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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The Value of Embedded Real Options: Evidence from Consumer Automobile Lease Contracts
Published: 01/11/2007 | DOI: 10.1111/j.1540-6261.2007.01211.x
CARMELO GIACCOTTO, GERSON M. GOLDBERG, SHANTARAM P. HEGDE
Under the common assumption of constant interest rates, we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value. Furthermore, our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand‐alone value of the lease‐end purchase option is, on average, about 16% of the market value of underlying used vehicles, or about $1,462 per contract. Finally, we examine the sensitivity of our option value estimates to model parameters and default risk.
Trading Mechanisms and the Components of the Bid‐Ask Spread
Published: 09/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb02462.x
JOHN AFFLECK‐GRAVES, SHANTARAM P. HEGDE, ROBERT E. MILLER
We compare the relative magnitudes of the components of the bid‐ask spread for New York Stock Exchange (NYSE)/American Stock Exchange (AMEX) stocks to those of National Association of Securities Dealers Automated Quotations (NASDAQ)/National Market System (NMS) stocks. We find that the order‐processing cost component is smaller, and the adverse selection component is greater on the NYSE/AMEX trading systems than on the NASDAQ/NMS system. The inventory holding component is also greater for exchange‐traded stocks than for NASDAQ/NMS stocks, but this may be attributable to differences in the characteristics of the firms whose stocks trade on the respective systems.