The Journal of Finance

Predicting Volatility in the Foreign Exchange Market

Published: 6/1995,  Volume: 50,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1995.tb04793.x  |  Cited by: 485

PHILIPPE JORION

Measures of volatility implied in option prices are widely believed to be the best available volatility forecasts. In this article, we examine the information content and predictive power of implied standard deviations (ISDs) derived from Chicago Mercantile Exchange options on foreign currency futures. The article finds that statistical time‐series models, even when given the advantage of “ex post” parameter estimates, are outperformed by ISDs. ISDs, however, also appear to be biased volatility forecasts. Using simulations to investigate the robustness of these results, the article finds that measurement errors and statistical problems can substantially distort inferences. Even accounting for these, however, ISDs appear to be too variable relative to future volatility.

Firm Value and Hedging: Evidence from U.S. Oil and Gas Producers

Published: 3/9/2006,  Volume: 61,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2006.00858.x  |  Cited by: 509

YANBO JIN, PHILIPPE JORION

This paper studies the hedging activities of 119 U.S. oil and gas producers from 1998 to 2001 and evaluates their effect on firm value. Theories of hedging based on market imperfections imply that hedging should increase the firm's market value (MV). To test this hypothesis, we collect detailed information on the extent of hedging and on the valuation of oil and gas reserves. We verify that hedging reduces the firm's stock price sensitivity to oil and gas prices. Contrary to previous studies, however, we find that hedging does not seem to affect MVs for this industry.

The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets

Published: 6/1989,  Volume: 44,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1989.tb05059.x  |  Cited by: 127

ALBERTO GIOVANNINI, PHILIPPE JORION

This paper attempts to determine whether the fluctuations of conditional first and second moments—which are observed for many assets—are consistent with the Sharpe‐Lintner‐Mossin capital asset pricing model. We test the mean‐variance model under several different assumptions about the time variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, sterling, and Swiss franc assets, together with the U.S. stock market. The results indicate that estimated conditional variances cannot explain the observed time variation of risk premia.

Integration vs. Segmentation in the Canadian Stock Market

Published: 7/1986,  Volume: 41,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1986.tb04521.x  |  Cited by: 282

PHILIPPE JORION, EDUARDO SCHWARTZ

This paper examines the issue of integration versus segmentation of the Canadian equity market relative to a global North American market. We compare the international and domestic versions of the CAPM, and find that integration, or the mean‐variance efficiency of the global market index, is rejected by the data. Segmentation is the preferred model, based on a maximum likelihood procedure correcting for thin trading. We further divide the sample into securities that are interlisted in Canada and the U.S., and those that are not. Integration is rejected for both groups, which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms.

Currency Hedging for International Portfolios

Published: 12/1993,  Volume: 48,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1993.tb05131.x  |  Cited by: 209

JACK GLEN, PHILIPPE JORION

This paper examines the benefits from currency hedging, both for speculative and risk minimization motives, in international bond and equity portfolios. The risk‐return performances of globally diversified portfolios are compared with and without forward contracts. Over the period 1974 to 1990, inclusion of forward contracts results in statistically significant improvements in the performance of unconditional portfolios containing bonds. Conditional strategies are also implemented, both in sample and out of sample, and are shown to both significantly improve the risk‐return tradeoff of global portfolios and to outperform unconditional hedging strategies.

Purchasing Power Parity in the Long Run

Published: 3/1990,  Volume: 45,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1990.tb05085.x  |  Cited by: 506

NISO ABUAF, PHILIPPE JORION

This paper re‐examines the evidence on Purchasing Power Parity (PPP) in the long run. Previous studies have generally been unable to reject the hypothesis that the real exchange rate follows a random walk. If true, this implies that PPP does not hold. In contrast, this paper casts serious doubt on this random walk hypothesis. The results follow from more powerful estimation techniques, applied in a multilateral framework. Deviations from PPP, while substantial in the short run, appear to take about three years to be reduced in half.

Global Stock Markets in the Twentieth Century

Published: 6/1999,  Volume: 54,  Issue: 3  |  DOI: 10.1111/0022-1082.00133  |  Cited by: 328

Philippe Jorion, William N. Goetzmann

AbstractLong‐term estimates of expected return on equities are typically derived from U.S. data only. There are reasons to suspect that these estimates are subject to survivorship, as the United States is arguably the most successful capitalist system in the world. We collect a database of capital appreciation indexes for 39 markets going back to the 1920s. For 1921 to 1996, U.S. equities had the highest real return of all countries, at 4.3 percent, versus a median of 0.8 percent for other countries. The high equity premium obtained for U.S. equities appears to be the exception rather than the rule.

Credit Contagion from Counterparty Risk

Published: 9/28/2009,  Volume: 64,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2009.01494.x  |  Cited by: 384

PHILIPPE JORION, GAIYAN ZHANG

Standard credit risk models cannot explain the observed clustering of default, sometimes described as “credit contagion.” This paper provides the first empirical analysis of credit contagion via direct counterparty effects. We find that bankruptcy announcements cause negative abnormal equity returns and increases in CDS spreads for creditors. In addition, creditors with large exposures are more likely to suffer from financial distress later. This suggests that counterparty risk is a potential additional channel of credit contagion. Indeed, the fear of counterparty defaults among financial institutions explains the sudden worsening of the credit crisis after the Lehman bankruptcy in September 2008.

