edelen, Gregory B. Kadlec
Economic distortions can arise when financial claims trade at prices set by an intermediary rather than direct negotiation between principals. We demonstrate the problem in a specific context, the exchange of open‐end mutual fund shares. Mutual funds typically set fund share price (NAV) using an algorithm that fails to account for nonsynchronous trading in the fund's underlying securities. This results in predictable changes in NAV, which lead to exploitable trading opportunities. A modification to the pricing algorithm that corrects for nonsynchronous trading eliminates much of the predictability. However, there are many other potential sources of distortion when intermediaries set prices.