The Journal of Finance

The Statistical and Economic Role of Jumps in Continuous‐Time Interest Rate Models

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6321.2004.00632.x  |  Cited by: 383

Michael Johannes

This paper analyzes the role of jumps in continuous‐time short rate models. I first develop a test to detect jump‐induced misspecification and, using Treasury bill rates, find evidence for the presence of jumps. Second, I specify and estimate a nonparametric jump‐diffusion model. Results indicate that jumps play an important statistical role. Estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps. Finally, I investigate the pricing implications of jumps. Jumps generally have a minor impact on yields, but they are important for pricing interest rate options.

The Impact of Collateralization on Swap Rates

Published: 1/11/2007,  Volume: 62,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2007.01210.x  |  Cited by: 83

MICHAEL JOHANNES, SURESH SUNDARESAN

Interest rate swap pricing theory traditionally views swaps as a portfolio of forward contracts with net swap payments discounted at LIBOR rates. In practice, the use of marking‐to‐market and collateralization questions this view as they introduce intermediate cash flows and alter credit characteristics. We provide a swap valuation theory under marking‐to‐market and costly collateral and examine the theory's empirical implications. We find evidence consistent with costly collateral using two different approaches; the first uses single‐factor models and Eurodollar futures prices, and the second uses a formal term structure model and Treasury/swap data.

Model Specification and Risk Premia: Evidence from Futures Options

Published: 5/8/2007,  Volume: 62,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2007.01241.x  |  Cited by: 592

MARK BROADIE, MIKHAIL CHERNOV, MICHAEL JOHANNES

This paper examines model specification issues and estimates diffusive and jump risk premia using S&P futures option prices from 1987 to 2003. We first develop a time series test to detect the presence of jumps in volatility, and find strong evidence in support of their presence. Next, using the cross section of option prices, we find strong evidence for jumps in prices and modest evidence for jumps in volatility based on model fit. The evidence points toward economically and statistically significant jump risk premia, which are important for understanding option returns.

Sequential Learning, Predictability, and Optimal Portfolio Returns

Published: 3/17/2014,  Volume: 69,  Issue: 2  |  DOI: 10.1111/jofi.12121  |  Cited by: 189

MICHAEL JOHANNES, ARTHUR KORTEWEG, NICHOLAS POLSON

This paper finds statistically and economically significant out‐of‐sample portfolio benefits for an investor who uses models of return predictability when forming optimal portfolios. Investors must account for estimation risk, and incorporate an ensemble of important features, including time‐varying volatility, and time‐varying expected returns driven by payout yield measures that include share repurchase and issuance. Prior research documents a lack of benefits to return predictability, and our results suggest that this is largely due to omitting time‐varying volatility and estimation risk. We also document the sequential process of investors learning about parameters, state variables, and models as new data arrive.

The Impact of Jumps in Volatility and Returns

Published: 5/6/2003,  Volume: 58,  Issue: 3  |  DOI: 10.1111/1540-6261.00566  |  Cited by: 1277

Bjørn Eraker, Michael Johannes, Nicholas Polson

AbstractThis paper examines continuous‐time stochastic volatility models incorporating jumps in returns and volatility. We develop a likelihood‐based estimation strategy and provide estimates of parameters, spot volatility, jump times, and jump sizes using S&P 500 and Nasdaq 100 index returns. Estimates of jump times, jump sizes, and volatility are particularly useful for identifying the effects of these factors during periods of market stress, such as those in 1987, 1997, and 1998. Using formal and informal diagnostics, we find strong evidence for jumps in volatility and jumps in returns. Finally, we study how these factors and estimation risk impact option pricing.

Learning about Consumption Dynamics

Published: 3/18/2016,  Volume: 71,  Issue: 2  |  DOI: 10.1111/jofi.12246  |  Cited by: 102

MICHAEL JOHANNES, LARS A. LOCHSTOER, YIQUN MOU

This paper characterizes U.S. consumption dynamics from the perspective of a Bayesian agent who does not know the underlying model structure but learns over time from macroeconomic data. Realistic, high‐dimensional macroeconomic learning problems, which entail parameter, model, and state learning, generate substantially different subjective beliefs about consumption dynamics compared to the standard, full‐information rational expectations benchmark. Beliefs about long‐run dynamics are volatile, with counter‐cyclical conditional volatility, and drift over time. Embedding these beliefs in a standard asset pricing model significantly improves the model's ability to match the stylized facts, as well as the sample path of the market price‐dividend ratio.

