The Journal of Finance

Working Orders in Limit Order Markets and Floor Exchanges

Published: 8/2007,  Volume: 62,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2007.01252.x  |  Cited by: 61

KERRY BACK, SHMUEL BARUCH

We analyze limit order markets and floor exchanges, assuming an informed trader and discretionary liquidity traders use market orders and can either submit block orders or work their demands as a series of small orders. By working their demands, large market order traders pool with small traders. We show that every equilibrium on a floor exchange must involve at least partial pooling. Moreover, there is always a fully pooling (worked order) equilibrium on a floor exchange that is equivalent to a block order equilibrium in a limit order market.

Multimarket Trading and Liquidity: Theory and Evidence

Published: 9/4/2007,  Volume: 62,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2007.01272.x  |  Cited by: 124

SHMUEL BARUCH, G. ANDREW KAROLYI, MICHAEL L. LEMMON

We develop a new model of multimarket trading to explain the differences in the foreign share of trading volume of internationally cross‐listed stocks. The model predicts that the trading volume of a cross‐listed stock is proportionally higher on the exchange in which the cross‐listed asset returns have greater correlation with returns of other assets traded on that market. We find robust empirical support for this prediction using stock return and volume data on 251 non‐U.S. stocks cross‐listed on major U.S. exchanges.

On the Exclusion of Assets from Tests of the Mean Variance Efficiency of the Market Portfolio

Published: 3/1984,  Volume: 39,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1984.tb03860.x  |  Cited by: 21

SHMUEL KANDEL

This paper presents an analysis of the testability of the mean variance efficiency of a market index when the returns on some components of the index itself are not perfectly observable. The results are basically not supportive of the notion that mean variance efficiency is testable on a subset of the assets. Bounding the market share of the missing asset and its expected return is not sufficient to produce a valid test. When the variance of the missing asset is bounded, and the amount of wealth that might be missing is small, it is possible, in principle, to reject correctly the mean variance efficiency of a market index.

DISCUSSION

Published: 7/1987,  Volume: 42,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1987.tb04572.x  |  Cited by: 0

SHMUEL KANDEL

The Geometry of the Maximum Likelihood Estimator of the Zero‐Beta Return

Published: 6/1986,  Volume: 41,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1986.tb05040.x  |  Cited by: 10

SHMUEL KANDEL

This paper explores geometric relations, in mean‐variance space, among the sample frontier, the maximum likelihood estimator, and two other estimators of the zerobeta return. It is also demonstrated that a partition of the portfolio space is determined by a family of parabolas; the zeros of each parabola are the maximum likelihood estimators associated with all portfolios on the parabola. This observation is the basis for an additional interpretation of the statistic of the Likelihood Ratio Test of portfolio efficiency without a riskless asset.

Stock Splits and Stock Dividends: Why, Who, and When

Published: 9/1987,  Volume: 42,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1987.tb03919.x  |  Cited by: 195

JOSEF LAKONISHOK, BARUCH LEV

This study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions. The findings suggest that stock splits are mainly aimed at restoring stock prices to a “normal range.” Some support can also be found for the oft‐mentioned signalling motive of stock splits. Stock dividends are altogether different from stock splits, and they appear to be a decreasing phenomenon. The clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends.

Information Asymmetry, R&D, and Insider Gains

Published: 12/2000,  Volume: 55,  Issue: 6  |  DOI: 10.1111/0022-1082.00305  |  Cited by: 1256

David Aboody, Baruch Lev

Although researchers have documented gains from insider trading, the sources of private information leading to information asymmetry and insider gains have not been comprehensively investigated. We focus on research and development (R&D)—an increasingly important yet poorly disclosed productive input—as a potential source of insider gains. Our findings, for the period from 1985 to 1997 indicate that insider gains in R&D‐intensive firms are substantially larger than insider gains in firms without R&D. Insiders also take advantage of information on planned changes in R&D budgets. R&D is thus a major contributor to information asymmetry and insider gains, raising issues concerning management compensation, incentives, and disclosure policies.

Mean‐Variance Spanning

Published: 9/1987,  Volume: 42,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1987.tb03917.x  |  Cited by: 285

GUR HUBERMAN, SHMUEL KANDEL

The authors propose a likelihood‐ratio test of the hypothesis that the minimum‐variance frontier of a set of K assets coincides with the frontier of this set and another set of N assets. They study the relation between this hypothesis, exact arbitrage pricing, and mutual fund separation. The exact distribution of the test statistic is available. The authors test the hypothesis that the frontier spanned by three size‐sorted stock portfolios is the same as the frontier spanned by thirty‐three size‐sorted stock portfolios.

