Search results: 50.
Individual Investors and Local Bias
Published: 9/21/2010, Volume: 65, Issue: 5 | DOI: 10.1111/j.1540-6261.2010.01600.x | Cited by: 500
MARK S. SEASHOLES, NING ZHU
The paper tests whether individuals have value‐relevant information about local stocks (where “local” is defined as being headquartered near where an investor lives). Our methodology uses two types of calendar‐time portfolios—one based on holdings and one based on transactions. Portfolios of local holdings do not generate abnormal performance (alphas are zero). When studying transactions, purchases of local stocks significantly underperform sales of local stocks. The underperformance remains when focusing on stocks with potentially high levels of information asymmetries. We conclude that individuals do not help incorporate information into stock prices. Our conclusions directly contradict existing studies.
Correlated Trading and Location
Published: 10/2004, Volume: 59, Issue: 5 | DOI: 10.1111/j.1540-6261.2004.00694.x | Cited by: 264
LEI FENG, MARK S. SEASHOLES
This paper analyzes the trading behavior of stock market investors. Purchases and sales are highly correlated when we divide investors geographically. Investors who live near a firm's headquarters react in a similar manner to releases of public information. We are able to make this identification by exploiting a unique feature of individual brokerage accounts in the People's Republic of China. The data allow us to pinpoint an investor's location at the time he or she places a trade. Our results are consistent with a simple, rational expectations model of heterogeneously informed investors.
Time Variation in Liquidity: The Role of Market‐Maker Inventories and Revenues
Published: 1/13/2010, Volume: 65, Issue: 1 | DOI: 10.1111/j.1540-6261.2009.01530.x | Cited by: 283
CAROLE COMERTON‐FORDE, TERRENCE HENDERSHOTT, CHARLES M. JONES, PAMELA C. MOULTON, MARK S. SEASHOLES
We show that market‐maker balance sheet and income statement variables explain time variation in liquidity, suggesting liquidity‐supplier financing constraints matter. Using 11 years of NYSE specialist inventory positions and trading revenues, we find that aggregate market‐level and specialist firm‐level spreads widen when specialists have large positions or lose money. The effects are nonlinear and most prominent when inventories are big or trading results have been particularly poor. These sensitivities are smaller after specialist firm mergers, consistent with deep pockets easing financing constraints. Finally, compared to low volatility stocks, the liquidity of high volatility stocks is more sensitive to inventories and losses.
Testing An Aggressive Investment Strategy Using Value Line Ranks: A Comment
Published: 3/1983, Volume: 38, Issue: 1 | DOI: 10.1111/j.1540-6261.1983.tb03642.x | Cited by: 5
MARK HANNA
Credit Risk in Private Debt Portfolios
Published: 8/1998, Volume: 53, Issue: 4 | DOI: 10.1111/0022-1082.00056 | Cited by: 159
Mark Carey
Default, loss severity, and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds. The chance of very large portfolio losses is estimated and some determinants of such losses are analyzed. Results show ex ante riskier classes of private debt perform better on average than public debt. Both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution. Private placements are similar to corporate loans in that both are monitored private debt. The results are thus relevant to management and securitization of private debt portfolios generally.
Informational Efficiency and Information Subsets
Published: 3/1986, Volume: 41, Issue: 1 | DOI: 10.1111/j.1540-6261.1986.tb04490.x | Cited by: 17
MARK LATHAM
This paper proposes a new definition of the Efficient Markets Hypothesis with respect to information, which is more formal and precise than those of Rubinstein [13], Fama [4], Jensen [6], and Beaver [1], and which fits well as a framework for interpreting the many tests of the Efficient Markets Hypothesis in the literature. Security markets are here considered “efficient with respect to information set ϕ” if and only if revealing ϕ to all agents would change neither equilibrium prices nor portfolios. In addition to other desirable features, this definition has the “subset property”: efficiency with respect to ϕ implies efficiency with respect to any subset of ϕ.
Nonparametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 through August 31, 1978
Published: 6/1985, Volume: 40, Issue: 2 | DOI: 10.1111/j.1540-6261.1985.tb04967.x | Cited by: 453
MARK RUBINSTEIN
The tests reported here differ in several ways from those of most other papers testing option pricing models: an extremely large sample of observations of both trades and bid‐ask quotes is examined, careful consideration is given to discarding misleading records, nonparametric rather than parametric statistical tests are used, reported results are not sensitive to measurement of stock volatility, special care is taken to incorporate the effects of dividends and early exercise, a simple method is developed to test several option pricing formulas simultaneously, and the statistical significance and consistency across subsamples of the most important reported results are unusually high. The three key results are: (1) short‐maturity out‐of‐the‐money calls are priced significantly higher relative to other calls than the Black‐Scholes model would predict, (2) striking price biases relative to the Black‐Scholes model are also statistically significant but have reversed themselves after long periods of time, and (3) no single option pricing model currently developed seems likely to explain this reversal.
The Irrelevancy of Dividend Policy in an Arrow‐Debreu Economy
Published: 9/1976, Volume: 31, Issue: 4 | DOI: 10.1111/j.1540-6261.1976.tb01972.x | Cited by: 12
Mark Rubinstein
Brokers versus Retail Investors: Conflicting Interests and Dominated Products
Published: 3/18/2019, Volume: 74, Issue: 3 | DOI: 10.1111/jofi.12763 | Cited by: 158
MARK EGAN
I study how brokers distort household investment decisions. Using a novel convertible bond data set, I find that consumers often purchase dominated bonds—cheap and expensive otherwise‐identical bonds coexist in the market. Brokers are incentivized to sell the dominated bonds, typically earning two times greater fees for selling them. I develop and estimate a broker‐intermediated search model that rationalizes this behavior. The estimates indicate that costly search is a key friction in financial markets, but the effects of search costs are compounded when brokers are incentivized to direct the search of consumers toward high‐fee inferior products.
Displaced Diffusion Option Pricing
Published: 3/1983, Volume: 38, Issue: 1 | DOI: 10.1111/j.1540-6261.1983.tb03636.x | Cited by: 126
MARK RUBINSTEIN
This paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm. The formula simultaneously encompasses differential riskiness of the assets of the firm, their relative weights in determining the value of the firm, the effects of firm debt, and the effects of a dividend policy with both constant and random components. Although this setting considerably generalizes the Black‐Scholes [1] analysis, it nonetheless produces a formula via riskless arbitrage arguments that, given estimated inputs, is as easy to use as the Black‐Scholes formula.
The Arbitrage Pricing Theory and Supershares
Published: 6/1989, Volume: 44, Issue: 2 | DOI: 10.1111/j.1540-6261.1989.tb05057.x | Cited by: 5
MARK LATHAM
In a single‐period model with options on the market portfolio, linear factor pricing holds if and only if the variance of the market conditional on the factors is zero. There is no need for factors other than nonlinear functions of the market. For accurate linear pricing of all payoff patterns the factors must be rotationally equivalent to Hakansson's “supershares.” In a multiperiod model, a similar set of results holds, but with consumption replacing the market payoff. The methodology of the empirical Arbitrage Pricing Theory literature is not consistent with either the single‐period model or the multiperiod model.
AN INVESTOR EXPECTATIONS STOCK PRICE PREDICTIVE MODEL USING CLOSED‐END FUND PREMIUMS: COMMENT
Published: 9/1977, Volume: 32, Issue: 4 | DOI: 10.1111/j.1540-6261.1977.tb03340.x | Cited by: 3
Mark Hanna
A Simple Formula for the Expected Rate of Return of an Option over a Finite Holding Period
Published: 12/1984, Volume: 39, Issue: 5 | DOI: 10.1111/j.1540-6261.1984.tb04920.x | Cited by: 39
MARK RUBINSTEIN
Under conditions consistent with the Black‐Scholes formula, a simple formula is developed for the expected rate of return of an option over a finite holding period possibly less than the time to expiration of the option. Under these conditions, surprisingly, the expected future value of a European option, even prior to expiration, is shown equal to the current Black‐Scholes value of the option, except that the expected future value of the stock at the end of the holding period replaces the current stock price in the Black‐Scholes formula and the future value of a riskless invesment of the striking price replaces the striking price. An extension of this result is used to approximate moments of the distribution of returns from an option portfolio.
