The Journal of Finance

Liquidity Externalities and Adverse Selection: Evidence from Trading after Hours

Published: 3/25/2004,  Volume: 59,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2004.00646.x  |  Cited by: 137

Michael J. Barclay, Terrence Hendershott

This paper examines liquidity externalities by analyzing trading costs after hours. There is less than 1/20 as many trades per unit time after hours as during the trading day. The reduced trading activity results in substantially higher trading costs: quoted and effective spreads are three to four times larger than during the trading day. The higher spreads reflect greater adverse selection and order persistence, but not higher dealer profits. Because liquidity provision remains competitive after hours, the greater adverse selection and higher trading costs provide a direct measure of the magnitude of the liquidity externalities generated during the trading day.

The Maturity Structure of Corporate Debt

Published: 6/1995,  Volume: 50,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1995.tb04797.x  |  Cited by: 1322

MICHAEL J. BARCLAY, CLIFFORD W. SMITH

We provide an empirical examination of the determinants of corporate debt maturity. Our evidence offers strong support for the contracting‐cost hypothesis. Firms that have few growth options, are large, or are regulated have more long‐term debt in their capital structure. We find little evidence that firms use the maturity structure of their debt to signal information to the market. The evidence is consistent, however, with the hypothesis that firms with larger information asymmetries issue more short‐term debt. We find no evidence that taxes affect debt maturity.

The Priority Structure of Corporate Liabilities

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04041.x  |  Cited by: 232

MICHAEL J. BARCLAY, CLIFFORD W. SMITH

Most discussions of corporate capital structure effectively assume that all debt is the same. Yet debt differs by maturity, covenant restrictions, conversion rights, call provisions, and priority. Here, we examine priority structure across a sample of 4995 COMPUSTAT industrial firms from 1981 to 1991. We analyze the variation in the use of capital leases, secured debt, ordinary debt, subordinated debt, and preferred stock both as a fraction of the firm's market value and as a fraction of total fixed claims. Our evidence provides consistent support for contracting cost hypotheses, mixed support for tax hypotheses, and little support for the signaling hypothesis.

Negotiated Block Trades and Corporate Control

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03769.x  |  Cited by: 284

MICHAEL J. BARCLAY, CLIFFORD G. HOLDERNESS

We identify negotiated trades of large‐percentage blocks of stock as corporate control transactions. When a block trades and the firm is not fully acquired, cumulative abnormal returns average 5.6%, and 33% of the chief executives are replaced within a year. Stock‐price increases are larger when control passes to the new blockholder, when management does not resist the blockholder's effort to influence corporate policy, and when the block purchaser eventually fully acquires the firm. These findings suggest that the specific skills and expertise of blockholders, and not just the concentration of ownership, are important determinants of firm value.

Automation versus Intermediation: Evidence from Treasuries Going Off the Run

Published: 9/19/2006,  Volume: 61,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2006.01061.x  |  Cited by: 114

MICHAEL J. BARCLAY, TERRENCE HENDERSHOTT, KENNETH KOTZ

This paper examines the choice of trading venue by dealers in U.S. Treasury securities to determine when services provided by human intermediaries are difficult to replicate in fully automated trading systems. When Treasury securities go “off the run” their trading volume drops by more than 90%. This decline in trading volume allows us to test whether intermediaries' knowledge of the market and its participants can uncover hidden liquidity and facilitate better matching of customer orders in less active markets. Consistent with this hypothesis, the market share of electronic intermediaries falls from 81% to 12% when securities go off the run.

Competition among Trading Venues: Information and Trading on Electronic Communications Networks

Published: 11/7/2003,  Volume: 58,  Issue: 6  |  DOI: 10.1046/j.1540-6261.2003.00618.x  |  Cited by: 233

Michael J. Barclay, Terrence Hendershott, D. Timothy McCormick

AbstractThis paper explores the competition between two trading venues, Electronic Communication Networks (ECNs) and Nasdaq market makers. ECNs offer the advantages of anonymity and speed of execution, which attract informed traders. Thus, trades are more likely to occur on ECNs when information asymmetry is greater and when trading volume and stock‐return volatility are high. ECN trades have greater permanent price impacts and more private information is revealed through ECN trades than though market‐maker trades. However, ECN trades have higher ex ante trading costs because market makers can preference or internalize the less informed trades and offer them better executions.

Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks

Published: 2/1999,  Volume: 54,  Issue: 1  |  DOI: 10.1111/0022-1082.00097  |  Cited by: 234

Michael J. Barclay, William G. Christie, Jeffrey H. Harris, Eugene Kandel, Paul H. Schultz

The relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate. On January 20, 1997, the Securities and Exchange Commission began implementing reforms that would permit the public to compete directly with Nasdaq dealers by submitting binding limit orders. Additionally, superior quotes placed by Nasdaq dealers in private trading venues began to be displayed in the Nasdaq market. We measure the impact of these new rules on various measures of performance, including trading costs and depths. Our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality.

PAPERS AND PROCEEDINGS FIFTY‐SECOND ANNUAL MEETING AMERICAN FINANCE ASSOCIATION

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb03995.x  |  Cited by: 0

MICHAEL C. JENSEN, MICHAEL KEENAN

Report of the Executive Secretary and Treasurer

Published: 7/1996,  Volume: 51,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1996.tb02717.x  |  Cited by: 0

Michael Keenan

From the ExSec's Notebook

Published: 12/1998,  Volume: 53,  Issue: 6  |  DOI: 10.1111/0022-1082.00094  |  Cited by: 0

Michael Keenan

The Relationship Between Stock Market Returns and Rates of Inflation

Published: 6/1979,  Volume: 34,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1979.tb02139.x  |  Cited by: 65

MICHAEL FIRTH

Report of the Executive Secretary and Treasurer

Published: 8/1998,  Volume: 53,  Issue: 4  |  DOI: 10.1111/0022-1082.00059  |  Cited by: 0

Michael Keenan

SYNERGISM IN MERGERS: SOME BRITISH RESULTS*

Published: 5/1978,  Volume: 33,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1978.tb04878.x  |  Cited by: 7

Michael Firth

Minutes of the Annual Membership Meeting

Published: 7/1997,  Volume: 52,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1997.tb02731.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1986,  Volume: 41,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1986.tb04542.x  |  Cited by: 0

Michael Keenan

THE COST OF CAPITAL AND VALUATION OF A TWO‐COUNTRY FIRM: REPLY

Published: 9/1977,  Volume: 32,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1977.tb03335.x  |  Cited by: 1

Michael Adler

Minutes of the Annual Membership Meeting

Published: 7/1989,  Volume: 44,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1989.tb04392.x  |  Cited by: 0

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb04013.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04044.x  |  Cited by: 0

Michael Keenan

A NOTE ON DIVIDEND IRRELEVANCE AND THE GORDON VALUATION MODEL*

Published: 12/1971,  Volume: 26,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1971.tb01752.x  |  Cited by: 15

Michael Brennan

Report of the Executive Secretary and Treasurer for the Year Ending September 30, 1989

Published: 7/1990,  Volume: 45,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1990.tb05116.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1996,  Volume: 51,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1996.tb02716.x  |  Cited by: 1

Michael Keenan

THE INFORMATION CONTENT OF LARGE INVESTMENT HOLDINGS

Published: 12/1975,  Volume: 30,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1975.tb01054.x  |  Cited by: 5

Michael Firth

Report of the Executive Secretary and Treasurer

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03779.x  |  Cited by: 0

Michael Keenan

Does Borrowing from Banks Cost More than Borrowing from the Market?

Published: 10/30/2019,  Volume: 75,  Issue: 2  |  DOI: 10.1111/jofi.12849  |  Cited by: 134

MICHAEL SCHWERT

This paper investigates the pricing of bank loans relative to capital market debt. The analysis uses a novel sample of loans matched with bond spreads from the same firm on the same date. After accounting for seniority, lenders earn a large premium relative to the bond‐implied credit spread. In a sample of secured term loans to noninvestment‐grade firms, the average premium is 140 to 170 bps or about half of the all‐in‐drawn spread. This is the first direct evidence of firms' willingness to pay for bank credit and raises questions about the nature of competition in the loan market.

Report of the Executive Secretary and Treasurer

Published: 7/1989,  Volume: 44,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1989.tb04393.x  |  Cited by: 0

Michael Keenan

FROM THE EXSEC'S NOTEBOOK

Published: 12/1997,  Volume: 52,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1997.tb02740.x  |  Cited by: 0

Michael Keenan

ON RISK‐ADJUSTED CAPITALIZATION RATES AND VALUATION BY INDIVIDUALS

Published: 9/1970,  Volume: 25,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1970.tb00556.x  |  Cited by: 3

Michael Adler

Municipal Bond Liquidity and Default Risk

Published: 6/13/2017,  Volume: 72,  Issue: 4  |  DOI: 10.1111/jofi.12511  |  Cited by: 258

MICHAEL SCHWERT

This paper examines the pricing of municipal bonds. I use three distinct, complementary approaches to decompose municipal bond spreads into default and liquidity components, and find that default risk accounts for 74% to 84% of the average spread after adjusting for tax‐exempt status. The first approach estimates the liquidity component using transaction data, the second measures the default component with credit default swap data, and the third is a quasi‐natural experiment that estimates changes in default risk around pre‐refunding events. The price of default risk is high given the rare incidence of municipal default and implies a high risk premium.

AN INVESTIGATION OF FACTORS ASSOCIATED WITH VARIATIONS IN THE RELATIVE IMPORTANCE OF COMMERCIAL‐BANK RESIDENTIAL REAL‐ESTATE LOANS*

Published: 9/1968,  Volume: 23,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1968.tb00859.x  |  Cited by: 0

Michael Palmer

A Simple Nonparametric Approach to Derivative Security Valuation

Published: 12/1996,  Volume: 51,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1996.tb05220.x  |  Cited by: 227

MICHAEL STUTZER

Canonical valuation uses historical time series to predict the probability distribution of the discounted value of primary assets' discounted prices plus accumulated dividends at any future date. Then the axiomatically‐rationalized maximum entropy principle is used to estimate risk‐neutral (equivalent martingale) probabilities that correctly price the primary assets, as well as any predesignated subset of derivative securities whose payoffs occur at this date. Valuation of other derivative securities proceeds by calculation of its discounted, risk‐neutral expected value. Both simulation and empirical evidence suggest that canonical valuation has merit.

