The Journal of Finance

Intraday Price Formation in U.S. Equity Index Markets

Published: 11/7/2003,  Volume: 58,  Issue: 6  |  DOI: 10.1046/j.1540-6261.2003.00609.x  |  Cited by: 401

Joel Hasbrouck

AbstractThe market for U.S. equity indexes presently comprises floor‐traded index futures contracts, exchange‐traded funds (ETFs), electronically traded, small‐denomination futures contracts (E‐minis), and sector ETFs that decompose the S&P 500 index into component industry portfolios. This paper empirically investigates price discovery in this environment. For the S&P 500 and Nasdaq‐100 indexes, most of the price discovery occurs in the E‐mini market. For the S&P 400 MidCap index, price discovery is shared between the regular futures contract and the ETF. The S&P 500 ETF contributes markedly to price discovery in the sector ETFs, but there are only minor effects in the reverse direction.

Stock Returns, Inflation, and Economic Activity: The Survey Evidence

Published: 12/1984,  Volume: 39,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1984.tb04908.x  |  Cited by: 13

JOEL HASBROUCK

The primary purpose of this paper is the use of survey expectations data to study the empirical relationships between stock returns, inflation, and economic activity. In the course of this analysis and as a secondary purpose, the paper discusses general considerations involving the use of expectations proxies and makes recommendations for econometric techniques. The main empirical findings are: (1) Hypothesized relationships between expected economic activity and expected inflation do not in practice appear to be important in explaining the negative relationship between expected inflation and stock returns. (2) Nevertheless, the survey data do lend some support to the hypothesis of a quantity theory relationship between expected inflation and expected economic activity, holding constant monetary growth. (3) The cross‐forecaster dispersion of economic activity forecasts, a proxy for real uncertainty, appears to be a significant determinant of stock returns. Inclusion of this variable eliminates the negative impact of expected inflation.

Trading Costs and Returns for U.S. Equities: Estimating Effective Costs from Daily Data

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01469.x  |  Cited by: 900

JOEL HASBROUCK

The effective cost of trading is usually estimated from transaction‐level data. This study proposes a Gibbs estimate that is based on daily closing prices. In a validation sample, the daily Gibbs estimate achieves a correlation of 0.965 with the transaction‐level estimate. When the Gibbs estimates are incorporated into asset pricing specifications over a long historical sample (1926 to 2006), the results suggest that effective cost (as a characteristic) is positively related to stock returns. The relation is strongest in January, but it appears to be distinct from size effects.

One Security, Many Markets: Determining the Contributions to Price Discovery

Published: 9/1995,  Volume: 50,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1995.tb04054.x  |  Cited by: 1327

JOEL HASBROUCK

When homogeneous or closely‐linked securities trade in multiple markets, it is often of interest to determine where price discovery (the incorporation of new information) occurs. This article suggests an econometric approach based on an implicit unobservable efficient price common to all markets. The information share associated with a particular market is defined as the proportional contribution of that market's innovations to the innovation in the common efficient price. Applied to quotes for the thirty Dow stocks, the technique suggests that the preponderance of the price discovery takes place at the New York Stock Exchange (NYSE) (a median 92.7 percent information share).

The Dynamics of Discrete Bid and Ask Quotes

Published: 12/1999,  Volume: 54,  Issue: 6  |  DOI: 10.1111/0022-1082.00183  |  Cited by: 126

Joel Hasbrouck

This paper presents an empirical microstructure model of bid and ask quotes that features discreteness, random costs of market making, and ARCH volatility effects. Applied to intraday quotes at 15‐minute intervals for Alcoa (a randomly chosen Dow stock), the results show that quote exposure costs contain stochastic components that are persistent and large relative to the deterministic intraday “U” components. Analysis of the filtered estimates of the system suggest that bid and ask costs contain common components, and that these costs reflect risk as proxied by ARCH variance forecasts.

