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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Published: 07/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb05102.x
MICHAEL J. BRENNAN
Efficient Financing under Asymmetric Information
Published: 12/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb04363.x
MICHAEL BRENNAN, ALAN KRAUS
This paper characterizes the conditions under which the adverse‐selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first‐degree‐stochastic‐dominance or a mean‐preserving‐spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues.
Brokerage Commission Schedules
Published: 09/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04758.x
MICHAEL J. BRENNAN, TARUN CHORDIA
It is generally optimal for risk‐sharing reasons to base a charge for information on the signal realization. When this is not possible, a charge based on the amount of trading, a brokerage commission, may be a good alternative. The optimal brokerage commission schedule is derived for a risk‐neutral information seller faced with risk‐averse purchasers who may differ in their risk aversion. Revenues from the brokerage commission are compared with those from a fixed charge for information and the optimal mutual fund management fee.
Dynamic Asset Allocation under Inflation
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00459
Michael J. Brennan, Yihong Xia
We develop a simple framework for analyzing a finite‐horizon investor's asset allocation problem under inflation when only nominal assets are available. The investor's optimal investment strategy and indirect utility are given in simple closed form. Hedge demands depend on the investor's horizon and risk aversion and on the maturities of the bonds included in the portfolio. When short positions are precluded, the optimal strategy consists of investments in cash, equity, and a single nominal bond with optimally chosen maturity. Both the optimal stock‐bond mix and the optimal bond maturity depend on the investor's horizon and risk aversion.
DISCUSSION
Published: 05/01/1972 | DOI: 10.1111/j.1540-6261.1972.tb00968.x
James L. Bicksler, Michael J. Brennan
International Portfolio Investment Flows
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb02744.x
MICHAEL J. BRENNAN, H. HENRY CAO
This article develops a model of international equity portfolio investment flows based on differences in informational endowments between foreign and domestic investors. It is shown that when domestic investors possess a cumulative information advantage over foreign investors about their domestic market, investors tend to purchase foreign assets in periods when the return on foreign assets is high and to sell when the return is low. The implications of the model are tested using data on United States (U.S.) equity portfolio flows.
Shareholder Preferences and Dividend Policy
Published: 09/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb02424.x
MICHAEL J. BRENNAN, ANJAN V. THAKOR
This paper develops a theory of choice among alternative procedures for distributing cash from corporations to shareholders. Despite the preferential tax treatment of capital gains for individual investors, it is shown that a majority of a firm's shareholders may support a dividend payment for small distributions. For larger distributions an open market stock repurchase is likely to be preferred by a majority of shareholders, and for the largest distributions tender offer repurchases dominate.
Time‐Invariant Portfolio Insurance Strategies
Published: 06/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb03939.x
MICHAEL J. BRENNAN, EDUARDO S. SCHWARTZ
This paper characterizes the complete class of time‐invariant portfolio insurance strategies and derives the corresponding value functions that relate the wealth accumulated under the strategy to the value of the underlying insured portfolio. Time‐invariant strategies are shown to correspond to the long‐run policies for a broad class of portfolio insurance payoff functions.
Stock Prices and the Supply of Information
Published: 12/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb04639.x
MICHAEL J. BRENNAN, PATRICIA J. HUGHES
We develop a model in which the dependence of the brokerage commission rate on share price provides an incentive for brokers to produce research reports on firms with low share prices. Stock splits therefore affect the attention paid to a firm by investment analysts. Managers with favorable private information about their firms have an incentive to split their firm's shares in order to reveal the information to investors. We find empirical evidence that is consistent with the major new prediction of the model, that the number of analysts following a firm is inversely related to its share price.
Vendor Financing
Published: 12/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb03960.x
MICHAEL J. BRENNAN, VOJISLAV MAKSIMOVICs, JOSEF ZECHNER
This paper shows that, even in the presence of a perfectly competitive banking industry, it is optimal for firms with market power to engage in vendor financing if credit customers have lower reservation prices than cash customers or if adverse selection makes it infeasible to write credit contracts that separate customers according to their credit risk. We analyze how the advantage of vendor financing depends on the relative size of the cash and credit markets, the heterogeneity of credit customers, and the number of firms in the industry.
Estimation and Test of a Simple Model of Intertemporal Capital Asset Pricing
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00678.x
Michael J. Brennan, Ashley W. Wang, Yihong Xia
A simple valuation model with time‐varying investment opportunities is developed and estimated. The model assumes that the investment opportunity set is completely described by the real interest rate and the maximum Sharpe ratio, which follow correlated Ornstein–Uhlenbeck processes. The model parameters and time series of the state variables are estimated using U.S. Treasury bond yields and expected inflation from January 1952 to December 2000, and as predicted, the estimated maximum Sharpe ratio is related to the equity premium. In cross‐sectional asset‐pricing tests, both state variables have significant risk premia, which is consistent with Merton's ICAPM.