The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Industrial Structure and the Comparative Behavior of International Stock Market Indices
Published: 3/1992, Volume: 47, Issue: 1 | DOI: 10.1111/j.1540-6261.1992.tb03977.x | Cited by: 502
RICHARD ROLL
Stock Price Indices are compared across countries in an attempt to explain why they exhibit such disparate behavior. Three separate explanatory influences are empirically documented. First, part of the behavior can be attributed to a technical aspect of index construction; some indices are more diversified than others. Second, each country's industrial structure plays a major role in explaining stock price behavior. Third, for the majority of countries, a portion of national equity index behavior can be ascribed to exchange rate behavior. Exchange rates explain a significant portion of common currency denominated national index returns, although the amount explained by exchange rates is less than the amount explained by industrial structure for most countries.
INTEREST RATES ON MONETARY ASSETS AND COMMODITY PRICE INDEX CHANGES
Published: 5/1972, Volume: 27, Issue: 2 | DOI: 10.1111/j.1540-6261.1972.tb00958.x | Cited by: 55
Richard Roll
A Simple Implicit Measure of the Effective Bid‐Ask Spread in an Efficient Market
Published: 9/1984, Volume: 39, Issue: 4 | DOI: 10.1111/j.1540-6261.1984.tb03897.x | Cited by: 1385
RICHARD ROLL
In an efficient market, the fundamental value of a security fluctuates randomly. However, trading costs induce negative serial dependence in successive observed market price changes. In fact, given market efficiency, the effective bid‐ask spread can be measured by where “cov” is the first‐order serial covariance of price changes. This implicit measure of the bid‐ask spread is derived formally and is shown empirically to be closely related to firm size.
A Possible Explanation of the Small Firm Effect
Published: 9/1981, Volume: 36, Issue: 4 | DOI: 10.1111/j.1540-6261.1981.tb04890.x | Cited by: 227
RICHARD ROLL
Recent empirical studies have found that small listed firms yield higher average returns than large firms even when their riskiness is equal. The riskiness of small firms, however, has been improperly measured. Apparently, the error is due to auto‐correlation in portfolio returns caused by infrequent trading. Other anomalous predictors of riskadjusted returns, such as price/earnings ratios and dividend yields, may also derive some of their apparent power from this spurious source.
R2
Published: 7/1988, Volume: 43, Issue: 3 | DOI: 10.1111/j.1540-6261.1988.tb04591.x | Cited by: 608
RICHARD ROLL
Even with hindsight, the ability to explain stock price changes is modest. s were calculated for the returns of large stocks as explained by systematic economic influences, by the returns on other stocks in the same industry, and by public firm‐specific news events. The average adjusted is only about .35 with monthly data and .20 with daily data. There is little relation between explanatory power and either the firm's size or its industry. There is little improvement in from eliminating all dates surrounding news reports in the financial press. However, the sample kurtosis is quite different when such news events are eliminated, thereby revealing a mixture of return distributions. Non‐news dates also indicate the presence of a distributional mixture, perhaps due to traders acting on private information.
AMBIGUITY WHEN PERFORMANCE IS MEASURED BY THE SECURITIES MARKET LINE
Published: 9/1978, Volume: 33, Issue: 4 | DOI: 10.1111/j.1540-6261.1978.tb02047.x | Cited by: 291
Richard Roll
EVIDENCE ON THE “GROWTH‐OPTIMUM” MODEL
Published: 6/1973, Volume: 28, Issue: 3 | DOI: 10.1111/j.1540-6261.1973.tb01378.x | Cited by: 17
Richard Roll
INVESTMENT DIVERSIFICATION AND BOND MATURITY
Published: 3/1971, Volume: 26, Issue: 1 | DOI: 10.1111/j.1540-6261.1971.tb00588.x | Cited by: 34
Richard Roll
How Stable Are Corporate Capital Structures?
