Search results: 50.
Boarding a Sinking Ship? An Investigation of Job Applications to Distressed Firms
Published: 3/18/2016, Volume: 71, Issue: 2 | DOI: 10.1111/jofi.12367 | Cited by: 257
JENNIFER BROWN, DAVID A. MATSA
We use novel data from a leading online job search platform to examine the impact of corporate distress on firms’ ability to attract job applicants. Survey responses suggest that job seekers accurately perceive firms’ financial condition, as measured by companies’ credit default swap prices and accounting data. Analyzing responses to job postings by major financial firms during the Great Recession, we find that an increase in an employer's distress results in fewer and lower quality applicants. These effects are particularly evident when the social safety net provides workers with weak protection against unemployment and for positions requiring a college education.
The Price Effect of Option Introduction
Published: 6/1989, Volume: 44, Issue: 2 | DOI: 10.1111/j.1540-6261.1989.tb05068.x | Cited by: 223
JENNIFER CONRAD
This paper examines the price effect of option introduction from 1974 to 1980. The introduction of individual options causes a permanent price increase in the underlying security, beginning approximately three days before introduction. The price effect appears to be associated with introduction, and not announcement, throughout the sample period. Excess returns volatility declines with option introduction. Systematic risk is unchanged. There is a positive relation between the price increase and a measure of activity in the options market.
DISCUSSION
Published: 7/1988, Volume: 43, Issue: 3 | DOI: 10.1111/j.1540-6261.1988.tb04604.x | Cited by: 0
STEPHEN J. BROWN
The Implications of Nonmarketable Income for Consumption‐Based Models of Asset Pricing
Published: 9/1988, Volume: 43, Issue: 4 | DOI: 10.1111/j.1540-6261.1988.tb02609.x | Cited by: 4
DAVID P. BROWN
A new representation of nonmarketable (NM) income is introduced in this essay. Using this representation and continuous trading, there exists a set of individuals who do not participate in the asset market and who consume at the rate of nonmarketable income derived from human capital. Because these individuals remain nonparticipants for a range of stochastic processes governing the NM income, consumption betas are not generally unique in value and the consumption‐based CAPM (CCAPM) does not obtain. However, the intertemporal CAPM (ICAPM) of Merton remains valid.
Liquidity and Liquidation: Evidence from Real Estate Investment Trusts
Published: 2/2000, Volume: 55, Issue: 1 | DOI: 10.1111/0022-1082.00213 | Cited by: 38
David T. Brown
This study provides evidence that highly leveraged owner‐managed properties liquidated assets during the commercial real estate decline of the late 1980s, and that this provided buying opportunities for better capitalized buyers. The analysis documents significant financial distress costs for highly leveraged firms during an industry‐wide downturn and shows that these costs are particularly large for owner‐managed firms.
DISCUSSION
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03683.x | Cited by: 1
STEPHEN J. BROWN
EARNINGS CHANGES, STOCK PRICES, AND MARKET EFFICIENCY
Published: 3/1978, Volume: 33, Issue: 1 | DOI: 10.1111/j.1540-6261.1978.tb03386.x | Cited by: 35
Stewart L. Brown
A NOTE ON THE APPARENT BIAS OF NET REVENUE ESTIMATES FOR CAPITAL INVESTMENT PROJECTS
Published: 9/1974, Volume: 29, Issue: 4 | DOI: 10.1111/j.1540-6261.1974.tb03098.x | Cited by: 28
Keith C. Brown
THE RATE OF RETURN OF SELECTED INVESTMENT PROJECTS
Published: 9/1978, Volume: 33, Issue: 4 | DOI: 10.1111/j.1540-6261.1978.tb02064.x | Cited by: 7
Keith C. Brown
THE POLICY ACCEPTANCE IN THE UNITED STATES OF RELIANCE ON AUTOMATIC FISCAL STABILIZERS
Published: 3/1959, Volume: 14, Issue: 1 | DOI: 10.1111/j.1540-6261.1959.tb00484.x | Cited by: 1
E. Cary Brown
THE SIGNIFICANCE OF DUMMY VARIABLES IN MULTIPLE REGRESSIONS INVOLVING FINANCIAL AND ECONOMIC DATA
Published: 6/1968, Volume: 23, Issue: 3 | DOI: 10.1111/j.1540-6261.1968.tb00824.x | Cited by: 5
Keith C. Brown
The Number of Factors in Security Returns
Published: 12/1989, Volume: 44, Issue: 5 | DOI: 10.1111/j.1540-6261.1989.tb02652.x | Cited by: 129
STEPHEN J. BROWN
Both factor analysis of security returns and the analysis of eigenvalues seem to indicate that a market factor explains the major part of security returns. We find that such evidence is consistent with an economy where there are in fact k “equally important” priced factors; eigenvalue analysis in the context of such an economy will lead an investigator to the false inference that the one important “factor” is the return on an equally weighted market index.
