Search results: 50.
Testing the CAPM with Time‐Varying Risks and Returns
Published: 9/1991, Volume: 46, Issue: 4 | DOI: 10.1111/j.1540-6261.1991.tb04627.x | Cited by: 59
JAMES N. BODURTHA, NELSON C. MARK
This paper draws on Engle's autoregressive conditionally heteroskedastic modeling strategy to formulate a conditional CAPM with time‐varying risk and expected returns. The model is estimated by generalized method of moments. A CAPM that allows mean excess returns to shift in January survives generalized method of moments specification tests for a number of omitted variables. However, a residual dividend yield component is found to remain in the excess returns of smaller firms. We find significant monthly and quarterly components in the risk premia and beta estimates.
Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns
Published: 3/1994, Volume: 49, Issue: 1 | DOI: 10.1111/j.1540-6261.1994.tb04423.x | Cited by: 28
STEPHEN G. CECCHETTI, POK‐SANG LAM, NELSON C. MARK
The Euler equations derived from intertemporal asset pricing models, together with the unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. This paper develops and implements statistical tests of these lower bound restrictions. While the availability of short time series of consumption data often undermines the ability of these tests to discriminate among different utility functions, we find that the restrictions implied by a number of widely studied financial data sets continue to pose quite a challenge to the current generation of intertemporal asset pricing theories.
THE PROXIMATE IMPACT OF MONETARY POLICY ON FLOWS OF FUNDS THROUGH FINANCIAL INTERMEDIARIES*
Published: 9/1966, Volume: 21, Issue: 3 | DOI: 10.1111/j.1540-6261.1966.tb00263.x | Cited by: 0
William George Nelson
ATTRITION AMONG STOCK COMPANIES IN THE PROPERTY‐LIABILITY INSURANCE INDUSTRY*
Published: 3/1970, Volume: 25, Issue: 1 | DOI: 10.1111/j.1540-6261.1970.tb00432.x | Cited by: 0
Robert E. Nelson
AN INVESTMENT ANALYSIS APPROACH TO STOCK LIFE INSURANCE COMPANIES*
Published: 9/1957, Volume: 12, Issue: 3 | DOI: 10.1111/j.1540-6261.1957.tb04148.x | Cited by: 0
Edward Axel Nelson
INFLATION AND RATES OF RETURN ON COMMON STOCKS
Published: 5/1976, Volume: 31, Issue: 2 | DOI: 10.1111/j.1540-6261.1976.tb01900.x | Cited by: 383
Charles R. Nelson
INFLATION AND CAPITAL BUDGETING
Published: 6/1976, Volume: 31, Issue: 3 | DOI: 10.1111/j.1540-6261.1976.tb01934.x | Cited by: 35
Charles R. Nelson
PRICE EFFECTS IN RIGHTS OFFERINGS*
Published: 12/1965, Volume: 20, Issue: 4 | DOI: 10.1111/j.1540-6261.1965.tb02933.x | Cited by: 1
J. Russell Nelson
THE ERRONEOUS MEC FUNCTION: COMMENT
Published: 3/1972, Volume: 27, Issue: 1 | DOI: 10.1111/j.1540-6261.1972.tb00631.x | Cited by: 1
Yutaka Imai, William Nelson
A REFORMULATION OF THE THEORETICAL BASES FOR A PERMANENT FEDERAL EXCESS PROFITS TAX*
Published: 12/1953, Volume: 8, Issue: 4 | DOI: 10.1111/j.1540-6261.1953.tb01193.x | Cited by: 0
Nelson H. C. Lo
Predictable Stock Returns: The Role of Small Sample Bias
Published: 6/1993, Volume: 48, Issue: 2 | DOI: 10.1111/j.1540-6261.1993.tb04731.x | Cited by: 456
CHARLES R. NELSON, MYUNG J. KIM
Predictive regressions are subject to two small sample biases: the coefficient estimate is biased if the predictor is endogenous, and asymptotic standard errors in the case of overlapping periods are biased downward. Both biases work in the direction of making t‐ratios too large so that standard inference may indicate predictability even if none is present. Using annual returns since 1872 and monthly returns since 1927 we estimate empirical distributions by randomizing residuals in the VAR representation of the variables. The estimated biases are large enough to affect inference in practice, and should be accounted for when studying predictability.