CORPORATE BANKRUPTCY POTENTIAL, STOCKHOLDER RETURNS AND SHARE VALUATION: COMMENT
Published: 6/1972, Volume: 27, Issue: 3 | DOI: 10.1111/j.1540-6261.1972.tb00995.x | Cited by: 0
Mark Hanna
SHORT INTEREST: BULLISH OR BEARISH?—COMMENT*
Published: 6/1968, Volume: 23, Issue: 3 | DOI: 10.1111/j.1540-6261.1968.tb00826.x | Cited by: 3
Mark Hanna
Computing the Constant Elasticity of Variance Option Pricing Formula
Published: 3/1989, Volume: 44, Issue: 1 | DOI: 10.1111/j.1540-6261.1989.tb02414.x | Cited by: 247
MARK SCHRODER
This paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi‐square distribution. This allows the application of well‐known approximation formulas and the derivation of a whole class of closed‐form solutions. In addition, a simple and efficient algorithm for computing this distribution is presented.
Implied Binomial Trees
Published: 7/1994, Volume: 49, Issue: 3 | DOI: 10.1111/j.1540-6261.1994.tb00079.x | Cited by: 1195
MARK RUBINSTEIN
AbstractThis article develops a new method for inferring risk‐neutral probabilities (or state‐contingent prices) from the simultaneously observed prices of European options. These probabilities are then used to infer a unique fully specified recombining binomial tree that is consistent with these probabilities (and, hence, consistent with all the observed option prices). A simple backwards recursive procedure solves for the entire tree. From the standpoint of the standard binomial option pricing model, which implies a limiting risk‐neutral lognormal distribution for the underlying asset, the approach here provides the natural (and probably the simplest) way to generalize to arbitrary ending risk‐neutral probability distributions.
Risk‐Neutral Parameter Shifts and Derivatives Pricing in Discrete Time
Published: 10/2004, Volume: 59, Issue: 5 | DOI: 10.1111/j.1540-6261.2004.00702.x | Cited by: 37
MARK SCHRODER
We obtain a large class of discrete‐time risk‐neutral valuation relationships, or “preference‐free” derivatives pricing models, by imposing a simple restriction on the state‐price density process. The risk‐neutral stock‐return and forward‐rate dynamics are obtained by changing only a location parameter, which can be determined independent of the preference and true location parameters. The Gaussian models of Rubinstein (1976), Brennan (1979), and Câmera (2003), and the gamma model of Heston (1993) are all special cases. The model provides simple relationships between expected returns and state‐price density parameters analogous to the diffusion case.
Markowitz's “Portfolio Selection”: A Fifty‐Year Retrospective
Published: 6/2002, Volume: 57, Issue: 3 | DOI: 10.1111/1540-6261.00453 | Cited by: 264
Mark Rubinstein
Bond Systematic Risk and the Option Pricing Model
Published: 12/1983, Volume: 38, Issue: 5 | DOI: 10.1111/j.1540-6261.1983.tb03832.x | Cited by: 20
MARK I. WEINSTEIN
In this paper we examine the behavior of the systematic risk of corporate bonds. A model that assumes β is constant is compared with a model that allows systematic risk to vary in a manner consistent with the Black‐Scholes‐Merton Options Pricing Model. This procedure captures some fundamental properties of the movement of bond β and provides a starting point for improved models of the process generating bond returns.
DISCUSSION
Published: 5/1981, Volume: 36, Issue: 2 | DOI: 10.1111/j.1540-6261.1981.tb00475.x | Cited by: 1
MARK J. FLANNERY
The Numeraire Problem and Foreign Exchange Risk
Published: 5/1981, Volume: 36, Issue: 2 | DOI: 10.1111/j.1540-6261.1981.tb00456.x | Cited by: 2
MARK R. EAKER
THE INSIDE LAGS OF MONETARY POLICY: 1952–1960
Published: 12/1967, Volume: 22, Issue: 4 | DOI: 10.1111/j.1540-6261.1967.tb00294.x | Cited by: 1
Mark H. Willes
THE SEASONING PROCESS OF NEW CORPORATE BOND ISSUES
Published: 12/1978, Volume: 33, Issue: 5 | DOI: 10.1111/j.1540-6261.1978.tb03424.x | Cited by: 24
Mark I. Weinstein
On Persistence in Mutual Fund Performance
Published: 3/1997, Volume: 52, Issue: 1 | DOI: 10.1111/j.1540-6261.1997.tb03808.x | Cited by: 13463
Mark M. Carhart
Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk‐adjusted returns.Hendricks, Patel and Zeckhauser's (1993)“hot hands” result is mostly driven by the one‐year momentum effect ofJegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst‐return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.
Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation
Published: 12/1981, Volume: 36, Issue: 5 | DOI: 10.1111/j.1540-6261.1981.tb01078.x | Cited by: 96
MARK J. FLANNERY
The widespread notion that commercial banks “borrow short and lend long” implies that sharp market interest rate increases may induce a significant number of banking failures. This paper develops a method for estimating average asset and liability maturities for a sample of large money center banks. Regression models are tested to determine if market rate fluctuations have a significant impact on bank profitability. The conclusion is negative: large banks have effectively hedged themselves against market rate risk by assembling asset and liability portfolios with similar average maturities.
The Sampling Error in Estimates of Mean‐Variance Efficient Portfolio Weights
Published: 4/1999, Volume: 54, Issue: 2 | DOI: 10.1111/0022-1082.00120 | Cited by: 405
Mark Britten‐Jones
This paper presents an exact finite‐sample statistical procedure for testing hypotheses about the weights of mean‐variance efficient portfolios. The estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an OLS regression. OLS t‐ and F‐statistics can be used for tests on efficient weights, and when returns are multivariate normal, these statistics have exact t and F distributions in a finite sample. Using 20 years of data on 11 country stock indexes, we find that the sampling error in estimates of the weights of a global efficient portfolio is large.
Executive Option Repricing, Incentives, and Retention
Published: 6/2004, Volume: 59, Issue: 3 | DOI: 10.1111/j.1540-6261.2004.00659.x | Cited by: 70
Mark A. Chen
While many firms grant executive stock options that can be repriced, other firms systematically restrict or prohibit repricing. This article investigates the determinants of firms' repricing policies and the consequences of such policies for executive turnover and retention. Firms that have better internal governance, that use more powerful stock‐based incentives, or that face less shareholder scrutiny are more likely to maintain repricing flexibility. Firms that restrict repricing are more vulnerable to voluntary executive turnover following stock price declines. When share price declines are severe, restricting firms appear to award unusually large numbers of new options.
A MEAN‐VARIANCE SYNTHESIS OF CORPORATE FINANCIAL THEORY
Published: 3/1973, Volume: 28, Issue: 1 | DOI: 10.1111/j.1540-6261.1973.tb01356.x | Cited by: 234
Mark E. Rubinstein
DISCUSSION
Published: 5/1980, Volume: 35, Issue: 2 | DOI: 10.1111/j.1540-6261.1980.tb02186.x | Cited by: 0
Mark A. Wolfson
AN ANALYSIS OF CREDIT INSURANCE*
Published: 3/1957, Volume: 12, Issue: 1 | DOI: 10.1111/j.1540-6261.1957.tb04118.x | Cited by: 0
Mark Richard Greene
Towards a Semigroup Pricing Theory
Published: 7/1985, Volume: 40, Issue: 3 | DOI: 10.1111/j.1540-6261.1985.tb05010.x | Cited by: 18
MARK B. GARMAN
In an arbitrage‐free economy, there will always exist a set of linear operators which map future contingent dividends of securities into their current prices. It happens that such operators will also form an “evolution semigroup” as a consequence of intertemporal analysis of the no‐arbitrage restriction. This paper summarizes some of the major implications of the semigroup properties, but avoids almost all of the technical discussion which underlies them. Instead, several practical examples are presented. Some well‐known continuous‐time results are replicated by this alternative method, and certain new developments are explored.
