The Journal of Finance

Supply and Demand Shifts in the Shorting Market

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01269.x  |  Cited by: 388

LAUREN COHEN, KARL B. DIETHER, CHRISTOPHER J. MALLOY

Using proprietary data on stock loan fees and quantities from a large institutional investor, we examine the link between the shorting market and stock prices. Employing a unique identification strategy, we isolate shifts in the supply and demand for shorting. We find that shorting demand is an important predictor of future stock returns: An increase in shorting demand leads to negative abnormal returns of 2.98% in the following month. Second, we show that our results are stronger in environments with less public information flow, suggesting that the shorting market is an important mechanism for private information revelation.

Differences of Opinion and the Cross Section of Stock Returns

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/0022-1082.00490  |  Cited by: 1753

Karl B. Diether, Christopher J. Malloy, Anna Scherbina

We provide evidence that stocks with higher dispersion in analysts' earnings forecasts earn lower future returns than otherwise similar stocks. This effect is most pronounced in small stocks and stocks that have performed poorly over the past year. Interpreting dispersion in analysts forecasts as a proxy for differences in opinion about a stock, we show that this evidence is consistent with the hypothesis that prices will reflect the optimistic view whenever investors with the lowest valuations do not trade. By contrast, our evidence is inconsistent with a view that dispersion in analysts' forecasts proxies for risk.

It's SHO Time! Short‐Sale Price Tests and Market Quality

Published: 1/23/2009,  Volume: 64,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2008.01428.x  |  Cited by: 343

KARL B. DIETHER, KUAN‐HUI LEE, INGRID M. WERNER

We examine the effects of the Securities and Exchange Commission (SEC)‐mandated temporary suspension of short‐sale price tests for a set of Pilot securities. While short‐selling activity increases both for NYSE‐ and Nasdaq‐listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE‐listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for Nasdaq‐listed Pilot stocks. The results suggest that the effect of the price tests on market quality can largely be attributed to distortions in order flow created by the price tests themselves.

Additive Insurance Premiums: A Note

Published: 12/1982,  Volume: 37,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1982.tb03619.x  |  Cited by: 9

KARL BORCH

“YALE” AND MONEY*

Published: 3/1971,  Volume: 26,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1971.tb00602.x  |  Cited by: 3

Karl Brunner

Diagnosing Asset Pricing Models Using the Distribution of Asset Returns

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03773.x  |  Cited by: 57

KARL N. SNOW

This paper develops a set of diagnostic tests which can shed light on why a particular model is failing and indicate what steps might be taken to make the model consistent with asset returns. Theoretical bounds on the moments of a stochastic discount factor are derived as a function of the moments of observed asset returns. Particular attention is paid to restrictions on moments other than the variance. These bounds can also be used to measure the information about the distribution of the discount factor contained in the moments of various asset returns. As an application of this methodology, bounds on the discount factor are estimated using size‐based portfolios, and the results are used to analyze the small firm effect. Empirical results indicate, for the period 1926–1975, that moments of the returns of small firms contain information about the discount factor that is not contained in the moments of the returns of large firms and/or a proxy of the aggregate wealth portfolio. However, this difference disappears when more recent data is included.

CENTRAL BANKING OBJECTIVES, GUIDES, AND MEASURES*

Published: 3/1954,  Volume: 9,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1954.tb01202.x  |  Cited by: 0

Karl R. Bopp

Ambiguous Information, Portfolio Inertia, and Excess Volatility

Published: 11/14/2011,  Volume: 66,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2011.01693.x  |  Cited by: 154

PHILIPP KARL ILLEDITSCH

I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess volatility. Specifically, when news is surprising, investors may not react to price changes even if there are no transaction costs or other market frictions. Moreover, I show that small shocks to cash flow news, asset betas, or market risk premia may lead to drastic changes in the stock price and hence to excess volatility.

International Evidence on the Value of Corporate Diversification

Published: 12/1999,  Volume: 54,  Issue: 6  |  DOI: 10.1111/0022-1082.00186  |  Cited by: 308

Karl Lins, Henri Servaes

The valuation effect of diversification is examined for large samples of firms in Germany, Japan, and the United Kingdom for 1992 and 1994. We find no significant diversification discount in Germany, but a significant diversification discount of 10 percent in Japan and 15 percent in the U.K. Concentrated ownership in the hands of insiders enhances the valuation effect of diversification in Germany, but not in Japan or the U.K. For Japan, only firms with strong links to an industrial group have a diversification discount. These findings suggest that international differences in corporate governance affect the impact of diversification on shareholder wealth.