Risk‐Neutral Parameter Shifts and Derivatives Pricing in Discrete Time
Published: 10/2004, Volume: 59, Issue: 5 | DOI: 10.1111/j.1540-6261.2004.00702.x | Cited by: 37
MARK SCHRODER
We obtain a large class of discrete‐time risk‐neutral valuation relationships, or “preference‐free” derivatives pricing models, by imposing a simple restriction on the state‐price density process. The risk‐neutral stock‐return and forward‐rate dynamics are obtained by changing only a location parameter, which can be determined independent of the preference and true location parameters. The Gaussian models of Rubinstein (1976), Brennan (1979), and Câmera (2003), and the gamma model of Heston (1993) are all special cases. The model provides simple relationships between expected returns and state‐price density parameters analogous to the diffusion case.
The Irrelevancy of Dividend Policy in an Arrow‐Debreu Economy
Published: 9/1976, Volume: 31, Issue: 4 | DOI: 10.1111/j.1540-6261.1976.tb01972.x | Cited by: 12
Mark Rubinstein
The Arbitrage Pricing Theory and Supershares
Published: 6/1989, Volume: 44, Issue: 2 | DOI: 10.1111/j.1540-6261.1989.tb05057.x | Cited by: 5
MARK LATHAM
In a single‐period model with options on the market portfolio, linear factor pricing holds if and only if the variance of the market conditional on the factors is zero. There is no need for factors other than nonlinear functions of the market. For accurate linear pricing of all payoff patterns the factors must be rotationally equivalent to Hakansson's “supershares.” In a multiperiod model, a similar set of results holds, but with consumption replacing the market payoff. The methodology of the empirical Arbitrage Pricing Theory literature is not consistent with either the single‐period model or the multiperiod model.
CORPORATE BANKRUPTCY POTENTIAL, STOCKHOLDER RETURNS AND SHARE VALUATION: COMMENT
Published: 6/1972, Volume: 27, Issue: 3 | DOI: 10.1111/j.1540-6261.1972.tb00995.x | Cited by: 0
Mark Hanna
Displaced Diffusion Option Pricing
Published: 3/1983, Volume: 38, Issue: 1 | DOI: 10.1111/j.1540-6261.1983.tb03636.x | Cited by: 162
MARK RUBINSTEIN
This paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm. The formula simultaneously encompasses differential riskiness of the assets of the firm, their relative weights in determining the value of the firm, the effects of firm debt, and the effects of a dividend policy with both constant and random components. Although this setting considerably generalizes the Black‐Scholes [1] analysis, it nonetheless produces a formula via riskless arbitrage arguments that, given estimated inputs, is as easy to use as the Black‐Scholes formula.
Nonparametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 through August 31, 1978
Published: 6/1985, Volume: 40, Issue: 2 | DOI: 10.1111/j.1540-6261.1985.tb04967.x | Cited by: 458
MARK RUBINSTEIN
The tests reported here differ in several ways from those of most other papers testing option pricing models: an extremely large sample of observations of both trades and bid‐ask quotes is examined, careful consideration is given to discarding misleading records, nonparametric rather than parametric statistical tests are used, reported results are not sensitive to measurement of stock volatility, special care is taken to incorporate the effects of dividends and early exercise, a simple method is developed to test several option pricing formulas simultaneously, and the statistical significance and consistency across subsamples of the most important reported results are unusually high. The three key results are: (1) short‐maturity out‐of‐the‐money calls are priced significantly higher relative to other calls than the Black‐Scholes model would predict, (2) striking price biases relative to the Black‐Scholes model are also statistically significant but have reversed themselves after long periods of time, and (3) no single option pricing model currently developed seems likely to explain this reversal.
