The Journal of Finance

Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Published: 6/26/2023,  Volume: 78,  Issue: 5  |  DOI: 10.1111/jofi.13258  |  Cited by: 58

JONATHAN A. PARKER, ANTOINETTE SCHOAR, YANG SUN

Target date funds (TDFs) are designed to provide unsophisticated or inattentive investors with age‐appropriate exposures to different asset classes like stocks and bonds. The rise of TDFs has moved a significant share of retirement investors into macrocontrarian strategies that sell stocks after relatively good stock market performance. This rebalancing drives contrarian flows across equity mutual funds held by TDFs, stabilizing their funding, and reduces stock returns for stocks disproportionately held by these funds when stock market returns are relatively high. Continued growth in TDFs and similar investment products may dampen stock market volatility and increase the transmission of shocks across asset classes.

Luxury Goods and the Equity Premium

Published: 12/2004,  Volume: 59,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2004.00721.x  |  Cited by: 261

YACINE AÏT‐SAHALIA, JONATHAN A. PARKER, MOTOHIRO YOGO

This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying utility as a nonhomothetic function of both luxury and basic consumption goods, we derive pricing equations and evaluate the risk of holding equity. Household survey and national accounts data mostly reflect basic consumption, and therefore overstate the risk aversion necessary to match the observed equity premium. The risk aversion implied by the consumption of luxury goods is more than an order of magnitude less than that implied by national accounts data. For the very rich, the equity premium is much less of a puzzle.

Household Portfolios and Retirement Saving over the Life Cycle

Published: 8/12/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13473  |  Cited by: 16

JONATHAN A. PARKER, ANTOINETTE SCHOAR, ALLISON COLE, DUNCAN SIMESTER

Using account‐level data on millions of U.S. middle‐class investors over 2006 to 2018, we characterize the share of investable wealth that they hold in the stock market over their working lives. Relative to the 1990s, this share has both risen by 10% and become age‐dependent. The Pension Protection Act (PPA)—which allowed target date funds (TDFs) to be default options in retirement plans—played an important role: younger (older) workers starting at a firm after TDFs became the default option post‐PPA invested more (less) in stocks, in line with the TDF glidepath. In contrast, contribution rates changed little following the PPA.

Belief Disagreement and Portfolio Choice

Published: 10/12/2022,  Volume: 77,  Issue: 6  |  DOI: 10.1111/jofi.13179  |  Cited by: 179

MAARTEN MEEUWIS, JONATHAN A. PARKER, ANTOINETTE SCHOAR, DUNCAN SIMESTER

Using proprietary financial data on millions of households, we show that likely‐Republicans increased the equity share and market beta of their portfolios following the 2016 presidential election, while likely‐Democrats rebalanced into safe assets. We provide evidence that this behavior was driven by investors interpreting public information based on different models of the world. We use detailed controls to rule out the main nonbelief‐based channels such as income hedging needs, preferences, and local economic exposures. These findings are driven by a small share of investors making big changes, and are stronger among investors who trade more ex ante.

THE USEFULNESS AND LIMITATIONS OF ACCOUNTING REPORTS FOR TESTING THE THEORY OF THE FIRM: AN APPRAISAL*

Published: 3/1962,  Volume: 17,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1962.tb04261.x  |  Cited by: 0

William McFadden Parker

CURRENT TENDENCIES IN COLLEGE INVESTMENTS

Published: 6/1949,  Volume: 4,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1949.tb02343.x  |  Cited by: 0

J. Parker Hall

Are IPO Allocations for Sale? Evidence from Mutual Funds

Published: 9/19/2006,  Volume: 61,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2006.01058.x  |  Cited by: 234

JONATHAN REUTER

Combining data on brokerage commissions that mutual fund families paid for trade execution between 1996 and 1999 with data on mutual fund holdings of initial public offerings (IPOs), I document a robust, positive correlation between commissions paid to lead underwriters and reported holdings of the IPOs they underwrite. Moreover, I find that the correlation is limited to IPOs with nonnegative first‐day returns and strongest for IPOs that occur shortly before mutual funds report their holdings, when the noise introduced by flipping is smallest. Overall, the evidence suggests that business relationships with lead underwriters increase investor access to underpriced IPOs.

Exact Arbitrage Pricing and the Minimum‐Variance Frontier

Published: 6/1988,  Volume: 43,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1988.tb03942.x  |  Cited by: 2

JONATHAN TIEMANN

The author examines the relationship between the Arbitrage Pricing Theory of Ross and mean‐variance analysis. In particular, conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum‐variance frontier. Also, a sufficient condition is given under which the existence of a positive minimum‐variance portfolio of all the assets in the economy will imply the existence of a positive minimum‐variance portfolio on a subset. This means that rejection of the hypothesis of the existence of a positive minimum‐variance portfolio on a subset satisfying this condition implies rejection for the whole set.