Asymmetric Information and Risky Debt Maturity Choice
Published: 3/1986, Volume: 41, Issue: 1 | DOI: 10.1111/j.1540-6261.1986.tb04489.x | Cited by: 823
MARK J. FLANNERY
When capital market investors and firm insiders possess the same information about a company's prospects, its liabilities will be priced in a way that makes the firm indifferent to the composition of its financial liabilities (at least under certain, well‐known circumstances). However, if firm insiders are systematically better informed than outside investors, they will choose to issue those types of securities that the market appears to overvalue most. Knowing this, rational investors will try to infer the insiders' information from the firm's financial structure. This paper evaluates the extent to which a firm's choice of risky debt maturity can signal insiders' information about firm quality. If financial market transactions are costless, a firm's financial structure cannot provide a valid signal. With positive transaction costs, however, high‐quality firms can sometimes effectively signal their true quality to the market. The existence of a signalling equilibrium is shown to depend on the (exogenous) distribution of firms' quality and the magnitude of underwriting costs for corporate debt.
Bank Loan Supply, Lender Choice, and Corporate Capital Structure
Published: 5/20/2009, Volume: 64, Issue: 3 | DOI: 10.1111/j.1540-6261.2009.01461.x | Cited by: 292
MARK T. LEARY
This paper explores the relevance of capital market supply frictions for corporate capital structure decisions. To identify this relationship, I study the effect on firms' financial structures of two changes in bank funding constraints: the 1961 emergence of the market for certificates of deposit, and the 1966 Credit Crunch. Following an expansion (contraction) in the availability of bank loans, leverage ratios of bank‐dependent firms significantly increase (decrease) relative to firms with bond market access. Concurrent changes in the composition of financing sources lend further support to the role of credit supply and debt market segmentation in capital structure choice.
Borrower Misreporting and Loan Performance
Published: 1/19/2015, Volume: 70, Issue: 1 | DOI: 10.1111/jofi.12156 | Cited by: 115
MARK J. GARMAISE
Borrower misreporting is associated with seriously adverse loan outcomes. Significantly more residential mortgage borrowers reported personal assets just above round number thresholds than just below. Borrowers who reported above‐threshold assets were almost 25 percentage points more likely to become delinquent (mean delinquency was 20%). For applicants with unverified assets, the increase in delinquency was greater than 40 percentage points. Misreporting was most frequent in areas with low financial literacy or social capital. Incorporating behavioral cues such as threshold effects into a risk assessment model improves its ability to uncover delinquencies, though at a cost of mischaracterizing some safe loans.
Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle
Published: 11/28/2007, Volume: 62, Issue: 6 | DOI: 10.1111/j.1540-6261.2007.01298.x | Cited by: 167
MARK CAREY, GREG NINI
We offer evidence that interest rate spreads on syndicated loans to corporate borrowers are economically significantly smaller in Europe than in the United States, other things equal. Differences in borrower, loan, and lender characteristics do not appear to explain this phenomenon. Borrowers overwhelmingly issue in their natural home market and bank portfolios display home bias. This may explain why pricing discrepancies are not competed away, though their causes remain a puzzle. Thus, important determinants of loan origination market outcomes remain to be identified, home bias appears to be material for pricing, and corporate financing costs differ across Europe and the United States.
Around and Around: The Expectations Hypothesis
Published: 2/1998, Volume: 53, Issue: 1 | DOI: 10.1111/0022-1082.145490 | Cited by: 20
Mark Fisher, Christian Gilles
We show how to construct models of the term structure of interest rates in which the expectations hypothesis holds. McCulloch (1993) presents such a model, thereby contradicting an assertion by Cox, Ingersoll, and Ross (1981), but his example is Gaussian and falls outside the class of finite‐dimensional Markovian models. We generalize McCulloch's model in three ways: (i) We provide an arbitrage‐free characterization of the unbiased expectations hypothesis in terms of forward rates; (ii) we extend this characterization to a whole class of expectations hypotheses; and (iii) we show how to construct finite‐dimensional Markovian and non‐Gaussian examples.
Relative Pricing of Eurodollar Futures and Forward Contracts
Published: 9/1996, Volume: 51, Issue: 4 | DOI: 10.1111/j.1540-6261.1996.tb04077.x | Cited by: 25
MARK GRINBLATT, NARASIMHAN JEGADEESH
Past research explains observed spreads between futures and forward Eurodollar yields as being due to the futures contract's mark‐to‐market feature. We derive closed form solutions for this yield spread and show that, theoretically, it should be small. Also, differences in liquidity, taxation, and default risk cannot account for the large spreads observed. We also present evidence that the spreads, which are nonnegligible primarily in the first half of the sample period, are likely to be attributable to the mispricing of futures contracts relative to the forward rates and that the mispricing was gradually eliminated over time.