Does Option Compensation Increase Managerial Risk Appetite?
Published: 10/2000, Volume: 55, Issue: 5 | DOI: 10.1111/0022-1082.00288 | Cited by: 742
Jennifer N. Carpenter
This paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls. Under the manager's optimal policy, the option ends up either deep in or deep out of the money. As the asset value goes to zero, volatility goes to infinity. However, the option compensation does not strictly lead to greater risk seeking. Sometimes, the manager's optimal volatility is less with the option than it would be if he were trading his own account. Furthermore, giving the manager more options causes him to reduce volatility.
Biased Estimators and Unstable Betas
Published: 3/1980, Volume: 35, Issue: 1 | DOI: 10.1111/j.1540-6261.1980.tb03470.x | Cited by: 7
ELTON SCOTT, STEWART BROWN
Long‐Term Market Overreaction or Biases in Computed Returns?
Published: 3/1993, Volume: 48, Issue: 1 | DOI: 10.1111/j.1540-6261.1993.tb04701.x | Cited by: 196
JENNIFER CONRAD, GAUTAM KAUL
We show that the returns to the typical long‐term contrarian strategy implemented in previous studies are upwardly biased because they are calculated by cumulating single‐period (monthly) returns over long intervals. The cumulation process not only cumulates “true” returns but also the upward bias in single‐period returns induced by measurement errors. We also show that the remaining “true” returns to loser or winner firms have no relation to overreaction. This study has important implications for event studies that use cumulative returns to assess the impact of information events.
MUTUAL FUND PORTFOLIO ACTIVITY, PERFORMANCE, AND MARKET IMPACT
Published: 5/1963, Volume: 18, Issue: 2 | DOI: 10.1111/j.1540-6261.1963.tb00730.x | Cited by: 5
F. E. Brown, Douglas Vickers
Mutual Fund Flows and Cross‐Fund Learning within Families
Published: 1/14/2016, Volume: 71, Issue: 1 | DOI: 10.1111/jofi.12263 | Cited by: 92
DAVID P. BROWN, YOUCHANG WU
We develop a model of performance evaluation and fund flows for mutual funds in a family. Family performance has two effects on a member fund's estimated skill and inflows: a positive common‐skill effect, and a negative correlated‐noise effect. The overall spillover can be either positive or negative, depending on the weight of common skill and correlation of noise in returns. Its absolute value increases with family size, and declines over time. The sensitivity of flows to a fund's own performance is affected accordingly. Empirical estimates of fund flow sensitivities show patterns consistent with rational cross‐fund learning within families.
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: 322
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.