DISCUSSION

Published: 5/1979,  Volume: 34,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1979.tb02119.x  |  Cited by: 0

JONATHAN INGERSOLL

AN EXAMINATION OF CORPORATE CALL POLICIES ON CONVERTIBLE SECURITIES

Published: 5/1977,  Volume: 32,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1977.tb03285.x  |  Cited by: 153

Jonathan Ingersoll

Some Results in the Theory of Arbitrage Pricing

Published: 9/1984,  Volume: 39,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1984.tb03890.x  |  Cited by: 122

JONATHAN E. INGERSOLL

This paper derives a stronger version of Huberman's recent “preference free” pricing theorem. This pricing result relates the expected return on an asset to its factor responses and the covariance structure of the residuals from a linear factor model. It must characterize any infinite asset economy in which no arbitrage opportunities are present whether or not the factor model has uncorrelated residuals. This result provides the intuition for the role of residual risk in the pricing model and eliminates some classes of arbitrage opportunities still present under Huberman's bound. Some applications to empirical tests and performance measurement are also discussed.

Crowding Out and the Informativeness of Security Prices

Published: 9/1993,  Volume: 48,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1993.tb04763.x  |  Cited by: 22

JONATHAN M. PAUL

Individual investors trade less agressively on any particular piece of information as more investors observe it. The trades of the new investors observing a piece of information “crowd out” some of the trades of the old investors who observe that same piece of information. This paper shows that when traders are risk averse, these crowding out effects lead the proportions of traders who choose to observe one signal versus another to differ from the proportions that maximize the informativeness of prices.

A Theory of Trading Volume

Published: 12/1986,  Volume: 41,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1986.tb02531.x  |  Cited by: 399

JONATHAN M. KARPOFF

A theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners. The model describes two distinct ways informational events affect trading volume. One is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading. But the observation of abnormal trading volume does not necessarily imply disagreement, and volume can increase even if investors interpret the information identically, if they also have had divergent prior expectations. Simulation tests support the model and are used to contrast the random‐pairing environment with costless market clearing. Volume is lower in the costly market, and volume increases caused by an informational event persist after the event period. This is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract.

Sorting Out Sorts

Published: 2/2000,  Volume: 55,  Issue: 1  |  DOI: 10.1111/0022-1082.00210  |  Cited by: 143

Jonathan B. Berk

In this paper we analyze the theoretical implications of sorting data into groups and then running asset pricing tests within each group. We show that the way this procedure is implemented introduces a bias in favor of rejecting the model under consideration. By simply picking enough groups to sort into, the true asset pricing model can be shown to have no explanatory power within each group.

SOME FACTORS AFFECTING AWARENESS OF ANNUAL PERCENTAGE RATES IN CONSUMER INSTALLMENT CREDIT TRANSACTIONS

Published: 3/1974,  Volume: 29,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1974.tb00037.x  |  Cited by: 16

George G. C. Parker, Robert P. Shay

Liquidity Supply in the Corporate Bond Market

Published: 12/5/2020,  Volume: 76,  Issue: 2  |  DOI: 10.1111/jofi.12991  |  Cited by: 96

JONATHAN GOLDBERG, YOSHIO NOZAWA

This paper examines dealer inventory capacity, or liquidity supply, as a driver of liquidity and expected returns in the corporate bond market. We identify shocks to aggregate liquidity supply using data on corporate bond yields and dealer positions. Liquidity supply shocks lead to persistent changes in market liquidity, are correlated with proxies for dealer financial constraints, and have significant explanatory power for cross‐sectional and time‐series variation in expected returns, beyond standard risk factors. Our findings point to liquidity supply by financially constrained intermediaries as a main driver of market liquidity and asset prices.

Exponential Growth Bias and Household Finance

Published: 11/25/2009,  Volume: 64,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2009.01518.x  |  Cited by: 537

VICTOR STANGO, JONATHAN ZINMAN

Exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively. We show that exponential growth bias can explain two stylized facts in household finance: the tendency to underestimate an interest rate given other loan terms, and the tendency to underestimate a future value given other investment terms. Bias matters empirically: More‐biased households borrow more, save less, favor shorter maturities, and use and benefit more from financial advice, conditional on a rich set of household characteristics. There is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication.

Institutional Investors and Corporate Governance: The Incentive to Be Engaged

Published: 10/21/2021,  Volume: 77,  Issue: 1  |  DOI: 10.1111/jofi.13085  |  Cited by: 245

JONATHAN LEWELLEN, KATHARINA LEWELLEN

This paper studies institutional investors’ incentives to be engaged shareholders. In 2017, the average institution gains an extra $129,000 in annual management fees if a stockholding increases 1% in value, considering both the direct effect on assets under management and the indirect effect on subsequent fund flows. The estimates range from $19,600 for investments in small firms to $307,600 for investments in large firms. Institutional shareholders in one firm often gain when the firm's competitors do well, by virtue of institutions’ holdings in those firms, but the impact of common ownership is modest in the most concentrated industries.