Published: 1/19/2015, Volume: 70, Issue: 1 | DOI: 10.1111/jofi.12163 | Cited by: 312
HARRY DeANGELO, RICHARD ROLL
Leverage cross‐sections more than a few years apart differ markedly, with similarities evaporating as the time between them lengthens. Many firms have high and low leverage at different times, but few keep debt‐to‐assets ratios consistently above 0.500. Capital structure stability is the exception, not the rule, occurs primarily at low leverage, and is virtually always temporary, with many firms abandoning low leverage during the post‐war boom. Industry‐median leverage varies widely over time. Target‐leverage models that place little or no weight on maintaining a particular ratio do a good job replicating the substantial instability of the actual leverage cross‐section.
On Valuing American Call Options with the Black‐Scholes European Formula
Published: 6/1984, Volume: 39, Issue: 2 | DOI: 10.1111/j.1540-6261.1984.tb02319.x | Cited by: 48
ROBERT GESKE, RICHARD ROLL
Empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the Black‐Scholes European formula. Such “biases” have been found related to the exercise price, the time to maturity, and the variance. We argue here that the American option variant of the Black‐Scholes formula has the potential to explain the first two biases and may partly explain the third. It can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods. The expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings.
The Fiscal and Monetary Linkage between Stock Returns and Inflation
Published: 3/1983, Volume: 38, Issue: 1 | DOI: 10.1111/j.1540-6261.1983.tb03623.x | Cited by: 565
ROBERT GESKE, RICHARD ROLL
Contrary to economic theory and common sense, stock returns are negatively related to both expected and unexpected inflation. We argue that this puzzling empirical phenomenon does not indicate causality.Instead, stock returns are negatively related to contemporaneous changes in expected inflation because they signal a chain of events which results in a higher rate of monetary expansion. Exogenous shocks in real output, signalled by the stock market, induce changes in tax revenue, in the deficit, in Treasury borrowing and in Federal Reserve “monetization” of the increased debt. Rational bond and stock market investors realize this will happen. They adjust prices (and interest rates) accordingly and without delay.Although expected inflation seems to have a negative effect on subsequent stock returns, this could be an empirical illusion, since a spurious causality is induced by a combination of: (a) a reversed adaptive inflation expectations model and (b) a reversed money growth/stock returns model.If the real interest rate is not a constant, using nominal interest proxies for expected inflation is dangerous, since small changes in real rates can cause large and opposite percentage changes in stock prices.
An Empirical Investigation of the Arbitrage Pricing Theory
Published: 12/1980, Volume: 35, Issue: 5 | DOI: 10.1111/j.1540-6261.1980.tb02197.x | Cited by: 860
RICHARD ROLL, STEPHEN A. ROSS
Empirical tests are reported for Ross' [48] arbitrage theory of asset pricing. Using data for individual equities during the 1962–72 period, at least three and probably four priced factors are found in the generating process of returns. The theory is supported in that estimated expected returns depend on estimated factor loadings, and variables such as the own standard deviation, though highly correlated (simply) with estimated expected returns, do not add any further explanatory power to that of the factor loadings.
A Critical Reexamination of the Empirical Evidence on the Arbitrage Pricing Theory: A Reply
Published: 6/1984, Volume: 39, Issue: 2 | DOI: 10.1111/j.1540-6261.1984.tb02313.x | Cited by: 42
RICHARD ROLL, STEPHEN A. ROSS
On the Cross‐sectional Relation between Expected Returns and Betas
Published: 3/1994, Volume: 49, Issue: 1 | DOI: 10.1111/j.1540-6261.1994.tb04422.x | Cited by: 168
RICHARD ROLL, STEPHEN A. ROSS
There is an exact linear relation between expected returns and true “betas” when the market portfolio is on the ex ante mean‐variance efficient frontier, but empirical research has found little relation between sample mean returns and estimated betas. A possible explanation is that market portfolio proxies are mean‐variance inefficient. We categorize proxies that produce particular relations between expected returns and true betas. For the special case of a zero relation, a market portfolio proxy must lie inside the efficient frontier, but it may be close to the frontier.