Market Microstructure and the Ex‐Date Return
Published: 9/1994, Volume: 49, Issue: 4 | DOI: 10.1111/j.1540-6261.1994.tb02464.x | Cited by: 21
JENNIFER S. CONRAD, ROBERT CONROY
This article examines the role of measurement biases, due to order flow effects, in abnormal split ex‐day returns. We conjecture that postsplit orders consist of numerous small buyers and fewer larger sellers. This change in order flow causes closing prices to occur more frequently at the ask price, consistent with Maloney and Mulherin (1992) and Grinblatt and Keim (1991). In addition, this change causes specialists' spreads to increase, perhaps to offset larger average inventories. We examine both NYSE and NASDAQ samples and find that order flow biases can explain approximately 80 percent (48 percent) of the NYSE (NASDAQ) ex‐day return.
Getting Out Early: An Analysis of Market Making Activity at the Recommending Analyst's Firm
Published: 9/28/2009, Volume: 64, Issue: 5 | DOI: 10.1111/j.1540-6261.2009.01502.x | Cited by: 92
JENNIFER L. JUERGENS, LAURA LINDSEY
This paper examines trading volume for Nasdaq market makers around analyst recommendation changes issued by an analyst at the same firm. Using Nasdaq PostData, we find a disproportionate increase in market making volume associated with the firm's recommendation changes and evidence of elevated sell volume at the recommending analyst's firm in the 2 days preceding a downgrade. The implications are that the information source matters in determining the placement of trades and that the issuing analyst's firm appears to be rewarded for prereleasing information through increased volume. These findings constitute new evidence of compensation for research production through the market making channel.
A REEXAMINATION OF STOCK SPLITS USING MOVING BETAS
Published: 9/1977, Volume: 32, Issue: 4 | DOI: 10.1111/j.1540-6261.1977.tb03310.x | Cited by: 45
Sasson Bar‐Yosef, Lawrence D. Brown
Estimation Risk and Simple Rules for Optimal Portfolio Selection
Published: 9/1983, Volume: 38, Issue: 4 | DOI: 10.1111/j.1540-6261.1983.tb02284.x | Cited by: 34
SON‐NAN CHEN, STEPHEN J. BROWN
DISCUSSION
Published: 5/1967, Volume: 22, Issue: 2 | DOI: 10.1111/j.1540-6261.1967.tb00011.x | Cited by: 0
E. Cary Brown, John G. Gurley
A New Approach to Testing Asset Pricing Models: The Bilinear Paradigm
Published: 6/1983, Volume: 38, Issue: 3 | DOI: 10.1111/j.1540-6261.1983.tb02498.x | Cited by: 104
STEPHEN J. BROWN, MARK I. WEINSTEIN
We propose a new approach to estimating and testing asset pricing models in the context of a bilinear paradigm introduced by Kruskal [18]. This approach is both simple and at the same time quite general. As an illustration we apply it to the special case of the arbitrage pricing model where the number of factors is pre‐specified. The data appear to be generally in conflict with a five or seven factor representation of the model used by Roll and Ross [30]. When we consider the number of replications of our test and the large number of observations on which it is performed, the frequency with which we reject the three factor APM does not lead us to conclude that this model is unrepresentative of security returns. Further, the rejection of the five and seven factor versions is to be expected if the three factor version is correct. The paradigm gives insight into the appropriate specification of the model and suggests that there may be a small number of economy wide factors that affect security returns.
Fundamentals or Noise? Evidence from the Professional Basketball Betting Market
Published: 9/1993, Volume: 48, Issue: 4 | DOI: 10.1111/j.1540-6261.1993.tb04751.x | Cited by: 43
WILLIAM O. BROWN, RAYMOND D. SAUER
This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components—the market's estimate of relative team abilities and an idiosyncratic factor—are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data.
Performance Persistence
Published: 6/1995, Volume: 50, Issue: 2 | DOI: 10.1111/j.1540-6261.1995.tb04800.x | Cited by: 817
STEPHEN J. BROWN, WILLIAM N. GOETZMANN
We explore performance persistence in mutual funds using absolute and relative benchmarks. Our sample, largely free of survivorship bias, indicates that relative risk‐adjusted performance of mutual funds persists; however, persistence is mostly due to funds that lag the S&P 500. A probit analysis indicates that poor performance increases the probability of disappearance. A year‐by‐year decomposition of the persistence effect demonstrates that the relative performance pattern depends upon the time period observed, and it is correlated across managers. Consequently, it is due to a common strategy that is not captured by standard stylistic categories or risk adjustment procedures.