Measuring the Information Content of Stock Trades

Published: 3/1991,  Volume: 46,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1991.tb03749.x  |  Cited by: 1418

JOEL HASBROUCK

This paper suggests that the interactions of security trades and quote revisions be modeled as a vector autoregressive system. Within this framework, a trade's information effect may be meaningfully measured as the ultimate price impact of the trade innovation. Estimates for a sample of NYSE issues suggest: a trade's full price impact arrives only with a protracted lag; the impact is a positive and concave function of the trade size; large trades cause the spread to widen; trades occurring in the face of wide spreads have larger price impacts; and, information asymmetries are more significant for smaller firms.

The Trades of Market Makers: An Empirical Analysis of NYSE Specialists

Published: 12/1993,  Volume: 48,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1993.tb05121.x  |  Cited by: 211

JOEL HASBROUCK, GEORGE SOFIANOS

This paper presents a transaction‐level empirical analysis of the trading activities of New York Stock Exchange specialists. The main findings of the analysis are the following. Adjustment lags in inventories vary across stocks, and are in some cases as long as one or two months. Decomposition of specialist trading profits by trading horizon shows that the principal source of these profits is short term. An analysis of the dynamic relations among inventories, signed order flow, and quote changes suggests that trades in which the specialist participates have a higher immediate impact on the quotes than trades with no specialist participation.

Order Arrival, Quote Behavior, and the Return‐Generating Process

Published: 9/1987,  Volume: 42,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1987.tb03926.x  |  Cited by: 81

JOEL HASBROUCK, THOMAS S. Y. HO

This paper establishes three empirical results. We find positive autocorrelation in actual intra‐day stock returns, in intra‐day returns computed from quote midpoints, and in the arrival of buy and sell orders. We present a model of return generation that incorporates these features via lagged adjustment of the limit‐order price and positive dependence in bid and ask transactions. The return model is observationally equivalent to an ARMA process, which is consistent with the observed return behavior.

Product Market Competition, Insider Trading, and Stock Market Efficiency

Published: 1/13/2010,  Volume: 65,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2009.01522.x  |  Cited by: 440

JOEL PERESS

How does competition in firms' product markets influence their behavior in equity markets? Do product market imperfections spread to equity markets? We examine these questions in a noisy rational expectations model in which firms operate under monopolistic competition while their shares trade in perfectly competitive markets. Firms use their monopoly power to pass on shocks to customers, thereby insulating their profits. This encourages stock trading, expedites the capitalization of private information into stock prices and improves the allocation of capital. Several implications are derived and tested.

ANALYSIS OF VARIANCE TESTS FOR LOCAL TRENDS IN THE STANDARD AND POOR'S INDEX*

Published: 6/1968,  Volume: 23,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1968.tb00823.x  |  Cited by: 0

Joel Owen

FORECASTING AND PROBABILITY DISTRIBUTIONS FOR MODELS OF PORTFOLIO SELECTION

Published: 6/1970,  Volume: 25,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1970.tb00520.x  |  Cited by: 11

Joel Fried

The Media and the Diffusion of Information in Financial Markets: Evidence from Newspaper Strikes

Published: 9/12/2014,  Volume: 69,  Issue: 5  |  DOI: 10.1111/jofi.12179  |  Cited by: 495

JOEL PERESS

The media are increasingly recognized as key players in financial markets. I investigate their causal impact on trading and price formation by examining national newspaper strikes in several countries. Trading volume falls 12% on strike days. The dispersion of stock returns and their intraday volatility are reduced by 7%, while aggregate returns are unaffected. Moreover, analysis of return predictability indicates that newspapers propagate news from the previous day. These findings demonstrate that the media contribute to the efficiency of the stock market by improving the dissemination of information among investors and its incorporation into stock prices.