A Simple Formula for the Expected Rate of Return of an Option over a Finite Holding Period
Published: 12/1984, Volume: 39, Issue: 5 | DOI: 10.1111/j.1540-6261.1984.tb04920.x | Cited by: 40
MARK RUBINSTEIN
Under conditions consistent with the Black‐Scholes formula, a simple formula is developed for the expected rate of return of an option over a finite holding period possibly less than the time to expiration of the option. Under these conditions, surprisingly, the expected future value of a European option, even prior to expiration, is shown equal to the current Black‐Scholes value of the option, except that the expected future value of the stock at the end of the holding period replaces the current stock price in the Black‐Scholes formula and the future value of a riskless invesment of the striking price replaces the striking price. An extension of this result is used to approximate moments of the distribution of returns from an option portfolio.
Implied Binomial Trees
Published: 7/1994, Volume: 49, Issue: 3 | DOI: 10.1111/j.1540-6261.1994.tb00079.x | Cited by: 1217
MARK RUBINSTEIN
Abstract
This article develops a new method for inferring risk‐neutral probabilities (or state‐contingent prices) from the simultaneously observed prices of European options. These probabilities are then used to infer a unique fully specified recombining binomial tree that is consistent with these probabilities (and, hence, consistent with all the observed option prices). A simple backwards recursive procedure solves for the entire tree. From the standpoint of the standard binomial option pricing model, which implies a limiting risk‐neutral lognormal distribution for the underlying asset, the approach here provides the natural (and probably the simplest) way to generalize to arbitrary ending risk‐neutral probability distributions.
Markowitz's “Portfolio Selection”: A Fifty‐Year Retrospective
Published: 6/2002, Volume: 57, Issue: 3 | DOI: 10.1111/1540-6261.00453 | Cited by: 275
Mark Rubinstein
Informational Efficiency and Information Subsets
Published: 3/1986, Volume: 41, Issue: 1 | DOI: 10.1111/j.1540-6261.1986.tb04490.x | Cited by: 23
MARK LATHAM
This paper proposes a new definition of the Efficient Markets Hypothesis with respect to information, which is more formal and precise than those of Rubinstein [13], Fama [4], Jensen [6], and Beaver [1], and which fits well as a framework for interpreting the many tests of the Efficient Markets Hypothesis in the literature. Security markets are here considered “efficient with respect to information set ϕ” if and only if revealing ϕ to all agents would change neither equilibrium prices nor portfolios. In addition to other desirable features, this definition has the “subset property”: efficiency with respect to ϕ implies efficiency with respect to any subset of ϕ.
Credit Risk in Private Debt Portfolios
Published: 8/1998, Volume: 53, Issue: 4 | DOI: 10.1111/0022-1082.00056 | Cited by: 162
Mark Carey
Default, loss severity, and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds. The chance of very large portfolio losses is estimated and some determinants of such losses are analyzed. Results show ex ante riskier classes of private debt perform better on average than public debt. Both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution. Private placements are similar to corporate loans in that both are monitored private debt. The results are thus relevant to management and securitization of private debt portfolios generally.
AN INVESTOR EXPECTATIONS STOCK PRICE PREDICTIVE MODEL USING CLOSED‐END FUND PREMIUMS: COMMENT
Published: 9/1977, Volume: 32, Issue: 4 | DOI: 10.1111/j.1540-6261.1977.tb03340.x | Cited by: 3
Mark Hanna
Brokers versus Retail Investors: Conflicting Interests and Dominated Products
Published: 3/18/2019, Volume: 74, Issue: 3 | DOI: 10.1111/jofi.12763 | Cited by: 169
MARK EGAN
I study how brokers distort household investment decisions. Using a novel convertible bond data set, I find that consumers often purchase dominated bonds—cheap and expensive otherwise‐identical bonds coexist in the market. Brokers are incentivized to sell the dominated bonds, typically earning two times greater fees for selling them. I develop and estimate a broker‐intermediated search model that rationalizes this behavior. The estimates indicate that costly search is a key friction in financial markets, but the effects of search costs are compounded when brokers are incentivized to direct the search of consumers toward high‐fee inferior products.
Computing the Constant Elasticity of Variance Option Pricing Formula
Published: 3/1989, Volume: 44, Issue: 1 | DOI: 10.1111/j.1540-6261.1989.tb02414.x | Cited by: 252
MARK SCHRODER
This paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi‐square distribution. This allows the application of well‐known approximation formulas and the derivation of a whole class of closed‐form solutions. In addition, a simple and efficient algorithm for computing this distribution is presented.