CAPITAL BUDGETING OF RISKY PROJECTS WITH “IMPERFECT” MARKETS FOR PHYSICAL CAPITAL
Published: 5/1974, Volume: 29, Issue: 2 | DOI: 10.1111/j.1540-6261.1974.tb03073.x | Cited by: 33
MARCUS C. BOGUE, RICHARD ROLL
Liquidity and the Law of One Price: The Case of the Futures‐Cash Basis
Published: 9/4/2007, Volume: 62, Issue: 5 | DOI: 10.1111/j.1540-6261.2007.01273.x | Cited by: 157
RICHARD ROLL, EDUARDO SCHWARTZ, AVANIDHAR SUBRAHMANYAM
Deviations from no‐arbitrage relations should be related to market liquidity, because liquidity facilitates arbitrage. At the same time, a wide futures‐cash basis may trigger arbitrage trades and, in turn, affect liquidity. We test these ideas by studying the dynamic relation between stock market liquidity and the index futures basis. There is evidence of two‐way Granger causality between the short‐term absolute basis and liquidity, and liquidity Granger‐causes longer‐term absolute bases. Shocks to the absolute basis predict future stock market liquidity. The evidence suggests that liquidity enhances the efficiency of the futures‐cash pricing system.
Over‐the‐Counter Option Market Dividend Protection and “Biases” in the Black‐Scholes Model: A Note
Published: 9/1983, Volume: 38, Issue: 4 | DOI: 10.1111/j.1540-6261.1983.tb02295.x | Cited by: 8
ROBERT GESKE, RICHARD ROLL, KULDEEP SHASTRI
Most options are traded over‐the‐counter (OTC) and are dividend “protected;” the exercise price decreases on the ex date by an amount equal to the dividend. This protection completely inhibits the early exercise of American call options. Nevertheless, OTC‐protected options have market values which differ systematically from Black‐Scholes values for European options on non‐dividend paying stocks. The pricing difference is related to both the variance of the underlying stock return and to time until expiration of the option, but it is quite small in dollar amount.
Market Liquidity and Trading Activity
Published: 4/2001, Volume: 56, Issue: 2 | DOI: 10.1111/0022-1082.00335 | Cited by: 1085
Tarun Chordia, Richard Roll, Avanidhar Subrahmanyam
Previous studies of liquidity span short time periods and focus on the individual security. In contrast, we study aggregate market spreads, depths, and trading activity for U.S. equities over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile and negatively serially dependent. Liquidity plummets significantly in down markets. Recent market volatility induces a decrease in trading activity and spreads. There are strong day‐of‐the‐week effects; Fridays accompany a significant decrease in trading activity and liquidity, while Tuesdays display the opposite pattern. Long‐ and short‐term interest rates influence liquidity. Depth and trading activity increase just prior to major macroeconomic announcements.
Financial Expertise as an Arms Race
Published: 9/12/2012, Volume: 67, Issue: 5 | DOI: 10.1111/j.1540-6261.2012.01771.x | Cited by: 108
VINCENT GLODE, RICHARD C. GREEN, RICHARD LOWERY
We show that firms intermediating trade have incentives to overinvest in financial expertise. In our model, expertise improves firms’ ability to estimate value when trading a security. Expertise creates asymmetric information, which, under normal circumstances, works to the advantage of the expert as it deters opportunistic bargaining by counterparties. This advantage is neutralized in equilibrium, however, by offsetting investments by competitors. Moreover, when volatility rises the adverse selection created by expertise triggers breakdowns in liquidity, destroying gains to trade and thus the benefits that firms hope to gain through high levels of expertise.
DISCUSSION
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03652.x | Cited by: 0
RICHARD RUBACK
IMPUTED RENT OF OWNER‐OCCUPIED DWELLINGS UNDER THE INCOME TAX
Published: 12/1960, Volume: 15, Issue: 4 | DOI: 10.1111/j.1540-6261.1960.tb02766.x | Cited by: 19
Richard Goode
AN EMPIRICAL TEST OF THE ALTERNATIVE HYPOTHESES OF NATIONAL AND INTERNATIONAL PRICING OF RISKY ASSETS
Published: 5/1977, Volume: 32, Issue: 2 | DOI: 10.1111/j.1540-6261.1977.tb03287.x | Cited by: 133
Richard Stehle
BALANCE‐OF‐PAYMENTS PROBLEMS OF DEVELOPING COUNTRIES*
Published: 3/1954, Volume: 9, Issue: 1 | DOI: 10.1111/j.1540-6261.1954.tb01207.x | Cited by: 0
Richard Perlman
Bankruptcy Risk and Optimal Capital Structure
Published: 12/1983, Volume: 38, Issue: 5 | DOI: 10.1111/j.1540-6261.1983.tb03845.x | Cited by: 180
RICHARD CASTANIAS
This study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis. The alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments. Based upon the cross‐sectional implications of the tax shelter‐bankruptcy cost hypothesis, an alternative test of the irrelevance hypothesis is performed. The test examines the relationship between failure rates and leverage ratios for 36 lines of business. The results are inconsistent with the irrelevance hypothesis.