BETTER MANAGEMENT OF CAPITAL EXPENDITURES THROUGH RESEARCH*

Published: 5/1953,  Volume: 8,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1953.tb01149.x  |  Cited by: 0

Joel Dean

Bank Information Monopolies and the Mix of Private and Public Debt Claims

Published: 12/1996,  Volume: 51,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1996.tb05229.x  |  Cited by: 587

JOEL HOUSTON, CHRISTOPHER JAMES

This article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990. We find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding. For firms with a single bank relationship, the reliance on bank debt is negatively related to the importance of growth opportunities. In contrast, among firms borrowing from multiple banks, the relationship is positive.

Glued to the TV: Distracted Noise Traders and Stock Market Liquidity

Published: 2/12/2020,  Volume: 75,  Issue: 2  |  DOI: 10.1111/jofi.12863  |  Cited by: 223

JOEL PERESS, DANIEL SCHMIDT

In this paper, we study the impact of noise traders’ limited attention on financial markets. Specifically, we exploit episodes of sensational news (exogenous to the market) that distract noise traders. We find that on “distraction days,” trading activity, liquidity, and volatility decrease, and prices reverse less among stocks owned predominantly by noise traders. These outcomes contrast sharply with those due to the inattention of informed speculators and market makers, and are consistent with noise traders mitigating adverse selection risk. We discuss the evolution of these outcomes over time and the role of technological changes.

NONHOMOGENEOUS EXPECTATIONS AND INFORMATION IN THE CAPITAL ASSET MARKET

Published: 5/1978,  Volume: 33,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1978.tb04868.x  |  Cited by: 6

Ramon Rabinovitch, Joel Owen

Media Coverage and the Cross‐section of Stock Returns

Published: 9/28/2009,  Volume: 64,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2009.01493.x  |  Cited by: 1670

LILY FANG, JOEL PERESS

By reaching a broad population of investors, mass media can alleviate informational frictions and affect security pricing even if it does not supply genuine news. We investigate this hypothesis by studying the cross‐sectional relation between media coverage and expected stock returns. We find that stocks with no media coverage earn higher returns than stocks with high media coverage even after controlling for well‐known risk factors. These results are more pronounced among small stocks and stocks with high individual ownership, low analyst following, and high idiosyncratic volatility. Our findings suggest that the breadth of information dissemination affects stock returns.

The Market for ESG Ratings

Published: 8/25/2026,  Volume: ,  Issue:   |  DOI: 10.1111/jofi.70078  |  Cited by: 0

EHSAN AZARMSA, JOEL SHAPIRO

We present a model of competition between environmental, social, and governance (ESG) raters who acquire information about multiple unrelated categories and sell ratings. Raters specializing in different categories maximize the amount of information transmitted and surplus, and can be an equilibrium outcome. When investors place a high value on ESG performance across multiple categories, the unique equilibrium is for the raters to generalize—splitting their effort among the categories, resulting in less informative ratings. Greenwashing by firms can make generalization the only equilibrium. We also demonstrate that specialization maximizes ratings disagreement, and thus empirical measures of disagreement may be poor measures of surplus.

On the Class of Elliptical Distributions and their Applications to the Theory of Portfolio Choice

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02499.x  |  Cited by: 284

JOEL OWEN, RAMON RABINOVITCH

It is shown that the class of elliptical distributions extend the Tobin [14] separation theorem, Bawa's [2] rules of ordering uncertain prospects, Ross's [12] mutual fund separation theorems, and the results of the CAPM to non‐normal distributions, which are not necessarily stable. Further, the mean‐covariance matrix framework is generalized to a mean‐characteristic matrix framework in which the characteristic matrix is the basis for a spread or risk measure, and a generalized equilibrium pricing equation is arrived at. The implications to empirical testing of the CAPM and modeling the empirical distribution of speculative prices are discussed.

