Search results: 40.
The Term Structure of Real Rates and Expected Inflation
Published: 4/2008, Volume: 63, Issue: 2 | DOI: 10.1111/j.1540-6261.2008.01332.x | Cited by: 389
ANDREW ANG, GEERT BEKAERT, MIN WEI
Changes in nominal interest rates must be due to either movements in real interest rates, expected inflation, or the inflation risk premium. We develop a term structure model with regime switches, time‐varying prices of risk, and inflation to identify these components of the nominal yield curve. We find that the unconditional real rate curve in the United States is fairly flat around 1.3%. In one real rate regime, the real term structure is steeply downward sloping. An inflation risk premium that increases with maturity fully accounts for the generally upward sloping nominal term structure.
A q$q$ Theory of Internal Capital Markets
Published: 2/24/2024, Volume: 79, Issue: 2 | DOI: 10.1111/jofi.13318 | Cited by: 19
MIN DAI, XAVIER GIROUD, WEI JIANG, NENG WANG
We propose a tractable model of dynamic investment, spinoffs, financing, and risk management for a multidivision firm facing costly external finance. Our analysis formalizes the following insights: (i) Within‐firm resource allocation is based not only on divisions' productivity, as in winner‐picking models, but also their risk; (ii) firms may voluntarily spin off productive divisions to increase liquidity; (iii) diversification can reduce firm value in low‐liquidity states, as it increases the spinoff cost and hampers liquidity management; (iv) corporate socialism makes liquidity less valuable; and (v) division investment is determined by the ratio between marginal and marginal value of cash.
Hedge Funds and Chapter 11
Published: 3/27/2012, Volume: 67, Issue: 2 | DOI: 10.1111/j.1540-6261.2012.01724.x | Cited by: 166
WEI JIANG, KAI LI, WEI WANG
This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a bigger impact on value. Their presence, especially as unsecured creditors, helps balance power between the debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter's loss of exclusive rights to file reorganization plans, CEO turnover, and adoptions of key employee retention plan, while their effect on secured creditors manifests in higher probabilities of emergence and payoffs to junior claims.
Dynamic Trading with Realization Utility
Published: 2/2026, Volume: 81, Issue: 1 | DOI: 10.1111/jofi.13472 | Cited by: 0
MIN DAI, CONG QIN, NENG WANG
An investor receives utility bursts from realizing gains and losses at the individual stock level and dynamically allocates his mental budget between risky and risk‐free assets at the trading account level. Using savings, he reduces his stockholdings and is more willing to realize losses. Using leverage, he increases his stockholdings beyond his mental budget and is more reluctant to realize losses. While leverage strengthens the disposition effect, introducing leverage constraints mitigates it. Our model predicts that investors with stocks in deep losses sell them either immediately or after stocks rebound a little.
The Interaction between Nonexpected Utility and Asymmetric Market Fundamentals
Published: 3/1994, Volume: 49, Issue: 1 | DOI: 10.1111/j.1540-6261.1994.tb04433.x | Cited by: 20
MAO‐WEI HUNG
This paper studies a nonexpected utility, general equilibrium asset pricing model in which market fundamentals follow a bivariate Markov switching process. The results show that nonexpected utility is capable of exactly matching the means of the risk‐free rate and the risk premium. Asymmetric market fundamentals are capable of generating a negative sample correlation between the risk‐free rate and the risk premium. Moreover, an equilibrium asset pricing model endowed with asymmetric market fundamentals is consistent with all five first and second moments of the risk‐free rate and the risk premium in the U.S. data.
Inalienable Customer Capital, Corporate Liquidity, and Stock Returns
Published: 7/24/2020, Volume: 76, Issue: 1 | DOI: 10.1111/jofi.12960 | Cited by: 81
WINSTON WEI DOU, YAN JI, DAVID REIBSTEIN, WEI WU
We develop a model in which customer capital depends on key talents' contribution and pure brand recognition. Customer capital guarantees stable demand but is fragile to financial constraints risk if retained mainly by talents, who tend to quit financially constrained firms, damaging customer capital. Using a proprietary, granular brand‐perception survey, we construct a firm‐level measure of the inalienability of customer capital (ICC) that captures the degree to which customer capital depends on talents. Firms with higher ICC have higher average returns, higher talent turnover, and more precautionary financial policies. The ICC‐sorted long‐short portfolio's spread comoves with financial constraints factor.
