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: 5.
(Why) Do Central Banks Care about Their Profits?
Published: 7/6/2023, Volume: 78, Issue: 5 | DOI: 10.1111/jofi.13257 | Cited by: 36
IGOR GONCHAROV, VASSO IOANNIDOU, MARTIN C. SCHMALZ
We document that central banks are discontinuously more likely to report slightly positive profits than slightly negative profits, especially when political pressure is greater, the public is more receptive to extreme political views, and central bank governors are eligible for reappointment. The propensity to report small profits over small losses is correlated with higher inflation and lower interest rates. We conclude that there are agency problems at central banks, which give rise to discontinuous profit incentives that correlate with central banks’ policy choices and outcomes. These findings inform the debate about the political economy of central banking and central bank design.
Equilibrium Subprime Lending
Published: 5/20/2013, Volume: 68, Issue: 3 | DOI: 10.1111/jofi.12022 | Cited by: 9
IGOR MAKAROV, GUILLAUME PLANTIN
This paper develops an equilibrium model of a subprime mortgage market. Our goal is to offer a benchmark with which the recent subprime boom and bust can be compared. The model is tractable and delivers plausible orders of magnitude for borrowing capacities, as well as default and trading intensities. We offer simple explanations for several phenomena in the subprime market, such as the prevalence of teaser rates and the clustering of defaults. In our model, both nondiversifiable and diversifiable income risks reduce debt capacities. Thus, debt capacities need not be higher when a larger fraction of income risk is diversifiable.
Rewarding Trading Skills without Inducing Gambling
Published: 5/11/2015, Volume: 70, Issue: 3 | DOI: 10.1111/jofi.12257 | Cited by: 39
IGOR MAKAROV, GUILLAUME PLANTIN
This paper develops a model of active asset management in which fund managers may forgo alpha‐generating strategies, preferring instead to make negative‐alpha trades that enable them to temporarily manipulate investors' perceptions of their skills. We show that such trades are optimally generated by taking on hidden tail risk, and are more likely to occur when fund managers are impatient and when their trading skills are scalable, and generate a high profit per unit of risk. We propose long‐term contracts that deter this behavior by dynamically adjusting the dates on which the manager is compensated in response to her cumulative performance.
Informational Black Holes in Financial Markets
Published: 8/28/2023, Volume: 78, Issue: 6 | DOI: 10.1111/jofi.13270 | Cited by: 3
ULF AXELSON, IGOR MAKAROV
We show that information aggregation in primary financial markets fails precisely when investors hold socially useful information for screening projects. Being wary of the Winner's Curse, less optimistic investors refrain from making financing offers, since their offers would be accepted only when a project is unviable. Their information is therefore lost. The Winner's Curse and associated information loss grow with the number of informed market participants, so that larger markets can lead to worse financing decisions and higher cost of capital for firms seeking financing. Precommitment to ration fundraising allocations, collusive club bidding, and shorting markets can mitigate the inefficiency.
The Real Effects of Credit Ratings: The Sovereign Ceiling Channel
Published: 1/12/2017, Volume: 72, Issue: 1 | DOI: 10.1111/jofi.12434 | Cited by: 276
HEITOR ALMEIDA, IGOR CUNHA, MIGUEL A. FERREIRA, FELIPE RESTREPO
We show that sovereign debt impairments can have a significant effect on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation in corporate ratings due to rating agencies' sovereign ceiling policies, which require that firms' ratings remain at or below the sovereign rating of their country of domicile.