Search results: 50.
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: 289
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.
Women in Charge: Evidence from Hospitals
Published: 4/26/2025, Volume: 80, Issue: 4 | DOI: 10.1111/jofi.13455 | Cited by: 7
KATHARINA LEWELLEN
The paper examines the decision‐making, compensation, and turnover of female CEOs in U.S. hospitals. Contrary to the literature on lower‐ranked executives and directors in public firms, there is no evidence that gender differences in preferences for risk or altruism affect decision‐making of hospital CEOs: corporate policies do not shift when women take (or leave) office, and male and female CEOs respond similarly to a major financial shock. However, female CEOs earn lower salaries, face flatter pay‐for‐performance incentives, and exhibit greater turnover after poor performance. Hospital boards behave as though they perceive female CEOs as less productive.
Risk, Reputation, and IPO Price Support
Published: 3/9/2006, Volume: 61, Issue: 2 | DOI: 10.1111/j.1540-6261.2006.00850.x | Cited by: 82
KATHARINA LEWELLEN
Immediately following an initial public offering, underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price. Using proprietary Nasdaq data, I study the price effects and determinants of price support. Some of the key findings are (1) Stabilization is substantial, inducing price rigidity at and below the offer price; (2) I find no evidence that stocks with larger information asymmetries are stabilized more strongly; (3) Larger underwriters stabilize more, perhaps to protect their reputations with investors; and (4) Investment banks with retail brokerage operations stabilize much more than other banks, inconsistent with the view that stabilization benefits primarily institutional investors.
SOME OBSERVATIONS ON RISK‐ADJUSTED DISCOUNT RATES
Published: 9/1977, Volume: 32, Issue: 4 | DOI: 10.1111/j.1540-6261.1977.tb03331.x | Cited by: 23
Wilbur G. Lewellen
Reply to Pettway and Celec
Published: 9/1979, Volume: 34, Issue: 4 | DOI: 10.1111/j.1540-6261.1979.tb03461.x | Cited by: 11
WILBUR G. LEWELLEN
A PURE FINANCIAL RATIONALE FOR THE CONGLOMERATE MERGER
Published: 5/1971, Volume: 26, Issue: 2 | DOI: 10.1111/j.1540-6261.1971.tb00912.x | Cited by: 818
Wilbur G. Lewellen
CEO Preferences and Acquisitions
Published: 11/12/2015, Volume: 70, Issue: 6 | DOI: 10.1111/jofi.12283 | Cited by: 273
DIRK JENTER, KATHARINA LEWELLEN
This paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as a proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover premiums and target announcement returns are similar for retirement‐age and younger CEOs, implying that retirement‐age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.
Investment Decisions of Nonprofit Firms: Evidence from Hospitals
Published: 7/23/2015, Volume: 70, Issue: 4 | DOI: 10.1111/jofi.12234 | Cited by: 77
MANUEL ADELINO, KATHARINA LEWELLEN, ANANT SUNDARAM
This paper examines investment choices of nonprofit hospitals. It tests how shocks to cash flows caused by the performance of the hospitals’ financial assets affect hospital expenditures. Capital expenditures increase, on average, by 10 to 28 cents for every dollar received from financial assets. The sensitivity is similar to that found earlier for shareholder‐owned corporations. Executive compensation, other salaries, and perks do not respond significantly to cash flow shocks. Hospitals with an apparent tendency to overspend on medical procedures do not exhibit higher investment‐cash flow sensitivities. The sensitivities are higher for hospitals that appear financially constrained.
Evidence on Tax‐Motivated Securities Trading Behavior
Published: 3/1991, Volume: 46, Issue: 1 | DOI: 10.1111/j.1540-6261.1991.tb03755.x | Cited by: 33
S. G. BADRINATH, WILBUR G. LEWELLEN
Tax‐loss selling by investors in common stocks near the end of calendar years has been proposed as an explanation for the turn‐of‐the‐year effect in stock returns. Past analyses of this hypothesis have relied on inferential data. We provide here some direct data from a compilation of over 80,000 actual common stock investment round trips by a sample of 3000 individual investors. We find strong evidence of a concentration of loss‐taking trades late in the year and milder evidence of a concentration just prior to the dates when investments become eligible for long‐term tax treatment.
REPLY
Published: 9/1973, Volume: 28, Issue: 4 | DOI: 10.1111/j.1540-6261.1973.tb01428.x | Cited by: 1
Robert W. Johnson, Wilbur G. Lewellen
On the Matter of Parity among Financial Obligations
Published: 3/1981, Volume: 36, Issue: 1 | DOI: 10.1111/j.1540-6261.1981.tb03537.x | Cited by: 10
WILBUR G. LEWELLEN, DOUGLAS R. EMERY
The lessons of the leasing literature concerning the impact of leases on the debt capacity of a firm are reviewed and summarized to establish an approach to the analysis of the corporate bond refunding decision. A general proposition regarding financial obligation parity is established, and from that a clear bond refunding decision rule is developed. Previous debates in the literature about appropriate discount rates and about the appropriate cash flows to be discounted for refunding decisions are clarified.