Minutes of the Annual Membership Meeting

Published: 7/1993,  Volume: 48,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1993.tb04031.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb04012.x  |  Cited by: 1

Michael Keenan

Fifty Years of the American Finance Association

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03781.x  |  Cited by: 3

MICHAEL KEENAN

The American Finance Association was organized 50 years ago. This paper reflects on recent trends in Officers and Directors, Membership, Association Meetings, the Journal of Finance, and other activities. Appendix Tables provide historical data for the Association for the past 25 years.

Report of the Executive Secretary and Treasurer

Published: 7/1986,  Volume: 41,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1986.tb04543.x  |  Cited by: 0

Michael Keenan

THE COST OF CAPITAL AND VALUATION OF A TWO‐COUNTRY FIRM

Published: 3/1974,  Volume: 29,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1974.tb00028.x  |  Cited by: 15

Michael Adler

Report of the Executive Secretary and Treasurer: for the Year Ending September 30, 1986

Published: 7/1987,  Volume: 42,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1987.tb04587.x  |  Cited by: 0

Michael Keenan

Report of the Executive Secretary and Treasurer

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04045.x  |  Cited by: 0

Michael Keenan

The Use of Electronic Funds Transfers to Capture the Effects of Cash Management Practices on the Demand for Demand Deposits: A Note

Published: 12/1985,  Volume: 40,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1985.tb02397.x  |  Cited by: 6

MICHAEL DOTSEY

The rapidly increasing use of more sophisticated cash management practices is a factor influencing the demand for money that is not considered in standard models of money demand. Within the framework of an inventory theoretic model of money demand, this paper provides theoretical grounds for using the number of electronic funds transfers as an indication of increasing cash management sophistication. Specifically, the demand for demand deposits is determined from the solution of a simultaneous equation system that also determines the optimal level of cash management. Therefore, the level of cash management services influences transactions costs, implying that transactions costs are endogenous. The number of electronic funds transfers is closely linked to the level of cash management services and is therefore related to transactions costs. Models of money demand that treat transactions costs as exogenous and fixed are therefore misspecified and will not perform well when transactions costs are changing. By explicitly incorporating the changing nature of transactions costs through the use of electronic funds transfers, the problems of instability and poor predictive power associated with the demand for money in the 1970's are overcome.

Report of the Executive Secretary and Treasurer

Published: 7/1993,  Volume: 48,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1993.tb04032.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1991,  Volume: 46,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1991.tb03778.x  |  Cited by: 0

Michael Kennan

CLO Performance

Published: 4/10/2023,  Volume: 78,  Issue: 3  |  DOI: 10.1111/jofi.13224  |  Cited by: 32

LARRY CORDELL, MICHAEL R. ROBERTS, MICHAEL SCHWERT

We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk‐adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk‐based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed‐end structure, long‐term funding, and embedded options to reinvest principal proceeds.

Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt

Published: 3/2/2005,  Volume: 60,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2005.00751.x  |  Cited by: 213

MICHAEL FAULKENDER

This paper examines whether firms are hedging or timing the market when selecting the interest rate exposure of their new debt issuances. I use a more accurate measure of the interest rate exposure chosen by firms by combining the initial exposure of newly issued debt securities with their use of interest rate swaps. The results indicate that the final interest rate exposure is largely driven by the slope of the yield curve at the time the debt is issued. These results suggest that interest rate risk management practices are primarily driven by speculation or myopia, not hedging considerations.

REGULATION OF THE NEW YORK STATE CONSUMER FINANCE INDUSTRY*

Published: 9/1965,  Volume: 20,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1965.tb02921.x  |  Cited by: 0

Michael Kawaja

Investor Recognition of Corporation International Diversification: Comment

Published: 3/1981,  Volume: 36,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1981.tb03543.x  |  Cited by: 5

MICHAEL ADLER

Bank Capital and Lending Relationships

Published: 2/13/2018,  Volume: 73,  Issue: 2  |  DOI: 10.1111/jofi.12604  |  Cited by: 375

MICHAEL SCHWERT

This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and credit provision. I find that bank‐dependent firms borrow from well‐capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank‐dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.

Report of the Executive Secretary and Treasurer

Published: 8/1999,  Volume: 54,  Issue: 4  |  DOI: 10.1111/1467-6419.00062-i1  |  Cited by: 0

Michael Keenan

Report on the 1987 Membership Survey

Published: 7/1988,  Volume: 43,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1988.tb04609.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 7/1990,  Volume: 45,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1990.tb05115.x  |  Cited by: 0

Michael Keenan

Minutes of the Annual Membership Meeting

Published: 8/1998,  Volume: 53,  Issue: 4  |  DOI: 10.1111/0022-1082.00058  |  Cited by: 0

Michael Keenan