Anomalies in Security Returns and the Specification of the Market Model
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03673.x | Cited by: 5
STEPHEN J. BROWN, CHRISTOPHER B. BARRY
We examine the hypothesis originally advanced by Roll[12]that observed anomalies in excess returns can be explained by misspecification of the market model used to estimate systematic risk. We find substantial misspecifications in the model systematically related to size and period of listing of the securities in question. There is some evidence that these misspecifications are associated with systemic biases in measured betas used to construct excess returns.
THE SUPERIORITY OF ANALYST FORECASTS AS MEASURES OF EXPECTATIONS: EVIDENCE FROM EARNINGS
Published: 3/1978, Volume: 33, Issue: 1 | DOI: 10.1111/j.1540-6261.1978.tb03385.x | Cited by: 333
Lawrence D. Brown, Michael S. Rozeff
Finance and Growth at the Firm Level: Evidence from SBA Loans
Published: 5/3/2017, Volume: 72, Issue: 3 | DOI: 10.1111/jofi.12492 | Cited by: 214
J. DAVID BROWN, JOHN S. EARLE
We analyze linked databases on all SBA loans and lenders and on all U.S. employers to estimate the effects of financial access on employment growth. Estimation exploits the long panels and variation in local availability of SBA‐intensive lenders. The results imply an increase of 3–3.5 jobs for each million dollars of loans, suggesting real effects of credit constraints. Estimated impacts are stronger for younger and larger firms and when local credit conditions are weak, but we find no clear evidence of cyclical variation. We estimate taxpayer costs per job created in the range of $21,000–$25,000.
The Empirical Implications of the Cox, Ingersoll, Ross Theory of the Term Structure of Interest Rates
Published: 7/1986, Volume: 41, Issue: 3 | DOI: 10.1111/j.1540-6261.1986.tb04523.x | Cited by: 213
STEPHEN J. BROWN, PHILIP H. DYBVIG
The one‐factor version of the Cox, Ingersoll, and Ross model of the term structure is estimated using monthly quotes on U.S. Treasury issues trading from 1952 through 1983. Using data from a single yield curve, it is possible to estimate implied short and long term zero coupon rates and the implied variance of changes in short rates. Analysis of residuals points to a probable neglected tax effect.
A Simple Econometric Approach for Utility‐Based Asset Pricing Models
Published: 6/1985, Volume: 40, Issue: 2 | DOI: 10.1111/j.1540-6261.1985.tb04962.x | Cited by: 43
DAVID P. BROWN, MICHAEL R. GIBBONS
Utility‐based models of asset pricing may be estimated with or without assuming a distribution for security returns; both approaches are developed and compared here. The chief strength of a parametric estimator lies in its computational simplicity and statistical efficiency when the added distributional assumption is true. In contrast, the nonparametric estimator is robust to departures from any particular distribution, and it is more consistent with the spirit underlying utility‐based asset pricing models since the distribution of asset returns remains unspecified even in the empirical work. The nonparametric approach turns out to be easy to implement with precision nearly indistinguishable from its parametric counterpart in this particular application. The application shows that log utility is consistent with the data over the period 1926–1981.
NEW YORK STOCK EXCHANGE RESEARCH PROGRAM ON SHARE OWNERSHIP
Published: 5/1953, Volume: 8, Issue: 2 | DOI: 10.1111/j.1540-6261.1953.tb01150.x | Cited by: 0
Jonathan A. Brown, Howard C. Bronson
Market Orders and Market Efficiency
Published: 3/1997, Volume: 52, Issue: 1 | DOI: 10.1111/j.1540-6261.1997.tb03816.x | Cited by: 36
DAVID P. BROWN, ZHI MING ZHANG
This work compares a dealer market and a limit‐order book. Dealers commonly observe order flow and collect information from multiple market orders. They may be better informed than other traders, although they do not earn rents from this information. Dealers earn rents as suppliers of liquidity, and their decisions to enter or exit the market are independent of the degree of adverse selection. Introduction of a limit‐order book lowers the execution‐price risk faced by speculators and leads them to trade more aggressively on their information. Introduction of the book also lowers dealer profits, but increases the informational efficiency of prices.