A NOTE ON EARNINGS RISK AND THE COEFFICIENT OF VARIATION

Published: 12/1969,  Volume: 24,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1969.tb01701.x  |  Cited by: 14

Richard P. Brief, Joel Owen

A NOTE ON THE INCLUSION OF EARNINGS RISK IN MEASURES OF RETURN: A REPLY

Published: 9/1977,  Volume: 32,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1977.tb03339.x  |  Cited by: 0

Richard P. Brief, Joel Owen

A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures

Published: 5/1983,  Volume: 38,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1983.tb02268.x  |  Cited by: 6

ROGER H. GORDON, JOEL SLEMROD

Equity Issuance and Adverse Selection: A Direct Test Using Conditional Stock Offers

Published: 3/1997,  Volume: 52,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1997.tb03813.x  |  Cited by: 81

JOEL F. HOUSTON, MICHAEL D. RYNGAERT

We conduct a unique test of adverse selection in the equity issuance process. While common stock is the dominant means of payment in bank mergers, stock acquisition agreements provide target shareholders with varying degrees of protection against adverse price movements in the bidder's stock between the time of the merger agreement and the time of merger completion. We show that it is the degree of protection against adverse price changes and not the percent of stock offered in a bank merger that explains bidder merger announcement abnormal returns. This result is difficult to explain outside of an adverse selection framework.

The Credit Ratings Game

Published: 1/17/2012,  Volume: 67,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2011.01708.x  |  Cited by: 721

PATRICK BOLTON, XAVIER FREIXAS, JOEL SHAPIRO

The collapse of AAA‐rated structured finance products in 2007 to 2008 has brought renewed attention to conflicts of interest in credit rating agencies (CRAs). We model competition among CRAs with three sources of conflicts: (1) CRAs conflict of understating risk to attract business, (2) issuers' ability to purchase only the most favorable ratings, and (3) the trusting nature of some investor clienteles. These conflicts create two distortions. First, competition can reduce efficiency, as it facilitates ratings shopping. Second, ratings are more likely to be inflated during booms and when investors are more trusting. We also discuss efficiency‐enhancing regulatory interventions.

Regulatory Arbitrage and International Bank Flows

Published: 9/12/2012,  Volume: 67,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2012.01774.x  |  Cited by: 320

JOEL F. HOUSTON, CHEN LIN, YUE MA

We study whether cross‐country differences in regulations have affected international bank flows. We find strong evidence that banks have transferred funds to markets with fewer regulations. This form of regulatory arbitrage suggests there may be a destructive “race to the bottom” in global regulations, which restricts domestic regulators’ ability to limit bank risk‐taking. However, we also find that the links between regulation differences and bank flows are significantly stronger if the recipient country is a developed country with strong property rights and creditor rights. This suggests that, while differences in regulations have important influences, without a strong institutional environment, lax regulations are not enough to encourage massive capital flows.

A REPLY

Published: 9/1970,  Volume: 25,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1970.tb00569.x  |  Cited by: 1

Roman L. Weil, Joel E. Segall, David Green

The Arbitrage Pricing Model and Returns on Assets Under Uncertain Inflation*

Published: 5/1983,  Volume: 38,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1983.tb02261.x  |  Cited by: 3

JAMES BICKSLER, EDWIN ELTON, MARTIN GRUBER, JOEL RENTZLER

PREMIUMS ON CONVERTIBLE BONDS

Published: 6/1968,  Volume: 23,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1968.tb00819.x  |  Cited by: 10

Roman L. Weil, Joel E. Segall, David Green

The Ex‐Dividend Day Behavior of Stock Prices; A Re‐Examination of the Clientele Effect: A Comment

Published: 6/1984,  Volume: 39,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1984.tb02328.x  |  Cited by: 25

EDWIN J. ELTON, MARTIN J. GRUBER, JOEL RENTZLER

PREMIUMS ON CONVERTIBLE BONDS: REPLY

Published: 12/1972,  Volume: 27,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1972.tb03035.x  |  Cited by: 0

Roman L. Weil, Joel E. Segall, David O. Green