Competition and Coalition among Underwriters: The Decision to Join a Syndicate
Published: 10/2004, Volume: 59, Issue: 5 | DOI: 10.1111/j.1540-6261.2004.00704.x | Cited by: 56
WEI‐LING SONG
This paper studies the decision of lead investment banks to organize hybrid syndicates (commercial banks participating as co‐managers) versus pure investment bank syndicates. The findings show that hybrid underwriting issues are more challenging to float. Compared to pure investment bank syndicates, hybrid syndicates serve clients that are smaller, have lower common stock rankings and less prior access to the capital markets, rely more on bank loans, and invest less capital but issue larger amounts, which indicates that commercial banks' participation enhances hybrid services. Moreover, lead investment banks tend to invite banks' participation when clients exhibit higher loyalty in reusing their services.
What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01448.x | Cited by: 598
NICHOLAS BARBERIS, WEI XIONG
We investigate whether prospect theory preferences can predict a disposition effect. We consider two implementations of prospect theory: in one case, preferences are defined over annual gains and losses; in the other, they are defined over realized gains and losses. Surprisingly, the annual gain/loss model often fails to predict a disposition effect. The realized gain/loss model, however, predicts a disposition effect more reliably. Utility from realized gains and losses may therefore be a useful way of thinking about certain aspects of individual investor trading.
Decentralization through Tokenization
Published: 12/5/2022, Volume: 78, Issue: 1 | DOI: 10.1111/jofi.13192 | Cited by: 126
MICHAEL SOCKIN, WEI XIONG
We examine decentralization of digital platforms through tokenization as an innovation to resolve the conflict between platforms and users. By delegating control to users, tokenization through utility tokens acts as a commitment device that prevents a platform from exploiting users. This commitment comes at the cost of not having an owner with an equity stake who, in conventional platforms, would subsidize participation to maximize the platform's network effect. This trade‐off makes utility tokens a more appealing funding scheme than equity for platforms with weak fundamentals. The conflict reappears when nonusers, such as token investors and validators, participate on the platform.
An Asset‐Pricing Theory Unifying the CAPM and APT
Published: 9/1988, Volume: 43, Issue: 4 | DOI: 10.1111/j.1540-6261.1988.tb02610.x | Cited by: 31
K. C. JOHN WEI
This study shows that the competitive‐equilibrium version of the APT may be extended to develop an exact model if idiosyncratic risks obey the Ross separating distribution. The results indicate that one only need add the market portfolio as an extra factor to the factor model in order to obtain an exact asset‐pricing relation. Thus, this study presents an extension and integration of the CAPM and APT. The “empirical” APT is also generalized to allow for some factors to be omitted from the econometric model employed to test the theory. The developed model is extremely robust and may be reduced to the CAPM or expanded to approximate Ross's APT depending upon the number of omitted factors. Further, the importance of the market portfolio is shown to be a monotonic increasing function of the number of omitted factors. Finally, the study demonstrates that, in a finite economy, the pricing‐error bound of the Ross APT in a correlated‐residuals factor structure is an increasing function of the absolute value of market‐residual beta, rather than the weight of the asset in the market portfolio as is the case of uncorrelated factor residuals. However, under the normality assumption, the pricing error becomes an extra component related to the market‐portfolio factor, and the exact asset‐pricing relation is once again obtained.