ANALYSIS OF THE LEASE‐OR‐BUY DECISION
Published: 9/1972, Volume: 27, Issue: 4 | DOI: 10.1111/j.1540-6261.1972.tb01313.x | Cited by: 39
Robert W. Johnson, Wilbur G. Lewellen
Debt Management under Corporate and Personal Taxation
Published: 12/1987, Volume: 42, Issue: 5 | DOI: 10.1111/j.1540-6261.1987.tb04366.x | Cited by: 14
DAVID C. MAUER, WILBUR G. LEWELLEN
The presence of long‐term debt in a corporation's capital structure is shown to give rise to a valuable tax‐timing option that can be exercised by the firm on behalf of its shareholders. This option, which is not available if the firm is fully equity financed, implies that leverage will have a positive tax effect on total firm value even if there is no such effect associated with the tax deductibility of the coupon interest payments on debt. The more volatile interest rates and bond prices are, the more valuable the tax‐timing option and the larger the favorable impact of debt on shareholder wealth.
MANAGEMENT AND OWNERSHIP IN THE LARGE FIRM
Published: 5/1969, Volume: 24, Issue: 2 | DOI: 10.1111/j.1540-6261.1969.tb01684.x | Cited by: 4
Myron J. Gordon, Wilbur G. Lewellen
Security Issue Timing: What Do Managers Know, and When Do They Know It?
Published: 3/21/2011, Volume: 66, Issue: 2 | DOI: 10.1111/j.1540-6261.2010.01638.x | Cited by: 38
DIRK JENTER, KATHARINA LEWELLEN, JEROLD B. WARNER
We study put option sales on company stock by large firms. An often‐cited motivation for these transactions is market timing, and managers' decision to issue puts should be sensitive to whether the stock is undervalued. We provide new evidence that large firms successfully time security sales. In the 100 days following put option issues, there is roughly a 5% abnormal stock return, with much of the abnormal return following the first earnings release date after the sale. Direct evidence on put option exercises reinforces these findings: exercise frequencies and payoffs to put holders are abnormally low.
The Interaction of Financing and Investment Decisions When the Firm has Unused Tax Credits††
Published: 5/1983, Volume: 38, Issue: 2 | DOI: 10.1111/j.1540-6261.1983.tb02267.x | Cited by: 2
WILBUR G. LEWELLEN, IAN COOPER, JULIAN R. FRANKS
THE COMMON‐STOCK‐PORTFOLIO PERFORMANCE RECORD OF INDIVIDUAL INVESTORS: 1964–70
Published: 5/1978, Volume: 33, Issue: 2 | DOI: 10.1111/j.1540-6261.1978.tb04859.x | Cited by: 39
Gary G. Schlarbaum, Wilbur G. Lewellen, Ronald C. Lease
THE INDIVIDUAL INVESTOR: ATTRIBUTES AND ATTITUDES
Published: 5/1974, Volume: 29, Issue: 2 | DOI: 10.1111/j.1540-6261.1974.tb03055.x | Cited by: 111
Ronald C. Lease, Wilbur G. Lewellen, Gary G. Schlarbaum
ASSET LEASING IN COMPETITIVE CAPITAL MARKETS
Published: 6/1976, Volume: 31, Issue: 3 | DOI: 10.1111/j.1540-6261.1976.tb01923.x | Cited by: 87
Wilbur G. Lewellen, Michael S. Long, John J. McConnell
INDIVIDUAL INVESTOR RISK AVERSION AND INVESTMENT PORTFOLIO COMPOSITION
Published: 5/1975, Volume: 30, Issue: 2 | DOI: 10.1111/j.1540-6261.1975.tb01834.x | Cited by: 275
Richard A. Cohn, Wilbur G. Lewellen, Ronald C. Lease, Gary G. Schlarbaum
SOME DIRECT EVIDENCE ON THE DIVIDEND CLIENTELE PHENOMENON
Published: 12/1978, Volume: 33, Issue: 5 | DOI: 10.1111/j.1540-6261.1978.tb03427.x | Cited by: 70
Wilbur G. Lewellen, Kenneth L. Stanley, Ronald C. Lease, Gary G. Schlarbaum
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
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
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.
Sorting Out Sorts
Published: 2/2000, Volume: 55, Issue: 1 | DOI: 10.1111/0022-1082.00210 | Cited by: 144
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.
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.
Liquidity Supply in the Corporate Bond Market
Published: 12/5/2020, Volume: 76, Issue: 2 | DOI: 10.1111/jofi.12991 | Cited by: 94
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.
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: 351
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.
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.
Short Sellers and Financial Misconduct
Published: 9/21/2010, Volume: 65, Issue: 5 | DOI: 10.1111/j.1540-6261.2010.01597.x | Cited by: 556
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.
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.
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.
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: 273
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
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.
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: 231
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: 498
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.
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: 59
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.