A MULTIPERIOD ADJUSTMENT MODEL FOR THE FIRM'S CAPITAL STRUCTURE

Published: 3/1975,  Volume: 30,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1975.tb03161.x  |  Cited by: 10

Baruch Lev, Dov Pekelman

Portfolio Inefficiency and the Cross‐section of Expected Returns

Published: 3/1995,  Volume: 50,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1995.tb05170.x  |  Cited by: 116

SHMUEL KANDEL, ROBERT F. STAMBAUGH

The Capital Asset Pricing Model implies that (i) the market portfolio is efficient and (ii) expected returns are linearly related to betas. Many do not view these implications as separate, since either implies the other, but we demonstrate that either can hold nearly perfectly while the other fails grossly. If the index portfolio is inefficient, then the coefficients and from an ordinary least squares regression of expected returns on betas can equal essentially any values and bear no relation to the index portfolio's mean‐variance location. That location does determine the outcome of a mean‐beta regression fitted by generalized least squares.

ANALYSIS OF THE LEASE‐OR‐BUY DECISION: COMMENT

Published: 9/1973,  Volume: 28,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1973.tb01427.x  |  Cited by: 2

Baruch Lev, Yair E. Orgler

On the Predictability of Stock Returns: An Asset‐Allocation Perspective

Published: 6/1996,  Volume: 51,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1996.tb02689.x  |  Cited by: 411

SHMUEL KANDEL, ROBERT F. STAMBAUGH

Sample evidence about the predictability of monthly stock returns is considered from the perspective of a risk‐averse Bayesian investor who must allocate funds between stocks and cash. The investor uses the sample evidence to update prior beliefs about the parameters in a regression of stock returns on a set of predictive variables. The regression relation can seem weak when described by usual statistical measures, but the current values of the predictive variables can exert a substantial influence on the investor's portfolio decision, even when the investor's prior beliefs are weighted against predictability.

The Price of Options Illiquidity

Published: 4/2001,  Volume: 56,  Issue: 2  |  DOI: 10.1111/0022-1082.00346  |  Cited by: 103

Menachem Brenner, Rafi Eldor, Shmuel Hauser

The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the nontradable options are priced about 21 percent less than the exchange‐traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.

Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions

Published: 6/1990,  Volume: 45,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1990.tb03706.x  |  Cited by: 235

YAKOV AMIHUD, BARUCH LEV, NICKOLAOS G. TRAVLOS

We test the proposition that corporate control considerations motivate the means of investment financing—cash (and debt) or stock. Corporate insiders who value control will prefer financing investments by cash or debt rather than by issuing new stock which dilutes their holdings and increases the risk of losing control. Our empirical results support this hypothesis: in corporate acquisitions, the larger the managerial ownership fraction of the acquiring firm the more likely the use of cash financing. Also, the previously observed negative bidders' abnormal returns associated with stock financing are mainly in acquisitions made by firms with low managerial ownership.

Real Interest Rates and Inflation: An Ex‐Ante Empirical Analysis

Published: 3/1996,  Volume: 51,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1996.tb05207.x  |  Cited by: 49

SHMUEL KANDEL, AHARON R. OFER, ODED SARIG

We develop a method of measuring ex‐ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex‐ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.

Mimicking Portfolios and Exact Arbitrage Pricing

Published: 3/1987,  Volume: 42,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1987.tb02546.x  |  Cited by: 150

GUR HUBERMAN, SHMUEL KANDEL, ROBERT F. STAMBAUGH

We characterize the sets of mimicking positions with returns that can serve in place of factors in an exact K ‐factor arbitrage‐pricing relation for a set of N assets. All of the sets are K ‐dimensional nonsingular linear transformations of each other. We interpret three examples of such transformations and discuss empirical considerations. We provide conditions under which the mimicking positions can be expressed as portfolios, and we characterize the relation between mimicking portfolios and the minimum‐variance frontier.

Tests of Asset Pricing with Time‐Varying Expected Risk Premiums and Market Betas

Published: 6/1987,  Volume: 42,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1987.tb02564.x  |  Cited by: 92

WAYNE E. FERSON, SHMUEL KANDEL, ROBERT F. STAMBAUGH

Tests of asset‐pricing models are developed that allow expected risk premiums and market betas to vary over time. These tests exploit the relation between expected excess returns and current market values. Using weekly data for 1963 through 1982 on ten common stock portfolios formed according to equity capitalization, a single‐risk‐premium model is not rejected if the expected premium is time varying and is not constrained to correspond to a market factor. Conditional mean‐variance efficiency of a value‐weighted stock index is rejected, and the rejection is insensitive to how much variability of expected risk premiums is assumed.