Learning, Asset‐Pricing Tests, and Market Efficiency

Published: 6/2002,  Volume: 57,  Issue: 3  |  DOI: 10.1111/1540-6261.00456  |  Cited by: 288

Jonathan Lewellen, Jay Shanken

This paper studies the asset‐pricing implications of parameter uncertainty. We show that, when investors must learn about expected cash flows, empirical tests can find patterns in the data that differ from those perceived by rational investors. Returns might appear predictable to an econometrician, or appear to deviate from the Capital Asset Pricing Model, but investors can neither perceive nor exploit this predictability. Returns may also appear excessively volatile even though prices react efficiently to cash‐flow news. We conclude that parameter uncertainty can be important for characterizing and testing market efficiency.

Agency, Delayed Compensation, and the Structure of Executive Remuneration

Published: 12/1983,  Volume: 38,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1983.tb03836.x  |  Cited by: 101

JONATHAN EATON, HARVEY S. ROSEN

In this paper we examine the factors affecting the structure of executives' compensation packages. We focus particularly on the role of various types of delayed compensation as means of “bonding” executives to their firms.The basic problem is to design a compensation package that rewards actions that are in the long‐run interest of the stockholders. Firms must take into account their ability to discern unfortunate circumstances from mismanagement, the extent to which a compensation package forces the executive to face risks beyond his control, and the willingness of a given executive to bear this risk. We use our theory to interpret some executive compensation data from the early 1970s.

Mutual Fund Performance and the Incentive to Generate Alpha

Published: 7/18/2014,  Volume: 69,  Issue: 4  |  DOI: 10.1111/jofi.12048  |  Cited by: 350

DIANE DEL GUERCIO, JONATHAN REUTER

To rationalize the well‐known underperformance of the average actively managed mutual fund, we exploit the fact that retail funds in different market segments compete for different types of investors. Within the segment of funds marketed directly to retail investors, we show that flows chase risk‐adjusted returns, and that funds respond by investing more in active management. Importantly, within this direct‐sold segment, we find no evidence that actively managed funds underperform index funds. In contrast, we show that actively managed funds sold through brokers face a weaker incentive to generate alpha and significantly underperform index funds.

Testing for Linear and Nonlinear Granger Causality in the Stock Price‐Volume Relation

Published: 12/1994,  Volume: 49,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1994.tb04776.x  |  Cited by: 222

CRAIG HIEMSTRA, JONATHAN D. JONES

Linear and nonlinear Granger causality tests are used to examine the dynamic relation between daily Dow Jones stock returns and percentage changes in New York Stock Exchange trading volume. We find evidence of significant bidirectional nonlinear causality between returns and volume. We also examine whether the nonlinear causality from volume to returns can be explained by volume serving as a proxy for information flow in the stochastic process generating stock return variance as suggested by Clark's (1973) latent common‐factor model. After controlling for volatility persistence in returns, we continue to find evidence of nonlinear causality from volume to returns.

Managerial Ability, Compensation, and the Closed‐End Fund Discount

Published: 3/20/2007,  Volume: 62,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2007.01216.x  |  Cited by: 161

JONATHAN B. BERK, RICHARD STANTON

This paper shows that the existence of managerial ability, combined with the labor contract prevalent in the industry, implies that the closed‐end fund discount should exhibit many of the primary features documented in the literature. We evaluate the model's ability to match the quantitative features of the data, and find that it does well, although there is some observed behavior that remains to be explained.

Short Sellers and Financial Misconduct

Published: 9/21/2010,  Volume: 65,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2010.01597.x  |  Cited by: 553

JONATHAN M. KARPOFF, XIAOXIA LOU

We examine whether short sellers detect firms that misrepresent their financial statements, and whether their trading conveys external costs or benefits to other investors. Abnormal short interest increases steadily in the 19 months before the misrepresentation is publicly revealed, particularly when the misconduct is severe. Short selling is associated with a faster time‐to‐discovery, and it dampens the share price inflation that occurs when firms misstate their earnings. These results indicate that short sellers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to fundamental values.

The Imperfect Intermediation of Money‐Like Assets

Published: 10/14/2025,  Volume: 80,  Issue: 6  |  DOI: 10.1111/jofi.13500  |  Cited by: 6

JEREMY C. STEIN, JONATHAN WALLEN

We study supply‐and‐demand effects in the U.S. Treasury bill market by comparing the returns on T‐bills to the policy rate on the Federal Reserve's reverse repurchase (RRP) facility. We develop and test a simple model where the RRP‐bill spread is policed both by heterogeneously elastic money funds and by corporate treasurers who derive collateral benefits from holding T‐bills. In response to shifts in T‐bill supply, money funds act as front‐line arbitrageurs. However, when T‐bills become extremely scarce, less elastic corporate treasurers become the marginal investors and supply shifts have a larger effect on T‐bill rates.

