The Journal of Finance

Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts

Published: 2/2003,  Volume: 58,  Issue: 1  |  DOI: 10.1111/1540-6261.00526  |  Cited by: 1134

Harrison Hong, Jeffrey D. Kubik

We examine security analysts' career concerns by relating their earnings forecasts to job separations. Relatively accurate forecasters are more likely to experience favorable career outcomes like moving up to a high‐status brokerage house. Controlling for accuracy, analysts who are optimistic relative to the consensus are more likely to experience favorable job separations. For analysts who cover stocks underwritten by their houses, job separations depend less on accuracy and more on optimism. Job separations were less sensitive to accuracy and more sensitive to optimism during the recent stock market mania. Brokerage houses apparently reward optimistic analysts who promote stocks.

Social Interaction and Stock‐Market Participation

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2004.00629.x  |  Cited by: 1468

Harrison Hong, Jeffrey D. Kubik, Jeremy C. Stein

We propose that stock‐market participation is influenced by social interaction. In our model, any given “social” investor finds the market more attractive when more of his peers participate. We test this theory using data from the Health and Retirement Study, and find that social households—those who interact with their neighbors, or attend church—are substantially more likely to invest in the market than non‐social households, controlling for wealth, race, education, and risk tolerance. Moreover, consistent with a peer‐effects story, the impact of sociability is stronger in states where stock‐market participation rates are higher.

Thy Neighbor's Portfolio: Word‐of‐Mouth Effects in the Holdings and Trades of Money Managers

Published: 11/10/2005,  Volume: 60,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2005.00817.x  |  Cited by: 798

HARRISON HONG, JEFFREY D. KUBIK, JEREMY C. STEIN

A mutual fund manager is more likely to buy (or sell) a particular stock in any quarter if other managers in the same city are buying (or selling) that same stock. This pattern shows up even when the fund manager and the stock in question are located far apart, so it is distinct from anything having to do with local preference. The evidence can be interpreted in terms of an epidemic model in which investors spread information about stocks to one another by word of mouth.

Outsourcing Mutual Fund Management: Firm Boundaries, Incentives, and Performance

Published: 3/7/2013,  Volume: 68,  Issue: 2  |  DOI: 10.1111/jofi.12006  |  Cited by: 142

JOSEPH CHEN, HARRISON HONG, WENXI JIANG, JEFFREY D. KUBIK

We investigate the effects of managerial outsourcing on the performance and incentives of mutual funds. Fund families outsource the management of a large fraction of their funds to advisory firms. These funds underperform those run internally by about 52 basis points per year. After instrumenting for a fund's outsourcing status, the estimated underperformance is three times larger. We hypothesize that contractual externalities due to firm boundaries make it difficult to extract performance from an outsourced relationship. Consistent with this view, outsourced funds face higher powered incentives; they are more likely to be closed after poor performance and excessive risk‐taking.

The Effects of Mission‐Oriented Public R & D Spending on Private Industry

Published: 6/1981,  Volume: 36,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1981.tb00648.x  |  Cited by: 16

JEFFREY CARMICHAEL

This paper addresses the question of how government mission‐oriented R & D spending affects private R & D spending and thereby the total investment in technology. The problem is approached within the context of the capital asset pricing model in which the firm views investment projects in terms of their risk and return characteristics. The firm is assumed to produce jointly an established product and an R & D‐intensive product, where the latter generates an additional output of technology, or spillover, that is used as an input into the former. By investing in R & D the firm alters its risk and return characteristics in two ways: through the expected profits from the sale of the R & D‐intensive good; and through the expected profits from the spillover. In this model, government mission‐oriented R & D contracting affects the firm by enabling it to separate to some extent these two sources of risk and return. The main implication of the analysis is that while some public crowding out of private R & D is likely, this is almost certain to be incomplete. The empirical evidence from the U.S. transport industry supports the model and suggests that each dollar of government funding adds around 92 cents to total R & D spending; crowding out private investment by as little as eight percent.