Testing An Aggressive Investment Strategy Using Value Line Ranks: A Comment
Published: 3/1983, Volume: 38, Issue: 1 | DOI: 10.1111/j.1540-6261.1983.tb03642.x | Cited by: 5
MARK HANNA
SHORT INTEREST: BULLISH OR BEARISH?—COMMENT*
Published: 6/1968, Volume: 23, Issue: 3 | DOI: 10.1111/j.1540-6261.1968.tb00826.x | Cited by: 3
Mark Hanna
Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation
Published: 12/1981, Volume: 36, Issue: 5 | DOI: 10.1111/j.1540-6261.1981.tb01078.x | Cited by: 126
MARK J. FLANNERY
The widespread notion that commercial banks “borrow short and lend long” implies that sharp market interest rate increases may induce a significant number of banking failures. This paper develops a method for estimating average asset and liability maturities for a sample of large money center banks. Regression models are tested to determine if market rate fluctuations have a significant impact on bank profitability. The conclusion is negative: large banks have effectively hedged themselves against market rate risk by assembling asset and liability portfolios with similar average maturities.
On Persistence in Mutual Fund Performance
Published: 3/1997, Volume: 52, Issue: 1 | DOI: 10.1111/j.1540-6261.1997.tb03808.x | Cited by: 14939
Mark M. Carhart
Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk‐adjusted returns.
Hendricks, Patel and Zeckhauser's (1993)
“hot hands” result is mostly driven by the one‐year momentum effect of
Jegadeesh and Titman (1993)
, but individual funds do not earn higher returns from following the momentum strategy in stocks. The only significant persistence not explained is concentrated in strong underperformance by the worst‐return mutual funds. The results do not support the existence of skilled or informed mutual fund portfolio managers.
The Numeraire Problem and Foreign Exchange Risk
Published: 5/1981, Volume: 36, Issue: 2 | DOI: 10.1111/j.1540-6261.1981.tb00456.x | Cited by: 2
MARK R. EAKER
THE INSIDE LAGS OF MONETARY POLICY: 1952–1960
Published: 12/1967, Volume: 22, Issue: 4 | DOI: 10.1111/j.1540-6261.1967.tb00294.x | Cited by: 1
Mark H. Willes
Bond Systematic Risk and the Option Pricing Model
Published: 12/1983, Volume: 38, Issue: 5 | DOI: 10.1111/j.1540-6261.1983.tb03832.x | Cited by: 20
MARK I. WEINSTEIN
In this paper we examine the behavior of the systematic risk of corporate bonds. A model that assumes β is constant is compared with a model that allows systematic risk to vary in a manner consistent with the Black‐Scholes‐Merton Options Pricing Model. This procedure captures some fundamental properties of the movement of bond β and provides a starting point for improved models of the process generating bond returns.
AN ANALYSIS OF CREDIT INSURANCE*
Published: 3/1957, Volume: 12, Issue: 1 | DOI: 10.1111/j.1540-6261.1957.tb04118.x | Cited by: 0
Mark Richard Greene
Executive Option Repricing, Incentives, and Retention
Published: 6/2004, Volume: 59, Issue: 3 | DOI: 10.1111/j.1540-6261.2004.00659.x | Cited by: 73
Mark A. Chen
While many firms grant executive stock options that can be repriced, other firms systematically restrict or prohibit repricing. This article investigates the determinants of firms' repricing policies and the consequences of such policies for executive turnover and retention. Firms that have better internal governance, that use more powerful stock‐based incentives, or that face less shareholder scrutiny are more likely to maintain repricing flexibility. Firms that restrict repricing are more vulnerable to voluntary executive turnover following stock price declines. When share price declines are severe, restricting firms appear to award unusually large numbers of new options.