Optimal Bond Trading with Personal Tax: Implications for Bond Prices and Estimated Tax Brackets and Yield Curves†

Published: 5/1982,  Volume: 37,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1982.tb03556.x  |  Cited by: 4

GEORGE M. CONSTANTINIDES, JONATHAN E. INGERSOLL

Financing Constraints and Workplace Safety

Published: 9/14/2016,  Volume: 71,  Issue: 5  |  DOI: 10.1111/jofi.12430  |  Cited by: 308

JONATHAN B. COHN, MALCOLM I. WARDLAW

We present evidence that financing frictions adversely impact investment in workplace safety, with implications for worker welfare and firm value. Using several identification strategies, we find that injury rates increase with leverage and negative cash flow shocks, and decrease with positive cash flow shocks. We show that firm value decreases substantially with injury rates. Our findings suggest that investment in worker safety is an economically important margin on which firms respond to financing constraints.

The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under

Published: 12/30/2023,  Volume: 79,  Issue: 2  |  DOI: 10.1111/jofi.13307  |  Cited by: 12

DAVID O. LUCCA, JONATHAN H. WRIGHT

We study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the targeted government bond outstanding, and the target bond's yield dislocated from other financial market instruments. The evidence suggests that central bank bond purchase programs can operate more narrowly than previously considered.

Takeover Defenses of IPO Firms

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/0022-1082.00482  |  Cited by: 394

Laura Casares Field, Jonathan M. Karpoff

Many firms deploy takeover defenses when they go public. IPO managers tend to deploy defenses when their compensation is high, shareholdings are small, and oversight from nonmanagerial shareholders is weak. The presence of a defense is negatively related to subsequent acquisition likelihood, yet has no impact on takeover premiums for firms that are acquired. These results do not support arguments that takeover defenses facilitate the eventual sale of IPO firms at high takeover premiums. Rather, they suggest that managers shift the cost of takeover protection onto nonmanagerial shareholders. Thus, agency problems are important even for firms at the IPO stage.

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

Published: 1/26/2018,  Volume: 73,  Issue: 2  |  DOI: 10.1111/jofi.12600  |  Cited by: 272

JONATHAN M. KARPOFF, MICHAEL D. WITTRY

We argue and demonstrate empirically that a firm's institutional and legal context has first‐order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm‐level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.

Exact Pricing in Linear Factor Models with Finitely Many Assets: A Note

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02512.x  |  Cited by: 49

NAI‐FU CHEN, JONATHAN E. INGERSOLL

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

Price Discovery without Trading: Evidence from Limit Orders

Published: 4/2/2019,  Volume: 74,  Issue: 4  |  DOI: 10.1111/jofi.12769  |  Cited by: 229

JONATHAN BROGAARD, TERRENCE HENDERSHOTT, RYAN RIORDAN

We analyze the contribution to price discovery of market and limit orders by high‐frequency traders (HFTs) and non‐HFTs. While market orders have a larger individual price impact, limit orders are far more numerous. This results in price discovery occurring predominantly through limit orders. HFTs submit the bulk of limit orders and these limit orders provide most of the price discovery. Submissions of limit orders and their contribution to price discovery fall with volatility due to changes in HFTs’ behavior. Consistent with adverse selection arising from faster reactions to public information, HFTs’ informational advantage is partially explained by public information.

Human Capital, Bankruptcy, and Capital Structure

Published: 5/7/2010,  Volume: 65,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2010.01556.x  |  Cited by: 497

JONATHAN B. BERK, RICHARD STANTON, JOSEF ZECHNER

We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade‐off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information. Consistent with empirical evidence, persistent idiosyncratic differences in leverage across firms also result. In addition, wages should have explanatory power for firm leverage.

Does Floor Trading Matter?

Published: 10/27/2024,  Volume: 80,  Issue: 1  |  DOI: 10.1111/jofi.13401  |  Cited by: 19

JONATHAN BROGAARD, MATTHEW C. RINGGENBERG, DOMINIK ROESCH

Although algorithmic trading now dominates financial markets, some exchanges continue to use human floor traders. On March 23, 2020 the NYSE suspended floor trading because of COVID‐19. Using a difference‐in‐differences analysis around the closure of the floor, we find that floor traders are important contributors to market quality. The suspension of floor trading leads to higher spreads and larger pricing errors for treated stocks relative to control stocks. To explore the mechanism, we exploit two partial floor reopenings that have different characteristics. Our finding suggests that in‐person human interaction facilitates the transfer of valuable information that algorithms lack.

Regulation of Charlatans in High‐Skill Professions

Published: 2/26/2022,  Volume: 77,  Issue: 2  |  DOI: 10.1111/jofi.13112  |  Cited by: 26

JONATHAN B. BERK, JULES H. VAN BINSBERGEN

We model a market for a skill in short supply and high demand, where the presence of charlatans (professionals who sell a service they do not deliver on) is an equilibrium outcome. In the model, reducing the number of charlatans through regulation lowers consumer surplus because of the resulting reduction in competition among producers. Producers can benefit from this reduction, potentially explaining the regulation we observe. The effect on total surplus depends on the type of regulation. We derive the factors that drive the cross‐sectional variation in charlatans (regulation) across professions.