THE STRONG CASE FOR THE GENERALIZED LOGARITHMIC UTILITY MODEL AS THE PREMIER MODEL OF FINANCIAL MARKETS
Published: 5/1976, Volume: 31, Issue: 2 | DOI: 10.1111/j.1540-6261.1976.tb01906.x | Cited by: 13
Robert Litzenberger, Mark Rubinstein
This paper begins by comparing the available well‐developed micro‐economic models in finance which recognize uncertainty. It is argued that models whose distinctive simplifying assumption restricts utility functions are superior to those which instead restrict probability distributions, both with respect to the realism of their assumptions and richness of their conclusions. In particular, the most successful model, based on generalized logarithmic utility (GLUM), is a multiperiod consumption/portfolio and equilibrium model in discrete‐time which (1) requires decreasing absolute risk aversion; (2) tolerates increasing, constant, or decreasing proportional risk aversion; (3) assumes no exogenous specification of the contemporaneous or intertemporal stochastic process of security prices; (4) tolerates heterogeneity with respect to wealth, lifetime, time‐and risk‐preference and beliefs; (5) results in a complete specification of consumption/portfolio decision and sharing rules which include nontrivial multiperiod separation properties and explains demand for default‐free bonds of various maturities and options; (6) leads to a solution to the aggregation problem; (7) results in a complete specification of the contemporaneous and intertemporal process of security prices which reveals necessary and sufficient conditions for an unbiased term structure and the market portfolio to follow a random walk as a natural outcome of equilibrium; (8) provides an empirically testable aggregate consumption function relating per capita consumption to per capita wealth and the present value of a perpetual default‐free annuity which does not require inferences of ex ante beliefs from ex post data; (9) provides a nontrivial multiperiod extension of popular single‐period security valuation models which is empirically testable; (10) yields a simple multiperiod valuation formula for an uncertain income stream even when this income is serially correlated over time.
The Persistence of Mutual Fund Performance
Published: 12/1992, Volume: 47, Issue: 5 | DOI: 10.1111/j.1540-6261.1992.tb04692.x | Cited by: 476
MARK GRINBLATT, SHERIDAN TITMAN
This paper analyzes how mutual fund performance relates to past performance. These tests are based on a multiple portfolio benchmark that was formed on the basis of securities characteristics. We find evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.
What Makes Investors Trade?
Published: 4/2001, Volume: 56, Issue: 2 | DOI: 10.1111/0022-1082.00338 | Cited by: 970
Mark Grinblatt, Matti Keloharju
A unique data set allows us to monitor the buys, sells, and holds of individuals and institutions in the Finnish stock market on a daily basis. With this data set, we employ Logit regressions to identify the determinants of buying and selling activity over a two‐year period. We find evidence that investors are reluctant to realize losses, that they engage in tax‐loss selling activity, and that past returns and historical price patterns, such as being at a monthly high or low, affect trading. There also is modest evidence that life‐cycle trading plays a role in the pattern of buys and sells.
How Distance, Language, and Culture Influence Stockholdings and Trades
Published: 6/2001, Volume: 56, Issue: 3 | DOI: 10.1111/0022-1082.00355 | Cited by: 1397
Mark Grinblatt, Matti Keloharju
This paper documents that investors are more likely to hold, buy, and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor's native tongue, and that have chief executives of the same cultural background. The influence of distance, language, and culture is less prominent among the most investment‐savvy institutions than among both households and less savvy institutions. Regression analysis indicates that the marginal effect of distance is less for firms that are more nationally known, for distances that exceed 100 kilometers, and for investors with more diversified portfolios.
Is There a Window of Opportunity for Seasoned Equity Issuance?
Published: 3/1996, Volume: 51, Issue: 1 | DOI: 10.1111/j.1540-6261.1996.tb05209.x | Cited by: 261
MARK BAYLESS, SUSAN CHAPLINSKY
The aggregate volume of equity issues is used to search for periods when seasoned equity capital can be raised at favorable terms. We find that the price reaction to equity issue announcements in high equity issue volume (HOT) periods is approximately 200 basis points lower on average than in low equity issue volume (COLD) periods. The lower price reaction in hot markets is economically important and is independent of the macroeconomic characteristics of hot and cold markets. The evidence supports the existence of windows of opportunity for equity issues that result at least partially from reduced levels of asymmetric information.