THE SEASONING PROCESS OF NEW CORPORATE BOND ISSUES
Published: 12/1978, Volume: 33, Issue: 5 | DOI: 10.1111/j.1540-6261.1978.tb03424.x | Cited by: 24
Mark I. Weinstein
The Sampling Error in Estimates of Mean‐Variance Efficient Portfolio Weights
Published: 4/1999, Volume: 54, Issue: 2 | DOI: 10.1111/0022-1082.00120 | Cited by: 417
Mark Britten‐Jones
This paper presents an exact finite‐sample statistical procedure for testing hypotheses about the weights of mean‐variance efficient portfolios. The estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an OLS regression. OLS t‐ and F‐statistics can be used for tests on efficient weights, and when returns are multivariate normal, these statistics have exact t and F distributions in a finite sample. Using 20 years of data on 11 country stock indexes, we find that the sampling error in estimates of the weights of a global efficient portfolio is large.
Asymmetric Information and Risky Debt Maturity Choice
Published: 3/1986, Volume: 41, Issue: 1 | DOI: 10.1111/j.1540-6261.1986.tb04489.x | Cited by: 860
MARK J. FLANNERY
When capital market investors and firm insiders possess the same information about a company's prospects, its liabilities will be priced in a way that makes the firm indifferent to the composition of its financial liabilities (at least under certain, well‐known circumstances). However, if firm insiders are systematically better informed than outside investors, they will choose to issue those types of securities that the market appears to overvalue most. Knowing this, rational investors will try to infer the insiders' information from the firm's financial structure. This paper evaluates the extent to which a firm's choice of risky debt maturity can signal insiders' information about firm quality. If financial market transactions are costless, a firm's financial structure cannot provide a valid signal. With positive transaction costs, however, high‐quality firms can sometimes effectively signal their true quality to the market. The existence of a signalling equilibrium is shown to depend on the (exogenous) distribution of firms' quality and the magnitude of underwriting costs for corporate debt.
Towards a Semigroup Pricing Theory
Published: 7/1985, Volume: 40, Issue: 3 | DOI: 10.1111/j.1540-6261.1985.tb05010.x | Cited by: 18
MARK B. GARMAN
In an arbitrage‐free economy, there will always exist a set of linear operators which map future contingent dividends of securities into their current prices. It happens that such operators will also form an “evolution semigroup” as a consequence of intertemporal analysis of the no‐arbitrage restriction. This paper summarizes some of the major implications of the semigroup properties, but avoids almost all of the technical discussion which underlies them. Instead, several practical examples are presented. Some well‐known continuous‐time results are replicated by this alternative method, and certain new developments are explored.
DISCUSSION
Published: 5/1981, Volume: 36, Issue: 2 | DOI: 10.1111/j.1540-6261.1981.tb00475.x | Cited by: 1
MARK J. FLANNERY
Bank Loan Supply, Lender Choice, and Corporate Capital Structure
Published: 5/20/2009, Volume: 64, Issue: 3 | DOI: 10.1111/j.1540-6261.2009.01461.x | Cited by: 303
MARK T. LEARY
This paper explores the relevance of capital market supply frictions for corporate capital structure decisions. To identify this relationship, I study the effect on firms' financial structures of two changes in bank funding constraints: the 1961 emergence of the market for certificates of deposit, and the 1966 Credit Crunch. Following an expansion (contraction) in the availability of bank loans, leverage ratios of bank‐dependent firms significantly increase (decrease) relative to firms with bond market access. Concurrent changes in the composition of financing sources lend further support to the role of credit supply and debt market segmentation in capital structure choice.
Borrower Misreporting and Loan Performance
Published: 1/19/2015, Volume: 70, Issue: 1 | DOI: 10.1111/jofi.12156 | Cited by: 118
MARK J. GARMAISE
Borrower misreporting is associated with seriously adverse loan outcomes. Significantly more residential mortgage borrowers reported personal assets just above round number thresholds than just below. Borrowers who reported above‐threshold assets were almost 25 percentage points more likely to become delinquent (mean delinquency was 20%). For applicants with unverified assets, the increase in delinquency was greater than 40 percentage points. Misreporting was most frequent in areas with low financial literacy or social capital. Incorporating behavioral cues such as threshold effects into a risk assessment model improves its ability to uncover delinquencies, though at a cost of mischaracterizing some safe loans.