Evidence on Price Stabilization and Underpricing in Early IPO Returns

Published: 10/1998,  Volume: 53,  Issue: 5  |  DOI: 10.1111/0022-1082.00071  |  Cited by: 65

Daniel Asquith, Jonathan D. Jones, Robert Kieschnick

Using data on 560 firm‐commitment initial public offerings of common stock for the 1982–1983 period, we find that the cross‐sectional distribution of one‐day returns is modeled better as a mixture of two distributions, with the parameter estimates of one distribution being consistent with underpricing and the other with price stabilization. Further, the evidence that early IPO returns are drawn from a mixture distribution persists for at least four weeks. The implications of these results for the analysis of IPO returns are illustrated by examining the influence of a measure of ex ante price uncertainty on IPO pricing.

Segmented Arbitrage

Published: 8/4/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13469  |  Cited by: 21

EMIL N. SIRIWARDANE, ADI SUNDERAM, JONATHAN WALLEN

We use arbitrage activity in equity, fixed income, and foreign exchange markets to characterize the frictions and constraints facing intermediaries. The average pairwise correlation between the 32 arbitrage spreads that we study is 22%. These low correlations are inconsistent with canonical intermediary asset pricing models. We show that at least two types of segmentation drive arbitrage dynamics. First, funding is segmented—certain trades rely on specific funding sources, making their arbitrage spreads sensitive to localized funding shocks. Second, balance sheets are segmented—intermediaries specialize in certain trades, so arbitrage spreads are sensitive to idiosyncratic balance‐sheet shocks.

Optimal Investment, Growth Options, and Security Returns

Published: 10/1999,  Volume: 54,  Issue: 5  |  DOI: 10.1111/0022-1082.00161  |  Cited by: 1116

Jonathan B. Berk, Richard C. Green, Vasant Naik

As a consequence of optimal investment choices, a firm's assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm's systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: (i) the time‐series relation between the book‐to‐market ratio and asset returns; (ii) the cross‐sectional relation between book‐to‐market, market value, and return; (iii) contrarian effects at short horizons; (iv) momentum effects at longer horizons; and (v) the inverse relation between interest rates and the market risk premium.

Are Analysts’ Recommendations Informative? Intraday Evidence on the Impact of Time Stamp Delays

Published: 3/17/2014,  Volume: 69,  Issue: 2  |  DOI: 10.1111/jofi.12107  |  Cited by: 180

DANIEL BRADLEY, JONATHAN CLARKE, SUZANNE LEE, CHAYAWAT ORNTHANALAI

We demonstrate that time stamps reported in I/B/E/S for analysts’ recommendations released during trading hours are systematically delayed. Using newswire‐reported time stamps, we find 30‐minute returns of 1.83% (−2.10%) for upgrades (downgrades), but for this subset of recommendations we find corresponding returns of −0.07% (−0.09%) using I/B/E/S‐reported time stamps. We also examine the information content of recommendations relative to management guidance and earnings announcements. Our evidence suggests that analysts’ recommendations are the most important information disclosure channel examined.

Unshrouding: Evidence from Bank Overdrafts in Turkey

Published: 2/21/2018,  Volume: 73,  Issue: 2  |  DOI: 10.1111/jofi.12593  |  Cited by: 41

SULE ALAN, MEHMET CEMALCILAR, DEAN KARLAN, JONATHAN ZINMAN

Lower prices produce higher demand… or do they? A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or autodebit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead, they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.

Matching Capital and Labor

Published: 8/28/2017,  Volume: 72,  Issue: 6  |  DOI: 10.1111/jofi.12542  |  Cited by: 93

JONATHAN B. BERK, JULES H. van BINSBERGEN, BINYING LIU

We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. The firm's decision to reallocate capital among its mutual fund managers adds at least $474,000 a month, which amounts to over 30% of the total value added of the industry. We provide evidence that this additional value added results from the firm's private information about the skill of its managers. The firm captures this value because investors reward the firm following a capital reallocation decision by allocating additional capital to the firm's funds.

High‐Water Marks and Hedge Fund Management Contracts

Published: 7/15/2003,  Volume: 58,  Issue: 4  |  DOI: 10.1111/1540-6261.00581  |  Cited by: 394

William N. Goetzmann, Jonathan E. Ingersoll, Stephen A. Ross

Incentive fees for money managers are frequently accompanied by high‐water mark provisions that condition the payment of the performance fee upon exceeding the previously achieved maximum share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely, represent a claim on a significant proportion of investor wealth. The high‐water mark provisions in these contracts limit the value of the performance fees. We provide a closed‐form solution to the cost of the high‐water mark contract under certain conditions. Our results provide a framework for valuation of a hedge fund management company.