Asymmetric Information about Collateral Values

Published: 5/11/2016,  Volume: 71,  Issue: 3  |  DOI: 10.1111/jofi.12288  |  Cited by: 119

JOHANNES STROEBEL

I empirically analyze credit market outcomes when competing lenders are differentially informed about the expected return from making a loan. I study the residential mortgage market, where property developers often cooperate with vertically integrated mortgage lenders to offer financing to buyers of new homes. I show that these integrated lenders have superior information about the construction quality of individual homes and exploit this information to lend against higher quality collateral, decreasing foreclosures by up to 40%. To compensate for this adverse selection on collateral quality, nonintegrated lenders charge higher interest rates when competing against a better‐informed integrated lender.

International Taxation and the Direction and Volume of Cross‐Border M&As

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01463.x  |  Cited by: 183

HARRY P. HUIZINGA, JOHANNES VOGET

We show that the parent‐subsidiary structure of multinational firms created by cross‐border mergers and acquisitions is affected by the prospect of international double taxation. Specifically, the likelihood of parent firm location in a country following a cross‐border takeover is reduced by high international double taxation of foreign‐source income. At the same time, countries with high international double taxation attract smaller numbers of parent firms. A unilateral elimination of worldwide taxation by the United States is simulated to increase the proportion of parent firms locating in the United States following cross‐border mergers and acquisitions from 53% to 58%.

Stock Market Liquidity and the Business Cycle

Published: 1/6/2011,  Volume: 66,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2010.01628.x  |  Cited by: 335

RANDI NÆS, JOHANNES A. SKJELTORP, BERNT ARNE ØDEGAARD

In the recent financial crisis we saw liquidity in the stock market drying up as a precursor to the crisis in the real economy. We show that such effects are not new; in fact, we find a strong relation between stock market liquidity and the business cycle. We also show that investors' portfolio compositions change with the business cycle and that investor participation is related to market liquidity. This suggests that systematic liquidity variation is related to a “flight to quality” during economic downturns. Overall, our results provide a new explanation for the observed commonality in liquidity.

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

Lender Automation and Racial Disparities in Credit Access

Published: 1/25/2024,  Volume: 79,  Issue: 2  |  DOI: 10.1111/jofi.13303  |  Cited by: 65

SABRINA T. HOWELL, THERESA KUCHLER, DAVID SNITKOF, JOHANNES STROEBEL, JUN WONG

Process automation reduces racial disparities in credit access by enabling smaller loans, broadening banks' geographic reach, and removing human biases from decision making. We document these findings in the context of the Paycheck Protection Program (PPP), where private lenders faced no credit risk but decided which firms to serve. Black‐owned firms obtained PPP loans primarily from automated fintech lenders, especially in areas with high racial animus. After traditional banks automated their loan processing procedures, their PPP lending to Black‐owned firms increased. Our findings cannot be fully explained by racial differences in loan application behaviors, preexisting banking relationships, firm performance, or fraud rates.

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

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

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: 264

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.

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

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: 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

STATISTICAL TESTS OF THE KEYNESIAN DEMAND FUNCTION FOR MONEY: COMMENT

Published: 9/1968,  Volume: 23,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1968.tb00851.x  |  Cited by: 0

Michael Hudson

SOME CHARACTERISTICS OF TREASURY BILL DEALERS IN THE AUCTION MARKET*

Published: 3/1965,  Volume: 20,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1965.tb00183.x  |  Cited by: 1

Michael Rieber

LEVERAGE, DIVIDEND POLICY AND THE COST OF CAPITAL: A COMMENT

Published: 9/1970,  Volume: 25,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1970.tb00561.x  |  Cited by: 4

Michael Davenport

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.

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: 214

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.

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.

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: 7/1992,  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.

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: 229

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

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

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

Minutes of the Annual Membership Meeting

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

Michael Keenan

Report of the Executive Secretary and Treasurer for the Year Ending September 30, 1987

Published: 7/1988,  Volume: 43,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1988.tb04610.x  |  Cited by: 0

Michael Keenan

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

Minutes of the Annual Membership Meeting

Published: 7/1988,  Volume: 43,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1988.tb04608.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