Taxes and the Capital Structure of Partnerships, REIT's, and Related Entities

Published: 3/1991,  Volume: 46,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1991.tb03757.x  |  Cited by: 41

JEFFREY F. JAFFE

Academic finance has explored the effect of taxes on corporate capital structure in great detail. By contrast, the effect of taxes on the capital structure of partnerships, REIT's, and related entities has received little attention. The present paper shows that, under general conditions, the values of partnerships and REIT's are invariant to leverage, contradicting the sparse literature in the area. A proof similar to that of Modigliani‐Miller is employed. The effect of real world imperfections is also examined.

ON THE USE OF PUBLIC INFORMATION IN FINANCIAL MARKETS

Published: 6/1975,  Volume: 30,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1975.tb01853.x  |  Cited by: 14

Jeffrey F. Jaffe

A NOTE ON TAXATION AND INVESTMENT

Published: 12/1978,  Volume: 33,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1978.tb03430.x  |  Cited by: 11

Jeffrey F. Jaffe

A NOTE ON EARNINGS RISK AND THE COEFFICIENT OF VARIATION: COMMENT

Published: 12/1970,  Volume: 25,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1970.tb00877.x  |  Cited by: 4

Jeffrey E. Jarrett

Relative Risk in Municipal and Corporate Debt

Published: 5/1983,  Volume: 38,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1983.tb02274.x  |  Cited by: 25

JEFFREY L. SKELTON

DISCUSSION

Published: 5/1973,  Volume: 28,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1973.tb01784.x  |  Cited by: 0

Jeffrey E. Jarrett

A Catering Theory of Dividends

Published: 6/2004,  Volume: 59,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2004.00658.x  |  Cited by: 949

Malcolm Baker, Jeffrey Wurgler

We propose that the decision to pay dividends is driven by prevailing investor demand for dividend payers. Managers cater to investors by paying dividends when investors put a stock price premium on payers, and by not paying when investors prefer nonpayers. To test this prediction, we construct four stock price‐based measures of investor demand for dividend payers. By each measure, nonpayers tend to initiate dividends when demand is high. By some measures, payers tend to omit dividends when demand is low. Further analysis confirms that these results are better explained by catering than other theories of dividends.

Market Timing and Capital Structure

Published: 2/2002,  Volume: 57,  Issue: 1  |  DOI: 10.1111/1540-6261.00414  |  Cited by: 2471

Malcolm Baker, Jeffrey Wurgler

It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.

Investor Sentiment and the Cross‐Section of Stock Returns

Published: 8/2006,  Volume: 61,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2006.00885.x  |  Cited by: 5369

MALCOLM BAKER, JEFFREY WURGLER

We study how investor sentiment affects the cross‐section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning‐of‐period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non‐dividend‐paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.

The Equity Share in New Issues and Aggregate Stock Returns

Published: 10/2000,  Volume: 55,  Issue: 5  |  DOI: 10.1111/0022-1082.00285  |  Cited by: 818

Malcolm Baker, Jeffrey Wurgler

The share of equity issues in total new equity and debt issues is a strong predictor of U.S. stock market returns between 1928 and 1997. In particular, firms issue relatively more equity than debt just before periods of low market returns. The equity share in new issues has stable predictive power in both halves of the sample period and after controlling for other known predictors. We do not find support for efficient market explanations of the results. Instead, the fact that the equity share sometimes predicts significantly negative market returns suggests inefficiency and that firms time the market component of their returns when issuing securities.

The Week‐End Effect in Common Stock Returns: The International Evidence

Published: 6/1985,  Volume: 40,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1985.tb04966.x  |  Cited by: 280

JEFFREY JAFFE, RANDOLPH WESTERFIELD

This paper examines the daily stock market returns for four foreign countries. We find a so‐called “week‐end effect” in each country. In addition, the lowest mean returns for the Japanese and Australian stock markets occur on Tuesday.The remainder of the paper answers four questions. Are seasonal patterns in foreign stock markets independent of those previously reported in the U.S.? Do Japan and Australia exhibit a seasonal one day out of phase due to different time zones? Do settlement procedures across countries bias week‐end effects? Does the seasonal pattern in foreign exchange offset the week‐end effect in stocks for Americans investing overseas?