Short Selling and Earnings Management: A Controlled Experiment

Published: 5/11/2016,  Volume: 71,  Issue: 3  |  DOI: 10.1111/jofi.12369  |  Cited by: 443

VIVIAN W. FANG, ALLEN H. HUANG, JONATHAN M. KARPOFF

During 2005 to 2007, the SEC ordered a pilot program in which one‐third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short‐sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre‐experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, curbs earnings management, helps detect fraud, and improves price efficiency.

An Analysis of Variable Rate Loan Contracts

Published: 5/1980,  Volume: 35,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1980.tb02169.x  |  Cited by: 183

JOHN C. COX, JONATHAN E. INGERSOLL, STEPHEN A. ROSS

Information Cascades: Evidence from a Field Experiment with Financial Market Professionals

Published: 1/11/2007,  Volume: 62,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2007.01204.x  |  Cited by: 222

JONATHAN E. ALEVY, MICHAEL S. HAIGH, JOHN A. LIST

Previous empirical studies of information cascades use either naturally occurring data or laboratory experiments. We combine attractive elements from each of these lines of research by observing market professionals from the Chicago Board of Trade (CBOT) in a controlled environment. Analysis of over 1,500 individual decisions suggests that CBOT professionals behave differently from our student control group. For instance, professionals are better able to discern the quality of public signals and their decisions are not affected by the domain of earnings. These results have implications for market efficiency and are important in both a positive and normative sense.

A Re‐examination of Traditional Hypotheses about the Term Structure of Interest Rates

Published: 9/1981,  Volume: 36,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1981.tb04884.x  |  Cited by: 231

JOHN C. COX, JONATHAN E. INGERSOLL, STEPHEN A. ROSS

The term structure of interest rates is an important subject to economists, and has a long history of traditions. This paper re‐examines many of these traditional hypotheses while employing recent advances in the theory of valuation and contingent claims. We show how the Expectations Hypothesis and the Preferred Habitat Theory must be reformulated if they are to obtain in a continuous‐time, rational‐expectations equilibrium. We also modify the linear adaptive interest rate forecasting models, which are common to the macroeconomic literature, so that they will be consistent in the same framework.

On Enhancing Shareholder Control: A (Dodd‐) Frank Assessment of Proxy Access

Published: 7/13/2016,  Volume: 71,  Issue: 4  |  DOI: 10.1111/jofi.12402  |  Cited by: 79

JONATHAN B. COHN, STUART L. GILLAN, JAY C. HARTZELL

We use events related to a proxy access rule passed by the Securities and Exchange Commission in 2010 as natural experiments to study the valuation effects of changes in shareholder control. We find that valuations increase (decrease) following increases (decreases) in perceived control, especially for firms that are poorly performing, have shareholders likely to exercise control, and where acquiring a stake is relatively inexpensive. These results suggest that an increase in shareholder control from its current level would generally benefit shareholders. However, we find that the benefits of increased control are muted for firms with shareholders whose interests may deviate from value maximization.

Sending Out an SMS: Automatic Enrollment Experiments for Overdraft Alerts

Published: 12/26/2024,  Volume: 80,  Issue: 1  |  DOI: 10.1111/jofi.13404  |  Cited by: 4

MICHAEL D. GRUBB, DARRAGH KELLY, JEROEN NIEBOER, MATTHEW OSBORNE, JONATHAN SHAW

At‐scale field experiments at major U.K. banks show that automatic enrollment into “just‐in‐time” text alerts reduces unarranged overdraft and unpaid item charges 17% to 19% and arranged overdraft charges 4% to 8%, implying annual market‐wide savings of £170 million to £240 million. Incremental benefits from “early‐warning” alerts are statistically insignificant, although economically significant effects are not ruled out. Prior to the experiments, over half of overdrafts could have been avoided by using lower‐cost liquidity available in savings and credit card accounts. Alerts help consumers achieve less than half of these potential savings.

Nonstandard Errors

Published: 4/17/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13337  |  Cited by: 110