Approximate Factor Structures: Interpretations and Implications for Empirical Tests
Published: 12/1985, Volume: 40, Issue: 5 | DOI: 10.1111/j.1540-6261.1985.tb02388.x | Cited by: 12
MARK GRINBLATT, SHERIDAN TITMAN
This paper provides some new insights about approximate factor structures, as defined by Chamberlain and Rothschild [2], and their implications for empirical tests. First, we show that any economy that satisfies an approximate factor structure can be transformed, in a manner that does not alter the characteristics of investor portfolios, into an economy that satisfies an exact factor structure, as defined by Ross [9]. Second, we show that principal components analysis represents just one of many methods of forming groups of well‐diversified portfolios with no idiosyncratic risk in large samples. Correct factor loadings will be obtained by regressing security returns on any group of these portfolios. Our interpretations of the Chamberlain and Rothschild results also provide additional insights into the testability of the Arbitrage Pricing Theory. We show that securities cannot be repackaged to hide factors in the manner suggested by Shanken [10] without the variance of some of the repackaged securities approaching infinity in large economies.
Insider Trading in Financial Signaling Models
Published: 12/1992, Volume: 47, Issue: 5 | DOI: 10.1111/j.1540-6261.1992.tb04688.x | Cited by: 26
MARK BAGNOLI, NAVEEN KHANNA
We study the impact of voluntary trade by the manager. We find that, in contrast to standard signaling models, an action is good news for some firms and bad news for others, depending on observable characteristics of the firm, its managers, and their compensation plans. Further, voluntary trade eliminates separating equilibria and thus the possibility of exactly inferring the manager's private information. This may cause the manager to take inefficient actions so as to earn trading profits. Such undesirable behavior can be more effectively constrained by compensation contracts based on phantom shares or nontradeable options instead of large stockholdings.
Characteristics of Risk and Return in Risk Arbitrage
Published: 12/2001, Volume: 56, Issue: 6 | DOI: 10.1111/0022-1082.00401 | Cited by: 559
Mark Mitchell, Todd Pulvino
This paper analyzes 4,750 mergers from 1963 to 1998 to characterize the risk and return in risk arbitrage. Results indicate that risk arbitrage returns are positively correlated with market returns in severely depreciating markets but uncorrelated with market returns in flat and appreciating markets. This suggests that returns to risk arbitrage are similar to those obtained from selling uncovered index put options. Using a contingent claims analysis that controls for the nonlinear relationship with market returns, and after controlling for transaction costs, we find that risk arbitrage generates excess returns of four percent per year.
Sensation Seeking, Overconfidence, and Trading Activity
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01443.x | Cited by: 655
MARK GRINBLATT, MATTI KELOHARJU
This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data from Finland are combined with data from investor tax filings, driving records, and mandatory psychological profiles. We use these data, obtained from a large population, to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.
Do Industries Explain Momentum?
Published: 8/1999, Volume: 54, Issue: 4 | DOI: 10.1111/0022-1082.00146 | Cited by: 1374
Tobias J. Moskowitz, Mark Grinblatt
This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book‐to‐market equity, individual stock momentum, the cross‐sectional dispersion in mean returns, and potential microstructure influences.
The Limits of Investor Behavior
Published: 1/20/2006, Volume: 61, Issue: 1 | DOI: 10.1111/j.1540-6261.2006.00835.x | Cited by: 48
MARK LOEWENSTEIN, GREGORY A. WILLARD
Many models use noise trader risk and corresponding violations of the Law of One Price to explain pricing anomalies, but include a storage technology in perfectly elastic supply or unlimited asset liability. Storage allows aggregate consumption risk to differ from exogenous fundamental risk, but using aggregate consumption as a factor for asset returns can make noise trader risk superfluous. Using (i) limited asset liability and limited storage withdrawals, or (ii) an endogenous locally riskless interest rate eliminates violations of the Law of One Price. Our main results use only budget equations and market clearing, and require virtually no assumptions about behavior.