Testing the Predictive Power of Dividend Yields

Published: 6/1993,  Volume: 48,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1993.tb04732.x  |  Cited by: 248

WILLIAM N. GOETZMANN, PHILIPPE JORION

This paper reexamines the ability of dividend yields to predict long‐horizon stock returns. We use the bootstrap methodology, as well as simulations, to examine the distribution of test statistics under the null hypothesis of no forecasting ability. These experiments are constructed so as to maintain the dynamics of regressions with lagged dependent variables over long horizons. We find that the empirically observed statistics are well within the 95% bounds of their simulated distributions. Overall there is no strong statistical evidence indicating that dividend yields can be used to forecast stock returns.

The “Actual Retail Price” of Equity Trades

Published: 7/25/2025,  Volume: 80,  Issue: 5  |  DOI: 10.1111/jofi.13467  |  Cited by: 5

CHRISTOPHER SCHWARZ, BRAD BARBER, XING HUANG, PHILIPPE JORION, TERRANCE ODEAN

We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account‐level round‐trip cost ranges from 0.07% to 0.46%, excluding any commissions. The dispersion is due to off‐exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF does not explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.

A (Sub)penny for Your Thoughts: Tracking Retail Investor Activity in TAQ

Published: 5/3/2024,  Volume: 79,  Issue: 4  |  DOI: 10.1111/jofi.13334  |  Cited by: 105

BRAD M. BARBER, XING HUANG, PHILIPPE JORION, TERRANCE ODEAN, CHRISTOPHER SCHWARZ

We placed 85,000 retail trades in six retail brokerage accounts from December 2021 to June 2022 to validate the Boehmer et al. algorithm, which uses subpenny trade prices to identify and sign retail trades. The algorithm identifies 35% of our trades as retail, incorrectly signs 28% of identified trades, and yields uninformative order imbalance measures for 30% of stocks. We modify the algorithm by signing trades using the quoted spread midpoints. The quote midpoint method does not affect identification rates but reduces the signing error rates to 5% and provides informative order imbalance measures for all stocks.

One Way Arbitrage, Foreign Exchange and Securities Markets: A Note

Published: 12/1981,  Volume: 36,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1981.tb01084.x  |  Cited by: 32

PHILIPPE CALLIER

Speculation and the Forward Foreign Exchange Rate: A Note

Published: 3/1980,  Volume: 35,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1980.tb03479.x  |  Cited by: 1

PHILIPPE CALLIER

Growth versus Margins: Destabilizing Consequences of Giving the Stock Market What It Wants

Published: 5/9/2008,  Volume: 63,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2008.01351.x  |  Cited by: 79

PHILIPPE AGHION, JEREMY C. STEIN

We develop a model in which a firm can devote effort either to increasing sales growth, or to improving per‐unit profit margins. If the firm's manager cares about the current stock price, she will favor the growth strategy when the market pays more attention to growth numbers. Conversely, it can be rational for the market to weight growth measures more heavily when it is known that the firm is following a growth strategy. This two‐way feedback between firms' strategies and the market's pricing rule can lead to excess volatility in real variables, even absent any external shocks.

Foreign Exchange Fixings and Returns around the Clock

Published: 1/25/2024,  Volume: 79,  Issue: 1  |  DOI: 10.1111/jofi.13306  |  Cited by: 19

INGOMAR KROHN, PHILIPPE MUELLER, PAUL WHELAN

The U.S. dollar appreciates in the run‐up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W‐shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21‐year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby FX dealers intermediate unconditional demand for U.S. dollars at the fixes.

Exchange Rates and Monetary Policy Uncertainty

Published: 4/13/2017,  Volume: 72,  Issue: 3  |  DOI: 10.1111/jofi.12499  |  Cited by: 217

PHILIPPE MUELLER, ALIREZA TAHBAZ‐SALEHI, ANDREA VEDOLIN

We document that a trading strategy that is short the U.S. dollar and long other currencies exhibits significantly larger excess returns on days with scheduled Federal Open Market Committee (FOMC) announcements. We show that these excess returns (i) are higher for currencies with higher interest rate differentials vis‐à‐vis the United States, (ii) increase with uncertainty about monetary policy, and (iii) increase further when the Federal Reserve adopts a policy of monetary easing. We interpret these excess returns as compensation for monetary policy uncertainty within a parsimonious model of constrained financiers who intermediate global demand for currencies.

Sticky Expectations and the Profitability Anomaly

Published: 10/31/2018,  Volume: 74,  Issue: 2  |  DOI: 10.1111/jofi.12734  |  Cited by: 259

JEAN‐PHILIPPE BOUCHAUD, PHILIPP KRÜGER, AUGUSTIN LANDIER, DAVID THESMAR

We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high‐profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.