A MEAN‐VARIANCE SYNTHESIS OF CORPORATE FINANCIAL THEORY
Published: 3/1973, Volume: 28, Issue: 1 | DOI: 10.1111/j.1540-6261.1973.tb01356.x | Cited by: 237
Mark E. Rubinstein
DISCUSSION
Published: 5/1980, Volume: 35, Issue: 2 | DOI: 10.1111/j.1540-6261.1980.tb02186.x | Cited by: 0
Mark A. Wolfson
The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA‐CREF
Published: 8/1998, Volume: 53, Issue: 4 | DOI: 10.1111/0022-1082.00055 | Cited by: 613
Willard T. Carleton, James M. Nelson, Michael S. Weisbach
This paper analyzes the process of private negotiations between financial institutions and the companies they attempt to influence. It relies on a private database consisting of the correspondence between TIAA‐CREF and 45 firms it contacted about governance issues between 1992 and 1996. This correspondence indicates that TIAA‐CREF is able to reach agreements with targeted companies more than 95 percent of the time. In more than 70 percent of the cases, this agreement is reached without shareholders voting on the proposal. We verify independently that at least 87 percent of the targets subsequently took actions to comply with these agreements.
Good News, Bad News, Volatility, and Betas
Published: 12/1995, Volume: 50, Issue: 5 | DOI: 10.1111/j.1540-6261.1995.tb05189.x | Cited by: 287
PHILLIP A. BRAUN, DANIEL B. NELSON, ALAIN M. SUNIER
We investigate the conditional covariances of stock returns using bivariate exponential ARCH (EGARCH) models. These models allow market volatility, portfolio‐specific volatility, and beta to respond asymmetrically to positive and negative market and portfolio returns, i.e., “leverage” effects. Using monthly data, we find strong evidence of conditional heteroskedasticity in both market and non‐market components of returns, and weaker evidence of time‐varying conditional betas. Surprisingly while leverage effects appear strong in the market component of volatility, they are absent in conditional betas and weak and/or inconsistent in nonmarket sources of risk.
Relative Pricing of Eurodollar Futures and Forward Contracts
Published: 9/1996, Volume: 51, Issue: 4 | DOI: 10.1111/j.1540-6261.1996.tb04077.x | Cited by: 25
MARK GRINBLATT, NARASIMHAN JEGADEESH
Past research explains observed spreads between futures and forward Eurodollar yields as being due to the futures contract's mark‐to‐market feature. We derive closed form solutions for this yield spread and show that, theoretically, it should be small. Also, differences in liquidity, taxation, and default risk cannot account for the large spreads observed. We also present evidence that the spreads, which are nonnegligible primarily in the first half of the sample period, are likely to be attributable to the mispricing of futures contracts relative to the forward rates and that the mispricing was gradually eliminated over time.
The Persistence of Mutual Fund Performance
Published: 12/1992, Volume: 47, Issue: 5 | DOI: 10.1111/j.1540-6261.1992.tb04692.x | Cited by: 498
MARK GRINBLATT, SHERIDAN TITMAN
This paper analyzes how mutual fund performance relates to past performance. These tests are based on a multiple portfolio benchmark that was formed on the basis of securities characteristics. We find evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.
Sensation Seeking, Overconfidence, and Trading Activity
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01443.x | Cited by: 680
MARK GRINBLATT, MATTI KELOHARJU
This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data from Finland are combined with data from investor tax filings, driving records, and mandatory psychological profiles. We use these data, obtained from a large population, to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.
Is There a Window of Opportunity for Seasoned Equity Issuance?
Published: 3/1996, Volume: 51, Issue: 1 | DOI: 10.1111/j.1540-6261.1996.tb05209.x | Cited by: 324
MARK BAYLESS, SUSAN CHAPLINSKY
The aggregate volume of equity issues is used to search for periods when seasoned equity capital can be raised at favorable terms. We find that the price reaction to equity issue announcements in high equity issue volume (HOT) periods is approximately 200 basis points lower on average than in low equity issue volume (COLD) periods. The lower price reaction in hot markets is economically important and is independent of the macroeconomic characteristics of hot and cold markets. The evidence supports the existence of windows of opportunity for equity issues that result at least partially from reduced levels of asymmetric information.