The Mode of Acquisition in Takeovers: Taxes and Asymmetric Information
Published: 6/1991, Volume: 46, Issue: 2 | DOI: 10.1111/j.1540-6261.1991.tb02678.x | Cited by: 129
DAVID T. BROWN, MICHAEL D. RYNGAERT
We develop a model in which the mode of acquisition conveys information concerning the value of the bidder. The model incorporates the possibility that offers containing both cash and stock can be made in a setting consistent with the U.S. tax code. We demonstrate that bidders with unfavorable private information about their equity value choose offers containing some stock to avoid the capital gains tax consequences of cash offers. The model yields a number of unique predictions about the construction of acquisition offers. We present evidence consistent with the model.
Ex‐Dividend Profitability and Institutional Trading Skill
Published: 1/12/2017, Volume: 72, Issue: 1 | DOI: 10.1111/jofi.12472 | Cited by: 46
TYLER R. HENRY, JENNIFER L. KOSKI
We use institutional trading data to examine whether skilled institutions exploit positive abnormal ex‐dividend returns. Results show that institutions concentrate trading around certain ex‐dates, and earn higher profits around these events. Dividend capture trades represent 6% of all institutional buy trades but contribute 15% of overall abnormal returns. Institutional dividend capture trading is persistent. Institutional ex‐day profitability is also strongly cross‐sectionally related to trade execution skill. The relation between execution skill and profits disappears around placebo non‐ex‐days. Results suggest that skilled institutions target certain opportunities rather than benefiting uniformly over time. Furthermore, only skilled institutions can profit from dividend capture.
Value versus Glamour
Published: 9/11/2003, Volume: 58, Issue: 5 | DOI: 10.1111/1540-6261.00594 | Cited by: 90
Jennifer Conrad, Michael Cooper, Gautam Kaul
AbstractThe fragility of the CAPM has led to a resurgence of research that frequently uses trading strategies based on sorting procedures to uncover relations between firm characteristics (such as “value” or “glamour”) and equity returns. We examine the propensity of these strategies to generate statistically and economically significant profits due to our familiarity with the data. Under plausible assumptions, data snooping can account for up to 50 percent of the in‐sample relations between firm characteristics and returns uncovered using single (one‐way) sorts. The biases can be much larger if we simultaneously condition returns on two (or more) characteristics.
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.
Participation Costs and the Sensitivity of Fund Flows to Past Performance
Published: 5/8/2007, Volume: 62, Issue: 3 | DOI: 10.1111/j.1540-6261.2007.01236.x | Cited by: 434
JENNIFER HUANG, KELSEY D. WEI, HONG YAN
We present a simple rational model to highlight the effect of investors' participation costs on the response of mutual fund flows to past fund performance. By incorporating participation costs into a model in which investors learn about managers' ability from past returns, we show that mutual funds with lower participation costs have a higher flow sensitivity to medium performance and a lower flow sensitivity to high performance than their higher‐cost peers. Using various fund characteristics as proxies for the reduction in participation costs, we provide empirical evidence supporting the model's implications for the asymmetric flow‐performance relationship.