Share Issuance and Cross‐sectional Returns

Published: 4/2008,  Volume: 63,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2008.01335.x  |  Cited by: 530

JEFFREY PONTIFF, ARTEMIZA WOODGATE

Post‐1970, share issuance exhibits a strong cross‐sectional ability to predict stock returns. This predictive ability is more statistically significant than the individual predictive ability of size, book‐to‐market, or momentum. Our finding is related to research that finds that long‐run returns are associated with share repurchase announcements, seasoned equity offerings, and stock mergers, although our results remain strong even after exclusion of the data used in these studies. We estimate the issuance relation pre‐1970 and find no statistically significant predictive ability for most holding periods.

Do Taxes Affect Corporate Financing Decisions?

Published: 12/1990,  Volume: 45,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1990.tb03724.x  |  Cited by: 673

JEFFREY K. MacKIE‐MASON

This paper provides clear evidence of substantial tax effects on the choice between issuing debt or equity; most studies fail to find significant effects. The relationship between tax shields and debt policy is clarified. Other papers miss the fact that most tax shields have a negligible effect on the marginal tax rate for most firms. New predictions are strongly supported by an empirical analysis; the method is to study incremental financing decisions using discrete choice analysis. Previous researchers examined debt/equity ratios, but tests based on incremental decisions should have greater power.

Does Academic Research Destroy Stock Return Predictability?

Published: 1/14/2016,  Volume: 71,  Issue: 1  |  DOI: 10.1111/jofi.12365  |  Cited by: 1374

R. DAVID MCLEAN, JEFFREY PONTIFF

We study the out‐of‐sample and post‐publication return predictability of 97 variables shown to predict cross‐sectional stock returns. Portfolio returns are 26% lower out‐of‐sample and 58% lower post‐publication. The out‐of‐sample decline is an upper bound estimate of data mining effects. We estimate a 32% (58%–26%) lower return from publication‐informed trading. Post‐publication declines are greater for predictors with higher in‐sample returns, and returns are higher for portfolios concentrated in stocks with high idiosyncratic risk and low liquidity. Predictor portfolios exhibit post‐publication increases in correlations with other published‐predictor portfolios. Our findings suggest that investors learn about mispricing from academic publications.

THE VALUE OF THE FIRM UNDER REGULATION

Published: 5/1976,  Volume: 31,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1976.tb01915.x  |  Cited by: 6

Jeffrey F. Jaffe, Gershon Mandelker

How Are Derivatives Used? Evidence from the Mutual Fund Industry

Published: 4/1999,  Volume: 54,  Issue: 2  |  DOI: 10.1111/0022-1082.00126  |  Cited by: 320

Jennifer Lynch Koski, Jeffrey Pontiff

We investigate investment managers' use of derivatives by comparing return distributions for equity mutual funds that use and do not use derivatives. In contrast to public perception, derivative users have risk exposure and return performance that are similar to nonusers. We also analyze changes in fund risk in response to prior fund performance. Changes in risk are substantially less severe for funds using derivatives, consistent with the explanation that managers use derivatives to reduce the impact of performance on risk. We provide new evidence regarding the implications of cash flows and managerial gaming for the relation between performance and risk.

Catering through Nominal Share Prices

Published: 11/25/2009,  Volume: 64,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2009.01511.x  |  Cited by: 192

MALCOLM BAKER, ROBIN GREENWOOD, JEFFREY WURGLER

We propose and test a catering theory of nominal stock prices. The theory predicts that when investors place higher valuations on low‐price firms, managers respond by supplying shares at lower price levels, and vice versa. We confirm these predictions in time‐series and firm‐level data using several measures of time‐varying catering incentives. More generally, the results provide unusually clean evidence that catering influences corporate decisions, because the process of targeting nominal share prices is not well explained by alternative theories.