Informational Frictions and Commodity Markets
Published: 9/3/2015, Volume: 70, Issue: 5 | DOI: 10.1111/jofi.12261 | Cited by: 222
MICHAEL SOCKIN, WEI XIONG
This paper develops a model with a tractable log‐linear equilibrium to analyze the effects of informational frictions in commodity markets. By aggregating dispersed information about the strength of the global economy among goods producers whose production has complementarity, commodity prices serve as price signals to guide producers' production decisions and commodity demand. Our model highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices. Our analysis illustrates the weakness common in empirical studies on commodity markets of assuming that different types of shocks are publicly observable to market participants.
Rollover Risk and Credit Risk
Published: 3/27/2012, Volume: 67, Issue: 2 | DOI: 10.1111/j.1540-6261.2012.01721.x | Cited by: 539
ZHIGUO HE, WEI XIONG
Our model shows that deterioration in debt market liquidity leads to an increase in not only the liquidity premium of corporate bonds but also credit risk. The latter effect originates from firms' debt rollover. When liquidity deterioration causes a firm to suffer losses in rolling over its maturing debt, equity holders bear the losses while maturing debt holders are paid in full. This conflict leads the firm to default at a higher fundamental threshold. Our model demonstrates an intricate interaction between the liquidity premium and default premium and highlights the role of short‐term debt in exacerbating rollover risk.
Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds
Published: 3/9/2006, Volume: 61, Issue: 2 | DOI: 10.1111/j.1540-6261.2006.00854.x | Cited by: 256
GUR HUBERMAN, WEI JIANG
Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds. The paper also comments on limitations on inferences from experiments and aggregate‐level data analysis.
Contagion as a Wealth Effect
Published: 8/2001, Volume: 56, Issue: 4 | DOI: 10.1111/0022-1082.00373 | Cited by: 697
Albert S. Kyle, Wei Xiong
Financial contagion is described as a wealth effect in a continuous‐time model with two risky assets and three types of traders. Noise traders trade randomly in one market. Long‐term investors provide liquidity using a linear rule based on fundamentals. Convergence traders with logarithmic utility trade optimally in both markets. Asset price dynamics are endogenously determined (numerically) as functions of endogenous wealth and exogenous noise. When convergence traders lose money, they liquidate positions in both markets. This creates contagion, in that returns become more volatile and more correlated. Contagion reduces benefits from portfolio diversification and raises issues for risk management.
The Valuation Effects of Warrant Extensions
Published: 3/1993, Volume: 48, Issue: 1 | DOI: 10.1111/j.1540-6261.1993.tb04711.x | Cited by: 13
JOHN S. HOWE, PEIHWANG WEI
In this paper, we examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option‐pricing theory, warrant prices increase in response to an extension. Our principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. We interpret the evidence as supportive of an anticipation hypothesis in which the market perceives the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration.
A Bayesian's Bubble
Published: 11/25/2009, Volume: 64, Issue: 6 | DOI: 10.1111/j.1540-6261.2009.01514.x | Cited by: 15
C. WEI LI, HUI XUE
The acceleration of the U.S. productivity growth in the late 1990s suggests a significant advance in technological innovation, making the perceived probability of entering a “new economy” ever increasing. Based on macroeconomic data, we identify a Bayesian investor's belief evolution when facing a possible structural break in the economy. We show that such belief evolution plays a significant role in explaining both the stock market boom and crash during 1998 to 2001. We conclude that a rational investor's uncertainty about the future of the U.S. economy provides an alternative explanation for the late 1990s stock market “bubble.”
Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange
Published: 2/2002, Volume: 57, Issue: 1 | DOI: 10.1111/1540-6261.00431 | Cited by: 57
Avner Kalay, Li Wei, Avi Wohl
We use the move of Israeli stocks from call auction trading to continuous trading to show that investors have a preference for stocks that trade continuously. When large stocks move from call auction to continuous trading, the small stocks that still trade by call auction experience a significant loss in volume relative to the overall market volume. As small stocks move to continuous trading, they experience an increase in volume and positive abnormal returns because of the associated increase in liquidity. Overall, though, a move to continuous trading increases the volume of large stocks relative to small stocks.