Volume and Autocovariances in Short‐Horizon Individual Security Returns
Published: 9/1994, Volume: 49, Issue: 4 | DOI: 10.1111/j.1540-6261.1994.tb02455.x | Cited by: 147
JENNIFER S. CONRAD, ALLAUDEEN HAMEED, CATHY NIDEN
This article tests for the relations between trading volume and subsequent returns patterns in individual securities' short‐horizon returns that are suggested by such articles as Blume, Easley, and O'Hara (1994) and Campbell, Grossman, and Wang (1993). Using a variant of Lehmann's (1990) contrarian trading strategy, we find strong evidence of a relation between trading activity and subsequent autocovariances in weekly returns. Specifically, high‐transaction securities experience price reversals, while the returns of low‐transactions securities are positively autocovarying. Overall, information on trading activity appears to be an important predictor of the returns of individual securities.
Employee Stock Option Exercise and Firm Cost
Published: 1/7/2019, Volume: 74, Issue: 3 | DOI: 10.1111/jofi.12752 | Cited by: 14
JENNIFER N. CARPENTER, RICHARD STANTON, NANCY WALLACE
We develop an empirical model of employee stock option exercise that is suitable for valuation and allows for behavioral channels. We estimate exercise rates as functions of option, stock, and employee characteristics using all employee exercises at 88 public firms, 27 of them in the S&P 500. Increasing vesting frequency from annual to monthly reduces option value by 11% to 16%. Men exercise faster, reducing value by 2% to 4%, while top employees exercise slower, increasing value by 2% to 7%. Finally, we develop an analytic valuation approximation that is more accurate than methods used in practice.
Ex Ante Skewness and Expected Stock Returns
Published: 1/11/2013, Volume: 68, Issue: 1 | DOI: 10.1111/j.1540-6261.2012.01795.x | Cited by: 686
JENNIFER CONRAD, ROBERT F. DITTMAR, ERIC GHYSELS
We use option prices to estimate ex ante higher moments of the underlying individual securities’ risk‐neutral returns distribution. We find that individual securities’ risk‐neutral volatility, skewness, and kurtosis are strongly related to future returns. Specifically, we find a negative (positive) relation between ex ante volatility (kurtosis) and subsequent returns in the cross‐section, and more ex ante negatively (positively) skewed returns yield subsequent higher (lower) returns. We analyze the extent to which these returns relations represent compensation for risk and find evidence that, even after controlling for differences in co‐moments, individual securities’ skewness matters.
When Is Bad News Really Bad News?
Published: 12/2002, Volume: 57, Issue: 6 | DOI: 10.1111/1540-6261.00504 | Cited by: 207
Jennifer Conrad, Bradford Cornell, Wayne R. Landsman
We examine whether the price response to bad and good earnings shocks changes as the relative level of the market changes. The study is based on a complete sample of annual earnings announcements during the period 1988 to 1998. The relative level of the market is based on the difference between the current market P/E and the average market P/E over the prior 12 months. We find that the stock price response to negative earnings surprises increases as the relative level of the market rises. Furthermore, the difference between bad news and good news earnings response coefficients rises with the market.
Sensation Seeking and Hedge Funds
Published: 11/9/2018, Volume: 73, Issue: 6 | DOI: 10.1111/jofi.12723 | Cited by: 79
STEPHEN BROWN, YAN LU, SUGATA RAY, MELVYN TEO
We show that, motivated by sensation seeking, hedge fund managers who own powerful sports cars take on more investment risk but do not deliver higher returns, resulting in lower Sharpe ratios, information ratios, and alphas. Moreover, sensation‐seeking managers trade more frequently, actively, and unconventionally, and prefer lottery‐like stocks. We show further that some investors are themselves susceptible to sensation seeking and that sensation‐seeking investors fuel the demand for sensation‐seeking managers. While investors perceive sensation seekers to be less competent, they do not fully appreciate the superior investment skills of sensation‐avoiding fund managers.
The Dow Theory: William Peter Hamilton's Track Record Reconsidered
Published: 8/1998, Volume: 53, Issue: 4 | DOI: 10.1111/0022-1082.00054 | Cited by: 109
Stephen J. Brown, William N. Goetzmann, Alok Kumar
Alfred Cowles' test of the Dow Theory apparently provides strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. Cowles (1934) analyzes editorials published by the chief exponent of the Dow Theory, William Peter Hamilton. We review Cowles' evidence and find that it supports the contrary conclusion. Hamilton's timing strategies actually yield high Sharpe ratios and positive alphas for the period 1902 to 1929. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the Dow Theory and allows us to examine the properties of the theory itself out of sample.