“HOT ISSUE” MARKETS

Published: 9/1975,  Volume: 30,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1975.tb01019.x  |  Cited by: 182

Roger G. Ibbotson, Jeffrey F. Jaffe

Equity Carve‐Outs and Managerial Discretion

Published: 2/1998,  Volume: 53,  Issue: 1  |  DOI: 10.1111/0022-1082.65022  |  Cited by: 128

Jeffrey W. Allen, John J. McConnell

This study proposes a managerial discretion hypothesis of equity carve‐outs in which managers value control over assets and are reluctant to carve out subsidiaries. Thus, managers undertake carve‐outs only when the firm is capital constrained. Consistent with this hypothesis, firms that carve out subsidiaries exhibit poor operating performance and high leverage prior to carve‐outs. Also consistent with this hypothesis, in carve‐outs wherein funds raised are used to pay down debt, the average excess stock return of + 6.63 percent is significantly greater than the average excess stock return of −0.01 percent for carve‐outs wherein funds are retained for investment purposes.

Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships

Published: 12/2000,  Volume: 55,  Issue: 6  |  DOI: 10.1111/0022-1082.00307  |  Cited by: 480

Jeffrey W. Allen, Gordon M. Phillips

This paper examines long‐term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets' stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships.

Predicting Returns with Managerial Decision Variables: Is There a Small‐Sample Bias?

Published: 8/2006,  Volume: 61,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2006.00887.x  |  Cited by: 61

MALCOLM BAKER, RYAN TALIAFERRO, JEFFREY WURGLER

Many studies find that aggregate managerial decision variables, such as aggregate equity issuance, predict stock or bond market returns. Recent research argues that these findings may be driven by an aggregate time‐series version of Schultz's (2003, Journal of Finance 58, 483–517) pseudo market‐timing bias. Using standard simulation techniques, we find that the bias is much too small to account for the observed predictive power of the equity share in new issues, corporate investment plans, insider trading, dividend initiations, or the maturity of corporate debt issues.

OPTIMAL SPECULATION AGAINST AN EFFICIENT MARKET*

Published: 3/1976,  Volume: 31,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1976.tb03195.x  |  Cited by: 20

Jeffrey F. Jaffe, Robert L. Winkler

Miller's Irrelevance Mechanism: A Note

Published: 3/1987,  Volume: 42,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1987.tb02559.x  |  Cited by: 5

VAROUJ A. AIVAZIAN, JEFFREY L. CALLEN

New Evidence on the Market for Directors: Board Membership and Pennsylvania Senate Bill 1310

Published: 2/2003,  Volume: 58,  Issue: 1  |  DOI: 10.1111/1540-6261.00522  |  Cited by: 161

Jeffrey L. Coles, Chun‐Keung Hoi

We examine the relation between a board' decision to reject antitakeover provisions of Pennsylvania Senate Bill 1310 and subsequent labor market opportunities of those same board members. Compared to directors retaining all provisions, directors rejecting all protective provisions of SB1310 are three times as likely to gain additional external directorships and are 30 percent more likely to retain their internal slot on the board of that same Pennsylvania company. For external board seats, the results are driven by nonexecutive directors who are not members of the management team; for internal board seats, the results are driven by executive directors.

Bayesian Alphas and Mutual Fund Persistence

Published: 9/19/2006,  Volume: 61,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2006.01057.x  |  Cited by: 115

JEFFREY A. BUSSE, PAUL J. IRVINE

We use daily returns to compare the performance predictability of Bayesian estimates of mutual fund performance with standard frequentist measures. When the returns on passive nonbenchmark assets are correlated with fund holdings, incorporating histories of these returns produces a performance measure that predicts future performance better than standard measures do. Bayesian alphas based on the Capital Asset Pricing Model (CAPM) are particularly useful for predicting future standard CAPM alphas. Over our sample period, priors consistent with moderate to diffuse beliefs in managerial skill dominate more skeptical prior beliefs, a result that is consistent with investor cash flows.