MONETARY EQUILIBRIUM AND INTERNATIONAL RESERVE FLOWS IN AUSTRALIA
Published: 12/1974, Volume: 29, Issue: 5 | DOI: 10.1111/j.1540-6261.1974.tb03133.x | Cited by: 6
Richard Zecher
SOME CONSIDERATIONS ON THE INCIDENCE OF THE CORPORATION INCOME TAX (Discussion)
Published: 6/1951, Volume: 6, Issue: 2 | DOI: 10.1111/j.1540-6261.1951.tb04458.x | Cited by: 0
Richard Goode
DEPOSIT COMPOSITION AND COMMERCIAL BANK EARNINGS*
Published: 12/1971, Volume: 26, Issue: 5 | DOI: 10.1111/j.1540-6261.1971.tb01762.x | Cited by: 0
Richard Bond
CORPORATE BORROWING DECISIONS AND THE EVALUATION OF INTEREST RATE FORECASTS*
Published: 9/1974, Volume: 29, Issue: 4 | DOI: 10.1111/j.1540-6261.1974.tb03113.x | Cited by: 0
Richard Kolodny
THE REFUNDING DECISION IN NEAR PERFECT MARKETS
Published: 12/1974, Volume: 29, Issue: 5 | DOI: 10.1111/j.1540-6261.1974.tb03128.x | Cited by: 2
Richard Kolodny
THE AMERICAN CAPITAL MARKET, 1846–1914: A STUDY OF THE EFFECTS OF PUBLIC POLICY ON ECONOMIC DEVELOPMENT*
Published: 9/1970, Volume: 25, Issue: 4 | DOI: 10.1111/j.1540-6261.1970.tb00579.x | Cited by: 1
Richard Sylla
A Nonparametric Model of Term Structure Dynamics and the Market Price of Interest Rate Risk
Published: 12/1997, Volume: 52, Issue: 5 | DOI: 10.1111/j.1540-6261.1997.tb02748.x | Cited by: 289
RICHARD STANTON
This article presents a technique for nonparametrically estimating continuous‐time diffusion processes that are observed at discrete intervals. We illustrate the methodology by using daily three and six month Treasury Bill data, from January 1965 to July 1995, to estimate the drift and diffusion of the short rate, and the market price of interest rate risk. While the estimated diffusion is similar to that estimated by Chan, Karolyi, Longstaff, and Sanders (1992), there is evidence of substantial nonlinearity in the drift. This is close to zero for low and medium interest rates, but mean reversion increases sharply at higher interest rates.