Directors' Ownership in the U.S. Mutual Fund Industry
Published: 11/11/2008, Volume: 63, Issue: 6 | DOI: 10.1111/j.1540-6261.2008.01410.x | Cited by: 80
QI CHEN, ITAY GOLDSTEIN, WEI JIANG
This paper empirically investigates directors' ownership in the mutual fund industry. Our results show that, contrary to anecdotal evidence, a significant portion of directors hold shares in the funds they oversee. Ownership patterns are broadly consistent with an optimal contracting equilibrium. That is, ownership is positively and significantly correlated with most variables that are predicted to indicate greater value from directors' monitoring. For example, directors' ownership is more prevalent in actively managed funds and in funds with lower institutional ownership. We also show considerable heterogeneity in ownership across fund families, suggesting family‐wide policies play an important role.
Influencing Control: Jawboning in Risk Arbitrage
Published: 10/7/2018, Volume: 73, Issue: 6 | DOI: 10.1111/jofi.12721 | Cited by: 68
WEI JIANG, TAO LI, DANQING MEI
In an “activist risk arbitrage,” a shareholder attempts to improve terms of an announced M&A through public campaigns. Activists target deals with low premiums and those susceptible to managerial conflicts of interest, including going‐private deals and deals in which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the premium paid, both ex post among surviving deals and ex ante among all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.
Mutual Fund Holdings of Credit Default Swaps: Liquidity, Yield, and Risk
Published: 12/22/2020, Volume: 76, Issue: 2 | DOI: 10.1111/jofi.12996 | Cited by: 31
WEI JIANG, JITAO OU, ZHONGYAN ZHU
This study analyzes the motivations for and consequences of funds' credit default swap (CDS) investments using mutual funds' quarterly holdings from pre‐ to postfinancial crisis. Funds invest in CDS when facing unpredictable liquidity needs. Funds sell more in reference entities when the CDS is liquid relative to the underlying bonds and buy more when the CDS‐bond basis is more negative. To enhance yield, funds engage in negative basis trading and sell CDS with the highest spreads within rating categories, and with spreads higher than those of their bond portfolios. Funds with superior portfolio returns also demonstrate more skill in CDS trading.
Asset Float and Speculative Bubbles
Published: 5/16/2006, Volume: 61, Issue: 3 | DOI: 10.1111/j.1540-6261.2006.00867.x | Cited by: 364
HARRISON HONG, JOSÉ SCHEINKMAN, WEI XIONG
We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short‐sales constraints trade a stock with limited float because of insider lockups. A bubble arises as price overweighs optimists' beliefs and investors anticipate the option to resell to those with even higher valuations. The bubble's size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling. Consistent with the internet experience, the bubble, turnover, and volatility decrease with float and prices drop on the lockup expiration date.
The Real Effects of Financial Markets: The Impact of Prices on Takeovers
Published: 5/21/2012, Volume: 67, Issue: 3 | DOI: 10.1111/j.1540-6261.2012.01738.x | Cited by: 601
ALEX EDMANS, ITAY GOLDSTEIN, WEI JIANG
Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats.
Transparency and International Portfolio Holdings
Published: 11/10/2005, Volume: 60, Issue: 6 | DOI: 10.1111/j.1540-6261.2005.00823.x | Cited by: 387
R. GASTON GELOS, SHANG‐JIN WEI
Does country transparency affect international portfolio investment? We examine this question by constructing new measures of transparency and by making use of a unique microdata set on portfolio holdings of emerging market funds around the world. We distinguish between government and corporate transparency. There is clear evidence that funds systematically invest less in less transparent countries. Moreover, funds have a greater propensity to exit nontransparent countries during crises.