Future Investment Opportunities and the Value of the Call Provision on a Bond: Comment

Published: 9/1980,  Volume: 35,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1980.tb03523.x  |  Cited by: 6

VAROUJ A. AIVAZIAN, JEFFREY L. CALLEN

Investment, Market Structure, and the Cost of Capital

Published: 3/1979,  Volume: 34,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1979.tb02072.x  |  Cited by: 13

VAROUJ A. AIVAZIAN, JEFFREY L. CALLEN

STOCK PRICE DEPENDENCIES AND THE VALUATION OF RISKY ASSETS WITH DISCONTINUOUS TEMPORAL RETURNS

Published: 12/1974,  Volume: 29,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1974.tb03126.x  |  Cited by: 1

Jeffrey F. Jaffe, Larry J. Merville

How Much Do Taxes Discourage Incorporation?

Published: 6/1997,  Volume: 52,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1997.tb04810.x  |  Cited by: 87

JEFFREY K. MACKIE‐MASON, ROGER H. GORDON

The double taxation of corporate income should discourage firms from incorporating. We investigate the extent to which the aggregate allocation of assets and taxable income in the United States between corporate and noncorporate firms responds to the size of this tax distortion during the period 1959–1986. In theory, profitable firms should shift out of the corporate sector when the tax distortion is large, and conversely for firms with tax losses. Our empirical results provide strong support for these forecasts, and imply that the resulting excess burden equals 16 percent of business tax revenue.

Market Valuation of Tax‐Timing Options: Evidence from Capital Gains Distributions

Published: 3/9/2006,  Volume: 61,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2006.00856.x  |  Cited by: 43

J. B. CHAY, DOSOUNG CHOI, JEFFREY PONTIFF

We examine a distribution that is taxed as a capital gain rather than as a dividend. Since the distribution induces a realized capital gain while the price change is an unrealized gain, ex‐day return behavior provides evidence of the value of tax‐timing capital gains. We show that investors are compensated 7¢ in unrealized gains for each dollar of realized capital gains, that is, $1 of realized capital gains is equivalent to 93¢ of unrealized gains. An investor with a tax rate on realized gains of 15% has an effective tax rate on unrealized capital gains of 8.6%.

Fund Advisor Compensation in Closed‐End Funds

Published: 6/2000,  Volume: 55,  Issue: 3  |  DOI: 10.1111/0022-1082.00251  |  Cited by: 66

Jeffrey L. Coles, Jose Suay, Denise Woodbury

This paper examines the relation between the premium on closed‐end funds and organizational features of the funds and advisors, including the compensation scheme of the investment advisor. We find that the fund premium is larger when: (a) the advisor's compensation is more sensitive to fund performance; (b) the assets managed by the advisor are concentrated in the fund in question; (c) the advisor manages other funds with low compensation sensitivity to performance and with low concentration of assets managed by the advisor; and (d) the advisor's compensation contract evaluates performance relative to a benchmark.

Earnings Yields, Market Values, and Stock Returns

Published: 3/1989,  Volume: 44,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1989.tb02408.x  |  Cited by: 295

JEFFREY JAFFE, DONALD B. KEIM, RANDOLPH WESTERFIELD

Earlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E/P) is not clear‐cut. This paper re‐examines these two effects with (a) a substantially longer sample period, 1951–1986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven months. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings.

On the Timing Ability of Mutual Fund Managers

Published: 6/2001,  Volume: 56,  Issue: 3  |  DOI: 10.1111/0022-1082.00356  |  Cited by: 456

Nicolas P. B. Bollen, Jeffrey A. Busse

Existing studies of mutual fund market timing analyze monthly returns and find little evidence of timing ability. We show that daily tests are more powerful and that mutual funds exhibit significant timing ability more often in daily tests than in monthly tests. We construct a set of synthetic fund returns in order to control for spurious results. The daily timing coefficients of the majority of funds are significantly different from their synthetic counterparts. These results suggest that mutual funds may possess more timing ability than previously documented.

Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

Published: 8/2007,  Volume: 62,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2007.01261.x  |  Cited by: 217

JEFFREY R. BROWN, NELLIE LIANG, SCOTT WEISBENNER

We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after‐tax value of dividends. We find that executives with higher ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.

Performance and Persistence in Institutional Investment Management

Published: 3/19/2010,  Volume: 65,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2009.01550.x  |  Cited by: 260

JEFFREY A. BUSSE, AMIT GOYAL, SUNIL WAHAL

Using new, survivorship bias‐free data, we examine the performance and persistence in performance of 4,617 active domestic equity institutional products managed by 1,448 investment management firms between 1991 and 2008. Controlling for the Fama–French (1993) three factors and momentum, aggregate and average estimates of alphas are statistically indistinguishable from zero. Even though there is considerable heterogeneity in performance, there is only modest evidence of persistence in three‐factor models and little to none in four‐factor models.

Anomalies and News

Published: 10/2018,  Volume: 73,  Issue: 5  |  DOI: 10.1111/jofi.12718  |  Cited by: 290

JOSEPH ENGELBERG, R. DAVID MCLEAN, JEFFREY PONTIFF

Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and six times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing due to biased expectations, or data mining. We develop and conduct several unique tests to differentiate between these three explanations. Our results are most consistent with the idea that anomaly returns are driven by biased expectations, which are at least partly corrected upon news arrival.

THE “FISHER EFFECT” FOR RISKY ASSETS: AN EMPIRICAL INVESTIGATION

Published: 5/1976,  Volume: 31,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1976.tb01898.x  |  Cited by: 25

Katherine D. Miller, F. Jaffe Jeffrey, Gershon Mandelker

Autoregressive Modeling of Earnings‐Investment Causality

Published: 3/1987,  Volume: 42,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1987.tb02547.x  |  Cited by: 26

SASSON BAR‐YOSEF, JEFFREY L. CALLEN, JOSHUA LIVNAT

The purpose of this paper is to empirically test the relationships between corporate earnings and investment. In particular, the study investigates whether knowledge of past investments improves the prediction of future earnings beyond predictions that are based on past earnings alone. Similarly, it investigates whether knowledge of past earnings improves the prediction of future investments beyond knowledge of past investments alone. This is the empirical definition of Granger causality. The empirical results show that the bivariate past series of earnings and investments is superior to the univariate series in predicting future investments but not in predicting future earnings.

The Dynamics of Institutional and Individual Trading

Published: 11/7/2003,  Volume: 58,  Issue: 6  |  DOI: 10.1046/j.1540-6261.2003.00606.x  |  Cited by: 426

John M. Griffin, Jeffrey H. Harris, Selim Topaloglu

AbstractWe study the daily and intradaily cross‐sectional relation between stock returns and the trading of institutional and individual investors in Nasdaq 100 securities. Based on the previous day's stock return, the top performing decile of securities is 23.9% more likely to be bought in net by institutions (and sold by individuals) than those in the bottom performance decile. Strong contemporaneous daily patterns can largely be explained by net institutional (individual) trading positively (negatively) following past intradaily excess stock returns (or the news associated therein). In comparison, evidence of return predictability and price pressure are economically small.

The Post‐Merger Performance of Acquiring Firms: A Re‐examination of an Anomaly

Published: 9/1992,  Volume: 47,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1992.tb04674.x  |  Cited by: 569

ANUP AGRAWAL, JEFFREY F. JAFFE, GERSHON N. MANDELKER

The existing literature on the post‐merger performance of acquiring firms is divided. We re‐examine this issue, using a nearly exhaustive sample of mergers between NYSE acquirers and NYSE/AMEX targets. We find that stockholders of acquiring firms suffer a statistically significant loss of about 10% over the five‐year post‐merger period, a result robust to various specifications. Our evidence suggests that neither the firm size effect nor beta estimation problems are the cause of the negative post‐merger returns. We examine whether this result is caused by a slow adjustment of the market to the merger event. Our results do not seem consistent with this hypothesis.

