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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Disagreement and Learning: Dynamic Patterns of Trade
Published: 7/15/2010, Volume: 65, Issue: 4 | DOI: 10.1111/j.1540-6261.2010.01570.x | Cited by: 315
SNEHAL BANERJEE, ILAN KREMER
The empirical evidence on investor disagreement and trading volume is difficult to reconcile in standard rational expectations models. We develop a dynamic model in which investors disagree about the interpretation of public information. We obtain a closed‐form linear equilibrium that allows us to study which restrictions on the disagreement process yield empirically observed volume and return dynamics. We show that when investors have infrequent but major disagreements, there is positive autocorrelation in volume and positive correlation between volume and volatility. We also derive novel empirical predictions that relate the degree and frequency of disagreement to volume and volatility dynamics.
Disclosing a Random Walk
Published: 11/23/2023, Volume: 79, Issue: 2 | DOI: 10.1111/jofi.13290 | Cited by: 8
ILAN KREMER, AMNON SCHREIBER, ANDRZEJ SKRZYPACZ
We examine a dynamic disclosure model in which the value of a firm follows a random walk. Every period, with some probability, the manager learns the firm's value and decides whether to disclose it. The manager maximizes the market perception of the firm's value, which is based on disclosed information. In equilibrium, the manager follows a threshold strategy with thresholds below current prices. He sometimes reveals pessimistic information that reduces the market perception of the firm's value. He does so to reduce future market uncertainty, which is valuable even under risk‐neutrality.
Diversification as a Public Good: Community Effects in Portfolio Choice
Published: 8/2004, Volume: 59, Issue: 4 | DOI: 10.1111/j.1540-6261.2004.00676.x | Cited by: 133
Peter M. Demarzo, Ron Kaniel, Ilan Kremer
Within a rational general equilibrium model in which agents care only about personal consumption, we consider a setting in which, due to borrowing constraints, individuals endowed with local resources underparticipate in financial markets. As a result, investors compete for local resources through their portfolio choices. Even with complete financial markets and no aggregate risk, agents may herd into risky portfolios. This yields a Pareto‐dominated outcome as agents introduce “community” risk unrelated to fundamentals. Moreover, if some agents are behaviorally biased, or cannot completely diversify their holdings, rational agents may choose more extreme portfolios and amplify the effect.
Asset Pricing Implications of Nonconvex Adjustment Costs and Irreversibility of Investment
Published: 1/20/2006, Volume: 61, Issue: 1 | DOI: 10.1111/j.1540-6261.2006.00832.x | Cited by: 310
ILAN COOPER
This paper derives a real options model that accounts for the value premium. If real investment is largely irreversible, the book value of assets of a distressed firm is high relative to its market value because it has idle physical capital. The firm's excess installed capital capacity enables it to fully benefit from positive aggregate shocks without undertaking costly investment. Thus, returns to equity holders of a high book‐to‐market firm are sensitive to aggregate conditions and its systematic risk is high. Simulations indicate that the model goes a long way toward accounting for the observed value premium.