Corporate Yield Spreads and Bond Liquidity
Published: 1/11/2007, Volume: 62, Issue: 1 | DOI: 10.1111/j.1540-6261.2007.01203.x | Cited by: 891
LONG CHEN, DAVID A. LESMOND, JASON WEI
We find that liquidity is priced in corporate yield spreads. Using a battery of liquidity measures covering over 4,000 corporate bonds and spanning both investment grade and speculative categories, we find that more illiquid bonds earn higher yield spreads, and an improvement in liquidity causes a significant reduction in yield spreads. These results hold after controlling for common bond‐specific, firm‐specific, and macroeconomic variables, and are robust to issuers' fixed effect and potential endogeneity bias. Our findings justify the concern in the default risk literature that neither the level nor the dynamic of yield spreads can be fully explained by default risk determinants.
Measuring “Dark Matter” in Asset Pricing Models
Published: 3/3/2024, Volume: 79, Issue: 2 | DOI: 10.1111/jofi.13317 | Cited by: 32
HUI CHEN, WINSTON WEI DOU, LEONID KOGAN
We formalize the concept of “dark matter” in asset pricing models by quantifying the additional informativeness of cross‐equation restrictions about fundamental dynamics. The dark‐matter measure captures the degree of fragility for models that are potentially misspecified and unstable: a large dark‐matter measure indicates that the model lacks internal refutability (weak power of optimal specification tests) and external validity (high overfitting tendency and poor out‐of‐sample fit). The measure can be computed at low cost even for complex dynamic structural models. To illustrate its applications, we provide quantitative examples applying the measure to (time‐varying) rare‐disaster risk and long‐run risk models.
Cautious Risk Takers: Investor Preferences and Demand for Active Management
Published: 2/19/2019, Volume: 74, Issue: 2 | DOI: 10.1111/jofi.12747 | Cited by: 22
VALERY POLKOVNICHENKO, KELSEY D. WEI, FENG ZHAO
Despite their mediocre mean performance, actively managed mutual funds are distinct from passive funds in their return distributions. Active value funds better hedge downside risk, while active growth funds better capture upside potential. Since such performance features may appeal to investors with tail‐overweighting preferences, we show that preferences for downside protection and upside potential estimated from the empirical pricing kernel can help explain active fund flows in the value and growth categories, respectively. This effect of investor risk preferences varies significantly with funds' downside‐hedging and upside‐capturing ability, with levels of active management, and across retirement and retail funds.
Can the Gains from International Diversification Be Achieved without Trading Abroad?
Published: 12/1999, Volume: 54, Issue: 6 | DOI: 10.1111/0022-1082.00182 | Cited by: 243
Vihang Errunza, Ked Hogan, Mao‐Wei Hung
We examine whether portfolios of domestically traded securities can mimic foreign indices so that investment in assets that trade only abroad is not necessary to exhaust the gains from international diversification. We use monthly data from 1976 to 1993 for seven developed and nine emerging markets. Return correlations, mean‐variance spanning, and Sharpe ratio test results provide strong evidence that gains beyond those attainable through home‐made diversification have become statistically and economically insignificant. Finally, we show that the incremental gains from international diversification beyond home‐made diversification portfolios have diminished over time in a way consistent with changes in investment barriers.
Institutional Ownership and Changes in the S&P 500
Published: 6/1989, Volume: 44, Issue: 2 | DOI: 10.1111/j.1540-6261.1989.tb05070.x | Cited by: 87
STEPHEN W. PRUITT, K. C. JOHN WEI
Several recent articles have provided new evidence for the existence of price pressures by examining the price and volume effects associated with changes in the S&P 500. The present study extends this work by examining actual changes in institutional holdings following both additions to and deletions from the S&P 500. The results show that changes in institutional holdings in response to additions or deletions from the S&P 500 are positively correlated. In addition to providing further evidence for the existence of price pressure effects, the results also provide evidence of the very large institutional elasticities of demand for stock.
Participation Costs and the Sensitivity of Fund Flows to Past Performance
Published: 5/8/2007, Volume: 62, Issue: 3 | DOI: 10.1111/j.1540-6261.2007.01236.x | Cited by: 431
JENNIFER HUANG, KELSEY D. WEI, HONG YAN
We present a simple rational model to highlight the effect of investors' participation costs on the response of mutual fund flows to past fund performance. By incorporating participation costs into a model in which investors learn about managers' ability from past returns, we show that mutual funds with lower participation costs have a higher flow sensitivity to medium performance and a lower flow sensitivity to high performance than their higher‐cost peers. Using various fund characteristics as proxies for the reduction in participation costs, we provide empirical evidence supporting the model's implications for the asymmetric flow‐performance relationship.