RETIREMENT OF NON‐CALLABLE PREFERRED STOCK
Published: 12/1970, Volume: 25, Issue: 5 | DOI: 10.1111/j.1540-6261.1970.tb00875.x | Cited by: 3
Richard A. Stevenson
TRADING IN WARRANTS BY MECHANICAL SYSTEMS
Published: 3/1977, Volume: 32, Issue: 1 | DOI: 10.1111/j.1540-6261.1977.tb03244.x | Cited by: 1
Richard J. Rogalski
DISCUSSION
Published: 5/1969, Volume: 24, Issue: 2 | DOI: 10.1111/j.1540-6261.1969.tb01686.x | Cited by: 1
Richard S. Bower
SOME VALUE‐ADDED TAX IMPACTS ON THE INTERNATIONAL COMPETITIVENESS OF PRODUCERS
Published: 9/1968, Volume: 23, Issue: 4 | DOI: 10.1111/j.1540-6261.1968.tb00848.x | Cited by: 0
Richard W. Lindholm
DISCUSSION
Published: 3/1950, Volume: 5, Issue: 1 | DOI: 10.1111/j.1540-6261.1950.tb00098.x | Cited by: 0
Richard C. Youngdahl
INTEREST RATES, CONTRACT TERMS, AND THE ALLOCATION OF MORTGAGE FUNDS*
Published: 3/1962, Volume: 17, Issue: 1 | DOI: 10.1111/j.1540-6261.1962.tb04249.x | Cited by: 2
Richard F. Muth
THE DYNAMICS OF CORPORATE CAPITAL BUDGETING
Published: 6/1974, Volume: 29, Issue: 3 | DOI: 10.1111/j.1540-6261.1974.tb01486.x | Cited by: 8
Richard R. Spies
A NOTE ON THE IMPLICATIONS OF PERIODIC “CASH FLOW”
Published: 12/1962, Volume: 17, Issue: 4 | DOI: 10.1111/j.1540-6261.1962.tb04341.x | Cited by: 0
M. Richard Sussman
DISCUSSION
Published: 7/1985, Volume: 40, Issue: 3 | DOI: 10.1111/j.1540-6261.1985.tb05029.x | Cited by: 0
RICHARD P. CASTANIAS
AN ANALYSIS OF THE USE OF COST‐OF‐CAPITAL CONCEPTS IN NATURAL‐GAS‐PIPELINE RATE REGULATION*
Published: 9/1968, Volume: 23, Issue: 4 | DOI: 10.1111/j.1540-6261.1968.tb00858.x | Cited by: 0
Richard A. Oppedahl
Macroinformation and the Variability of Stock Market Prices
Published: 5/1979, Volume: 34, Issue: 2 | DOI: 10.1111/j.1540-6261.1979.tb02107.x | Cited by: 42
RICHARD P. CASTANIAS
Yield Approximations: A Historical Perspective: A Correction
Published: 6/1983, Volume: 38, Issue: 3 | DOI: 10.1111/j.1540-6261.1983.tb02521.x | Cited by: 0
RICHARD P. BRIEF
DISCUSSION
Published: 5/1980, Volume: 35, Issue: 2 | DOI: 10.1111/j.1540-6261.1980.tb02167.x | Cited by: 0
Richard S. Bower
THE POSTWAR RISE IN THE VELOCITY OF MONEY A SECTORAL ANALYSIS*
Published: 12/1961, Volume: 16, Issue: 4 | DOI: 10.1111/j.1540-6261.1961.tb04235.x | Cited by: 6
Richard T. Selden
Forward Markets, Stock Markets, and the Theory of the Firm
Published: 12/1987, Volume: 42, Issue: 5 | DOI: 10.1111/j.1540-6261.1987.tb04359.x | Cited by: 17
RICHARD D. MacMINN
This paper models a competitive financial market economy in which there are forward markets as well as stock and bond markets. Although there are separation theorems in the stock and forward markets literatures, this analysis shows that neither separation theorem survives in this integrated financial market economy. Next, the analysis shows that the separation results hold and are equivalent if the manager has an appropriate compensation package. Then the model is modified to allow for depreciation charges and tax credits. A positive theory of hedging is developed that shows that the corporation can preserve deductions and credits by hedging and so increase corporate value.
EXPECTATIONS, RISK, AND THE TERM STRUCTURE OF INTEREST RATES*
Published: 6/1970, Volume: 25, Issue: 3 | DOI: 10.1111/j.1540-6261.1970.tb00545.x | Cited by: 1
Richard C. Sutch
DEPOSIT COMPOSITION AND COMMERCIAL BANK EARNINGS
Published: 3/1971, Volume: 26, Issue: 1 | DOI: 10.1111/j.1540-6261.1971.tb00587.x | Cited by: 5
Richard E. Bond
A Note on Capital Budgeting Techniques and the Reinvestment Rate
Published: 12/1979, Volume: 34, Issue: 5 | DOI: 10.1111/j.1540-6261.1979.tb00070.x | Cited by: 10
RICHARD L. MEYER
A General Diversification Theorem: A Note
Published: 6/1984, Volume: 39, Issue: 2 | DOI: 10.1111/j.1540-6261.1984.tb02327.x | Cited by: 13
RICHARD D. MacMINN