ALBERT J. MENKVELD, ANNA DREBER, FELIX HOLZMEISTER, JUERGEN HUBER, MAGNUS JOHANNESSON, MICHAEL KIRCHLER, SEBASTIAN NEUSÜß, MICHAEL RAZEN, UTZ WEITZEL, DAVID ABAD‐DÍAZ, MENACHEM (MENI) ABUDY, TOBIAS ADRIAN, YACINE AIT‐SAHALIA, OLIVIER AKMANSOY, JAMIE T. ALCOCK, VITALI ALEXEEV, ARASH ALOOSH, LIVIA AMATO, DIEGO AMAYA, JAMES J. ANGEL, ALEJANDRO T. AVETIKIAN, AMADEUS BACH, EDWIN BAIDOO, GAETAN BAKALLI, LI BAO, ANDREA BARBON, OKSANA BASHCHENKO, PARAMPREET C. BINDRA, GEIR H. BJØNNES, JEFFREY R. BLACK, BERNARD S. BLACK, DIMITAR BOGOEV, SANTIAGO BOHORQUEZ CORREA, OLEG BONDARENKO, CHARLES S. BOS, CIRIL BOSCH‐ROSA, ELIE BOURI, CHRISTIAN BROWNLEES, ANNA CALAMIA, VIET NGA CAO, GUNTHER CAPELLE‐BLANCARD, LAURA M. CAPERA ROMERO, MASSIMILIANO CAPORIN, ALLEN CARRION, TOLGA CASKURLU, BIDISHA CHAKRABARTY, JIAN CHEN, MIKHAIL CHERNOV, WILLIAM CHEUNG, LUDWIG B. CHINCARINI, TARUN CHORDIA, SHEUNG‐CHI CHOW, BENJAMIN CLAPHAM, JEAN‐EDOUARD COLLIARD, CAROLE COMERTON‐FORDE, EDWARD CURRAN, THONG DAO, WALE DARE, RYAN J. DAVIES, RICCARDO DE BLASIS, GIANLUCA F. DE NARD, FANY DECLERCK, OLEG DEEV, HANS DEGRYSE, SOLOMON Y. DEKU, CHRISTOPHE DESAGRE, MATHIJS A. VAN DIJK, CHUKWUMA DIM, THOMAS DIMPFL, YUN JIANG DONG, PHILIP A. DRUMMOND, TOM DUDDA, TEODOR DUEVSKI, ARIADNA DUMITRESCU, TEODOR DYAKOV, ANNE HAUBO DYHRBERG, MICHAŁ DZIELIŃSKI, ASLI EKSI, IZIDIN EL KALAK, SASKIA TER ELLEN, NICOLAS EUGSTER, MARTIN D. D. EVANS, MICHAEL FARRELL, ESTER FELEZ‐VINAS, GERARDO FERRARA, EL MEHDI FERROUHI, ANDREA FLORI, JONATHAN T. FLUHARTY‐JAIDEE, SEAN D. V. FOLEY, KINGSLEY Y. L. FONG, THIERRY FOUCAULT, TATIANA FRANUS, FRANCESCO FRANZONI, BART FRIJNS, MICHAEL FRÖMMEL, SERVANNA M. FU, SASCHA C. FÜLLBRUNN, BAOQING GAN, GE GAO, THOMAS P. GEHRIG, ROLAND GEMAYEL, DIRK GERRITSEN, JAVIER GIL‐BAZO, DUDLEY GILDER, LAWRENCE R. GLOSTEN, THOMAS GOMEZ, ARSENY GORBENKO, JOACHIM GRAMMIG, VINCENT GRÉGOIRE, UFUK GÜÇBILMEZ, BJÖRN HAGSTRÖMER, JULIEN HAMBUCKERS, ERIK HAPNES, JEFFREY H. HARRIS, LAWRENCE HARRIS, SIMON HARTMANN, JEAN‐BAPTISTE HASSE, NIKOLAUS HAUTSCH, XUE‐ZHONG (TONY) HE, DAVIDSON HEATH, SIMON HEDIGER, TERRENCE HENDERSHOTT, ANN MARIE HIBBERT, ERIK HJALMARSSON, SETH A. HOELSCHER, PETER HOFFMANN, CRAIG W. HOLDEN, ALEX R. HORENSTEIN, WENQIAN HUANG, DA HUANG, CHRISTOPHE HURLIN, KONRAD ILCZUK, ALEXEY IVASHCHENKO, SUBRAMANIAN R. IYER, HOSSEIN JAHANSHAHLOO, NAJI JALKH, CHARLES M. JONES, SIMON JURKATIS, PETRI JYLHÄ, ANDREAS T. KAECK, GABRIEL KAISER, ARZÉ KARAM, EGLE KARMAZIENE, BERNHARD KASSNER, MARKKU KAUSTIA, EKATERINA KAZAK, FEARGHAL KEARNEY, VINCENT VAN KERVEL, SAAD A. KHAN, MARTA K. KHOMYN, TONY KLEIN, OLGA KLEIN, ALEXANDER KLOS, MICHAEL KOETTER, ALEKSEY KOLOKOLOV, ROBERT A. KORAJCZYK, ROMAN KOZHAN, JAN P. KRAHNEN, PAUL KUHLE, AMY KWAN, QUENTIN LAJAUNIE, F. Y. ERIC C. LAM, MARIE LAMBERT, HUGUES LANGLOIS, JENS LAUSEN, TOBIAS LAUTER, MARKUS LEIPPOLD, VLADIMIR LEVIN, YIJIE