Explaining the Cross‐Section of Stock Returns in Japan: Factors or Characteristics?
Published: 4/2001, Volume: 56, Issue: 2 | DOI: 10.1111/0022-1082.00344 | Cited by: 244
Kent Daniel, Sheridan Titman, K.C. John Wei
Japanese stock returns are even more closely related to their book‐to‐market ratios than are their U.S. counterparts, and thus provide a good setting for testing whether the return premia associated with these characteristics arise because the characteristics are proxies for covariance with priced factors. Our tests, which replicate the Daniel and Titman (1997) tests on a Japanese sample, reject the Fama and French (1993) three‐factor model, but fail to reject the characteristic model.
Asset Pricing, Higher Moments, and the Market Risk Premium: A Note
Published: 9/1985, Volume: 40, Issue: 4 | DOI: 10.1111/j.1540-6261.1985.tb02376.x | Cited by: 58
R. STEPHEN SEARS, K. C. JOHN WEI
Hedge Fund Activism, Corporate Governance, and Firm Performance
Published: 7/19/2008, Volume: 63, Issue: 4 | DOI: 10.1111/j.1540-6261.2008.01373.x | Cited by: 1288
ALON BRAV, WEI JIANG, FRANK PARTNOY, RANDALL THOMAS
Using a large hand‐collected data set from 2001 to 2006, we find that activist hedge funds in the United States propose strategic, operational, and financial remedies and attain success or partial success in two‐thirds of the cases. Hedge funds seldom seek control and in most cases are nonconfrontational. The abnormal return around the announcement of activism is approximately 7%, with no reversal during the subsequent year. Target firms experience increases in payout, operating performance, and higher CEO turnover after activism. Our analysis provides important new evidence on the mechanisms and effects of informed shareholder monitoring.
Uncovering Hedge Fund Skill from the Portfolio Holdings They Hide
Published: 3/7/2013, Volume: 68, Issue: 2 | DOI: 10.1111/jofi.12012 | Cited by: 275
VIKAS AGARWAL, WEI JIANG, YUEHUA TANG, BAOZHONG YANG
This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where the quarter‐end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information‐sensitive events or share characteristics indicating greater information asymmetry. Confidential holdings exhibit superior performance up to 12 months, and tend to take longer to build. Together the evidence supports private information and the associated price impact as the dominant motives for confidentiality.
Asset Pricing with Cohort‐Based Trading in MBS Markets
Published: 10/6/2022, Volume: 77, Issue: 6 | DOI: 10.1111/jofi.13180 | Cited by: 16
NICOLA FUSARI, WEI LI, HAOYANG LIU, ZHAOGANG SONG
Agency mortgage‐backed securities (MBSs) with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to‐be‐announced (TBA) contracts with delivery flexibility. This parallel trading environment generates distinctive effects on MBS pricing and trading: (i) Although cheapest‐to‐deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP yields positively, with the effect stronger for lower‐value SPs; (ii) high selling pressure amplifies the effects of MBS heterogeneity on SP yields; and (iii) greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.
Individualism and Momentum around the World
Published: 1/13/2010, Volume: 65, Issue: 1 | DOI: 10.1111/j.1540-6261.2009.01532.x | Cited by: 1144
ANDY C.W. CHUI, SHERIDAN TITMAN, K.C. JOHN WEI
This paper examines how cultural differences influence the returns of momentum strategies. Cross‐country cultural differences are measured with an individualism index developed by Hofstede (2001), which is related to overconfidence and self‐attribution bias. We find that individualism is positively associated with trading volume and volatility, as well as to the magnitude of momentum profits. Momentum profits are also positively related to analyst forecast dispersion, transaction costs, and the familiarity of the market to foreigners, and negatively related to firm size and volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits.