Why Are U.S. Stocks More Volatile?
Published: 7/19/2012, Volume: 67, Issue: 4 | DOI: 10.1111/j.1540-6261.2012.01749.x | Cited by: 232
SÖHNKE M. BARTRAM, GREGORY BROWN, RENÉ M. STULZ
U.S. stocks are more volatile than stocks of similar foreign firms. A firm's stock return volatility can be higher for reasons that contribute positively (good volatility) or negatively (bad volatility) to shareholder wealth and economic growth. We find that the volatility of U.S. firms is higher mostly because of good volatility. Specifically, stock volatility is higher in the United States because it increases with investor protection, stock market development, new patents, and firm‐level investment in R&D. Each of these factors is related to better growth opportunities for firms and better ability to take advantage of these opportunities.
Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry
Published: 10/2001, Volume: 56, Issue: 5 | DOI: 10.1111/0022-1082.00392 | Cited by: 345
Stephen J. Brown, William N. Goetzmann, James Park
Investors in hedge funds and commodity trading advisors (CTAs) are concerned with risk as well as return. We investigate the volatility of hedge funds and CTAs in light of managerial career concerns. We find an association between past performance and risk levels consistent with previous findings for mutual fund managers. Variance shifts depend upon relative rather than absolute fund performance. The importance of relative rankings points to the importance of reputation costs in the investment industry. Our analysis of factors contributing to fund disappearance shows that survival depends on absolute and relative performance, excess volatility, and on fund age.
Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia
Published: 11/7/2003, Volume: 58, Issue: 6 | DOI: 10.1046/j.1540-6261.2003.00619.x | Cited by: 224
George Allayannis, Gregory W. Brown, Leora F. Klapper
AbstractUsing a data set of East Asian nonfinancial companies, we examine a firm's choice between local, foreign, and synthetic local currency (hedged foreign currency) debt. We find evidence of unique as well as common factors that determine each debt type's use, indicating the importance of examining debt at a disaggregated level. We exploit the Asian financial crisis as a natural experiment to investigate the role of debt type in firm performance. Surprisingly, we find that the use of synthetic local currency debt is associated with the biggest drop in market value, possibly due to currency derivative market illiquidity during the crisis.
Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration
Published: 11/11/2008, Volume: 63, Issue: 6 | DOI: 10.1111/j.1540-6261.2008.01413.x | Cited by: 187
STEPHEN BROWN, WILLIAM GOETZMANN, BING LIANG, CHRISTOPHER SCHWARZ
Mandatory disclosure is a regulatory tool intended to allow market participants to assess operational risk. We examine the value of disclosure through the controversial SEC requirement, since overturned, which required major hedge funds to register as investment advisors and file Form ADV disclosures. Leverage and ownership structures suggest that lenders and equity investors were already aware of operational risk. However, operational risk does not mediate flow‐performance relationships. Investors either lack this information or regard it as immaterial. These findings suggest that regulators should account for the endogenous production of information and the marginal benefit of disclosure to different investment clienteles.
Law, Stock Markets, and Innovation
Published: 7/16/2013, Volume: 68, Issue: 4 | DOI: 10.1111/jofi.12040 | Cited by: 444
JAMES R. BROWN, GUSTAV MARTINSSON, BRUCE C. PETERSEN
We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long‐run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.
Block Share Purchases and Corporate Performance
Published: 4/1998, Volume: 53, Issue: 2 | DOI: 10.1111/0022-1082.244195 | Cited by: 327
Jennifer E. Bethel, Julia Porter Liebeskind, Tim Opler
This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and employee stock ownership plans. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry‐adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations.