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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Search results: 3.
Volatility, Valuation Ratios, and Bubbles: An Empirical Measure of Market Sentiment
Published: 07/13/2021 | DOI: 10.1111/jofi.13068
CAN GAO, IAN W. R. MARTIN
We define a sentiment indicator based on option prices, valuation ratios, and interest rates. The indicator can be interpreted as a lower bound on the expected growth in fundamentals that a rational investor would have to perceive to be happy to hold the market. The bound was unusually high in the late 1990s, reflecting dividend growth expectations that in our view were unreasonably optimistic. Our approach exploits two key ingredients. First, we derive a new valuation ratio decomposition that is related to the Campbell–Shiller loglinearization but that resembles the Gordon growth model more closely and has certain other advantages. Second, we introduce a volatility index that provides a lower bound on the market's expected log return.
What Is the Expected Return on a Stock?
Published: 04/18/2019 | DOI: 10.1111/jofi.12778
IAN W. R. MARTIN, CHRISTIAN WAGNER
We derive a formula for the expected return on a stock in terms of the risk‐neutral variance of the market and the stock's excess risk‐neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.
Long‐Horizon Exchange Rate Expectations
Published: 09/29/2025 | DOI: 10.1111/jofi.13504
LUKAS KREMENS, IAN W. R. MARTIN, LILIANA VARELA
We study exchange rate expectations in surveys of financial professionals and find that they successfully forecast currency appreciation at the two‐year horizon, both in and out of sample. Exchange rate expectations are also interpretable, in the sense that three macro‐finance variables—the risk‐neutral covariance between the exchange rate and equity market, the real exchange rate, and the current account relative to GDP—explain most of their variation. There is no “secret sauce,” however, in expectations: After controlling for the three macro‐finance variables, the residual information in survey expectations does not forecast currency appreciation in our sample.