LI, HUI LI, CHEE YOONG LIEW, THOMAS LINDNER, OLIVER LINTON, JIACHENG LIU, ANQI LIU, GUILLERMO LLORENTE, MATTHIJS LOF, ARIEL LOHR, FRANCIS LONGSTAFF, ALEJANDRO LOPEZ‐LIRA, SHAWN MANKAD, NICOLA MANO, ALEXIS MARCHAL, CHARLES MARTINEAU, FRANCESCO MAZZOLA, DEBRAH MELOSO, MICHAEL G. MI, ROXANA MIHET, VIJAY MOHAN, SOPHIE MOINAS, DAVID MOORE, LIANGYI MU, DMITRIY MURAVYEV, DERMOT MURPHY, GABOR NESZVEDA, CHRISTIAN NEUMEIER, ULF NIELSSON, MAHENDRARAJAH NIMALENDRAN, SVEN NOLTE, LARS L. NORDEN, PETER O'NEILL, KHALED OBAID, BERNT A. ØDEGAARD, PER ÖSTBERG, EMILIANO PAGNOTTA, MARCUS PAINTER, STEFAN PALAN, IMON J. PALIT, ANDREAS PARK, ROBERTO PASCUAL, PAOLO PASQUARIELLO, LUBOS PASTOR, VINAY PATEL, ANDREW J. PATTON, NEIL D. PEARSON, LORIANA PELIZZON, MICHELE PELLI, MATTHIAS PELSTER, CHRISTOPHE PÉRIGNON, CAMERON PFIFFER, RICHARD PHILIP, TOMÁŠ PLÍHAL, PUNEET PRAKASH, OLIVER‐ALEXANDER PRESS, TINA PRODROMOU, MARCEL PROKOPCZUK, TALIS PUTNINS, YA QIAN, GAURAV RAIZADA, DAVID RAKOWSKI, ANGELO RANALDO, LUCA REGIS, STEFAN REITZ, THOMAS RENAULT, REX W. RENJIE, ROBERTO RENO, STEVEN J. RIDDIOUGH, KALLE RINNE, PAUL RINTAMÄKI, RYAN RIORDAN, THOMAS RITTMANNSBERGER, IÑAKI RODRÍGUEZ LONGARELA, DOMINIK ROESCH, LAVINIA ROGNONE, BRIAN ROSEMAN, IOANID ROŞU, SAURABH ROY, NICOLAS RUDOLF, STEPHEN R. RUSH, KHALADDIN RZAYEV, ALEKSANDRA A. RZEŹNIK, ANTHONY SANFORD, HARIKUMAR SANKARAN, ASANI SARKAR, LUCIO SARNO, OLIVIER SCAILLET, STEFAN SCHARNOWSKI, KLAUS R. SCHENK‐HOPPÉ, ANDREA SCHERTLER, MICHAEL SCHNEIDER, FLORIAN SCHROEDER, NORMAN SCHÜRHOFF, PHILIPP SCHUSTER, MARCO A. SCHWARZ, MARK S. SEASHOLES, NORMAN J. SEEGER, OR SHACHAR, ANDRIY SHKILKO, JESSICA SHUI, MARIO SIKIC, GIORGIA SIMION, LEE A. SMALES, PAUL SÖDERLIND, ELVIRA SOJLI, KONSTANTIN SOKOLOV, JANTJE SÖNKSEN, LAIMA SPOKEVICIUTE, DENITSA STEFANOVA, MARTI G. SUBRAHMANYAM, BARNABAS SZASZI, OLEKSANDR TALAVERA, YUEHUA TANG, NICK TAYLOR, WING WAH THAM, ERIK THEISSEN, JULIAN THIMME, IAN TONKS, HAI TRAN, LUCA TRAPIN, ANDERS B. TROLLE, M. ANDREEA VADUVA, GIORGIO VALENTE, ROBERT A. VAN NESS, AURELIO VASQUEZ, THANOS VEROUSIS, PATRICK VERWIJMEREN, ANDERS VILHELMSSON, GRIGORY VILKOV, VLADIMIR VLADIMIROV, SEBASTIAN VOGEL, STEFAN VOIGT, WOLF WAGNER, THOMAS WALTHER, PATRICK WEISS, MICHEL VAN DER WEL, INGRID M. WERNER, P. JOAKIM WESTERHOLM, CHRISTIAN WESTHEIDE, HANS C. WIKA, EVERT WIPPLINGER, MICHAEL WOLF, CHRISTIAN C. P. WOLFF, LEONARD WOLK, WING‐KEUNG WONG, JAN WRAMPELMEYER, ZHEN‐XING WU, SHUO XIA, DACHENG XIU, KE XU, CAIHONG XU, PRADEEP K. YADAV, JOSÉ YAGÜE, CHENG YAN, ANTTI YANG, WOONGSUN YOO, WENJIA YU, YIHE YU, SHIHAO YU, BART Z. YUESHEN, DARYA YUFEROVA, MARCIN ZAMOJSKI, ABALFAZL ZAREEI, STEFAN M. ZEISBERGER, LU ZHANG, S. SARAH ZHANG, XIAOYU ZHANG, LU ZHAO, ZHUO ZHONG, Z. IVY ZHOU, CHEN ZHOU, XINGYU S. ZHU, MARIUS ZOICAN, REMCO ZWINKELS

In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.