The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Small Business Equity Returns: Empirical Evidence from the Business Credit Card Securitization Market
Published: 12/20/2022 | DOI: 10.1111/jofi.13200
MATTHIAS FLECKENSTEIN, FRANCIS A. LONGSTAFF
We present a new approach for estimating small business equity returns. This approach applies the Merton (1974) credit model to the returns on entrepreneurial business credit card debt securitizations and solves for the implied equity returns for the small businesses owned by the cardholders. The estimated small business equity premium is 10.74%. The standard deviation of small business equity returns is 56.37%. We validate the methodology by applying it to investment‐grade corporate bonds and recovering a public equity premium of 6.17%.
Treasury Richness
Published: 07/16/2024 | DOI: 10.1111/jofi.13371
MATTHIAS FLECKENSTEIN, FRANCIS A. LONGSTAFF
We provide estimates of Treasury convenience premia across the entire term structure of Treasury bills, notes, and bonds over more than a quarter of a century and document a variety of key stylized facts about their time‐series and cross‐sectional patterns. These results raise concerns about the evolving nature of Treasury markets and suggest that investors may now place less weight on the traditional role of Treasury securities as liquid trading vehicles. These stylized facts provide empirical benchmarks that could help guide future theoretical and empirical work about the economics of safe assets in financial markets.
The TIPS‐Treasury Bond Puzzle
Published: 01/30/2013 | DOI: 10.1111/jofi.12032
MATTHIAS FLECKENSTEIN, FRANCIS A. LONGSTAFF, HANNO LUSTIG
We show that the price of a Treasury bond and an inflation‐swapped Treasury Inflation‐Protected Securities (TIPS) issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS‐Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding. We find direct evidence that the mispricing narrows as additional capital flows into the markets. This provides strong support for the slow‐moving‐capital explanation of arbitrage persistence.