Are Investors Rational? Choices among Index Funds

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2004.00633.x  |  Cited by: 242

Edwin J. Elton, Martin J. Gruber, Jeffrey A. Busse

S&P 500 index funds represent one of the simplest vehicles for examining rational behavior. They hold virtually the same securities, yet their returns differ by more than 2 percent per year. Although the relative returns of alternative S&P 500 funds are easily predictable, the relationship between cash flows and performance is weaker than rational behavior would lead us to expect. We show that selecting funds based on low expenses or high past returns outperforms the portfolio of index funds selected by investors. Our results exemplify the fact that, in a market where arbitrage is not possible, dominated products can prosper.

The Development of Secondary Market Liquidity for NYSE‐Listed IPOs

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00701.x  |  Cited by: 50

SHANE A. CORWIN, JEFFREY H. HARRIS, MARC L. LIPSON

For NYSE‐listed IPOs, limit order submissions and depth relative to volume are unusually low on the first trading day. Initial buy‐side liquidity is higher for IPOs with high‐quality underwriters, large syndicates, low insider sales, and high premarket demand, while sell‐side liquidity is higher for IPOs that represent a large fraction of outstanding shares and have low premarket demand. Our results suggest that uncertainty and offer design affect initial liquidity, though order flow stabilizes quickly. We also find that submission strategies are influenced by expected underwriter stabilization and preopening order flow contains information about both initial prices and subsequent returns.

Why Did NASDAQ Market Makers Stop Avoiding Odd‐Eighth Quotes?

Published: 12/1994,  Volume: 49,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1994.tb04783.x  |  Cited by: 151

WILLIAM G. CHRISTIE, JEFFREY H. HARRIS, PAUL H. SCHULTZ

On May 26 and 27, 1994 several national newspapers reported the findings of Christie and Schultz (1994) who cannot reject the hypothesis that market makers of active NASDAQ stocks implicitly colluded to maintain spreads of at least $0.25 by avoiding odd‐eighth quotes. On May 27, dealers in Amgen, Cisco Systems, and Microsoft sharply increased their use of odd‐eighth quotes, and mean inside and effective spreads fell nearly 50 percent. This pattern was repeated for Apple Computer the following trading day. Using individual dealer quotes for Apple and Microsoft, we find that virtually all dealers moved in unison to adopt odd‐eighth quotes.

Nasdaq Trading Halts: The Impact of Market Mechanisms on Prices, Trading Activity, and Execution Costs

Published: 6/2002,  Volume: 57,  Issue: 3  |  DOI: 10.1111/1540-6261.00466  |  Cited by: 98

William G. Christie, Shane A. Corwin, Jeffrey H. Harris

We study the effects of alternative halt and reopening procedures on prices, transaction costs, and trading activity for a sample of news‐related trading halts on Nasdaq. For intraday halts that reopen after only a five‐minute quotation period, inside quoted spreads more than double following halts and volatility increases to more than nine times normal levels. In contrast, halts that reopen the following day with a longer 90‐minute quotation period are associated with insignificant spread effects and significantly dampened volatility effects. These results are consistent with the hypothesis that increased information transmission during the halt results in reduced posthalt uncertainty.

Who Drove and Burst the Tech Bubble?

Published: 7/19/2011,  Volume: 66,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2011.01663.x  |  Cited by: 225

JOHN M. GRIFFIN, JEFFREY H. HARRIS, TAO SHU, SELIM TOPALOGLU

From 1997 to March 2000, as technology stocks rose more than five‐fold, institutions bought more new technology supply than individuals. Among institutions, hedge funds were the most aggressive investors, but independent investment advisors and mutual funds (net of flows) actively invested the most capital in the technology sector. The technology stock reversal in March 2000 was accompanied by a broad sell‐off from institutional investors but accelerated buying by individuals, particularly discount brokerage clients. Overall, our evidence supports the bubble model of Abreu and Brunnermeier (2003), in which rational arbitrageurs fail to trade against bubbles until a coordinated selling effort occurs.