AUERBACH'S DEFENSE OF DEFENSIVE OPERATIONS

Published: 9/1965,  Volume: 20,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1965.tb02916.x  |  Cited by: 0

Karl Brunner, Allan H. Meltzer

PREDICTING VELOCITY: IMPLICATIONS FOR THEORY AND POLICY*

Published: 5/1963,  Volume: 18,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1963.tb00727.x  |  Cited by: 5

Karl Brunner, Allan H. Meltzer

SOME FURTHER INVESTIGATIONS OF DEMAND AND SUPPLY FUNCTIONS FOR MONEY

Published: 5/1964,  Volume: 19,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1964.tb00767.x  |  Cited by: 101

Karl Brunner, Allan H. Meltzer

Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis

Published: 7/15/2003,  Volume: 58,  Issue: 4  |  DOI: 10.1111/1540-6261.00573  |  Cited by: 898

Michael L. Lemmon, Karl V. Lins

We use a sample of 800 firms in eight East Asian countries to study the effect of ownership structure on value during the region's financial crisis. The crisis negatively impacted firms' investment opportunities, raising the incentives of controlling shareholders to expropriate minority investors. Crisis period stock returns of firms in which managers have high levels of control rights, but have separated their control and cash flow ownership, are 10–20 percentage points lower than those of other firms. The evidence is consistent with the view that ownership structure plays an important role in determining whether insiders expropriate minority shareholders.

Higher Order Effects in Asset Pricing Models with Long‐Run Risks

Published: 3/9/2018,  Volume: 73,  Issue: 3  |  DOI: 10.1111/jofi.12615  |  Cited by: 124

WALTER POHL, KARL SCHMEDDERS, OLE WILMS

This paper shows that the latest generation of asset pricing models with long‐run risk exhibit economically significant nonlinearities, and thus the ubiquitous Campbell‐Shiller log‐linearization can generate large numerical errors. These errors translate in turn to considerable errors in the model predictions, for example, for the magnitude of the equity premium or return predictability. We demonstrate that these nonlinearities arise from the presence of multiple highly persistent processes, which cause the exogenous states to attain values far away from their long‐run means with nonnegligible probability. These extreme values have a significant impact on asset price dynamics.

Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

Published: 5/9/2017,  Volume: 72,  Issue: 4  |  DOI: 10.1111/jofi.12505  |  Cited by: 3566

KARL V. LINS, HENRI SERVAES, ANE TAMAYO

During the 2008–2009 financial crisis, firms with high social capital, as measured by corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High‐CSR firms also experienced higher profitability, growth, and sales per employee relative to low‐CSR firms, and they raised more debt. This evidence suggests that the trust between a firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.

Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents

Published: 9/11/2003,  Volume: 58,  Issue: 5  |  DOI: 10.1111/1540-6261.00602  |  Cited by: 51

Kenneth L. Judd, Felix Kubler, Karl Schmedders

AbstractTrading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset pricing models with heterogeneous agents. More generally, the end‐of‐period portfolio of all securities is constant over time and states in the generic economy. General equilibrium restrictions rule out trading of equity after an initial period. This result contrasts the prediction of portfolio allocation analyses that portfolio rebalancing motives produce nontrivial trade volume. Therefore, other causes of trade must be present in asset markets with large trading volume.

Discount Points and Housing Prices: Comment

Published: 9/1979,  Volume: 34,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1979.tb03458.x  |  Cited by: 19

PETER F. COLWELL, KARL L. GUNTERMANN, C. F. SIRMANS

Private Benefits of Control, Ownership, and the Cross‐listing Decision

Published: 1/23/2009,  Volume: 64,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2008.01438.x  |  Cited by: 292

CRAIG DOIDGE, G. ANDREW KAROLYI, KARL V. LINS, DARIUS P. MILLER, RENÉ M. STULZ

This paper investigates how a foreign firm's decision to cross‐list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to cross‐list in the United States because of constraints on the consumption of private benefits resulting from such listings. Using several proxies for private benefits related to the control and cash flow ownership rights of controlling shareholders, we find support for this hypothesis with a sample of more than 4,000 firms from 31 countries.