The Two‐Pillar Policy for the RMB
Published: 10/8/2022, Volume: 77, Issue: 6 | DOI: 10.1111/jofi.13178 | Cited by: 20
URBAN J. JERMANN, BIN WEI, VIVIAN Z. YUE
This paper studies China's recent exchange rate policy for the renminbi (RMB). We demonstrate empirically that a two‐pillar policy is in place, aiming to balance exchange rate flexibility and RMB index stability via market and basket pillars. We further extend and validate the formulation that incorporates the so‐called countercyclical factor. Theoretically, we develop a flexible‐price monetary model for the RMB in which the two‐pillar policy arises endogenously as an optimal response of the government. We estimate the model by generalized method of moments and quantitatively assess various policy trade‐offs.
Trading Against the Random Expiration of Private Information: A Natural Experiment
Published: 11/12/2019, Volume: 75, Issue: 1 | DOI: 10.1111/jofi.12844 | Cited by: 41
MOHAMMADREZA BOLANDNAZAR, ROBERT J. JACKSON, WEI JIANG, JOSHUA MITTS
For years, the Securities and Exchange Commission (SEC) accidentally distributed securities disclosures to some investors before the public. We exploit this setting, which is unique because the delay until public disclosure was exogenous and the private information window was well defined, to study informed trading with a random stopping time. Trading intensity and the pace at which prices incorporate information decrease with the expected delay until public release, but the relation between trading intensity and time elapsed varies with traders' learning process. Noise trading and relative information advantage play similar roles as in standard microstructure theories assuming a fixed time window.
Robust Measures of Earnings Surprises
Published: 1/15/2019, Volume: 74, Issue: 2 | DOI: 10.1111/jofi.12746 | Cited by: 40
CHIN‐HAN CHIANG, WEI DAI, JIANQING FAN, HARRISON HONG, JUN TU
Event studies of market efficiency measure earnings surprises using the consensus error (CE), given as actual earnings minus the average professional forecast. If a subset of forecasts can be biased, the ideal but difficult to estimate parameter‐dependent alternative to CE is a nonlinear filter of individual errors that adjusts for bias. We show that CE is a poor parameter‐free approximation of this ideal measure. The fraction of misses on the same side (FOM), which discards the magnitude of misses, offers a far better approximation. FOM performs particularly well against CE in predicting the returns of U.S. stocks, where bias is potentially large.
FinTech Credit and Entrepreneurial Growth
Published: 8/30/2024, Volume: 79, Issue: 5 | DOI: 10.1111/jofi.13384 | Cited by: 64
HARALD HAU, YI HUANG, CHEN LIN, HONGZHE SHAN, ZIXIA SHENG, LAI WEI
Based on automated credit lines to vendors trading on Alibaba's online retail platform and a discontinuity in the credit decision algorithm, we document that a vendor's access to FinTech credit boosts its sales growth, transaction growth, and the level of customer satisfaction gauged by product, service, and consignment ratings. These effects are more pronounced for vendors characterized by greater information asymmetry about their credit risk and less collateral, which reveals the information advantage of FinTech credit over traditional credit technology.
What Explains Differences in Finance Research Productivity during the Pandemic?
Published: 5/3/2021, Volume: 76, Issue: 4 | DOI: 10.1111/jofi.13028 | Cited by: 86
BRAD M. BARBER, WEI JIANG, ADAIR MORSE, MANJU PURI, HEATHER TOOKES, INGRID M. WERNER
Based on a survey of American Finance Association members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls more for women and faculty with young children. Independently, and novel, extra time spent on teaching (much more likely for women) negatively affects research productivity. Also novel, concerns about feedback, isolation, and health have large negative research effects, which disproportionately affect junior faculty and PhD students. Finally, faculty who express greater concerns about employers’ finances report larger negative research effects and more concerns about feedback, isolation, and health.