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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Asset Price Dynamics and Infrequent Feedback Trades
Published: 12/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05196.x
PIERLUIGI BALDUZZI, GIUSEPPE BERTOLA, SILVERIO FORESI
This article combines the continuous arrival of information with the infrequency of trades, and investigates the effects on asset price dynamics of positive and negative‐feedback trading. Specifically, we model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility, and feedback traders who mechanically respond to price changes and infrequently submit market orders. We show that positive‐feedback strategies increase the volatility of stock returns, and the response of stock prices to dividend news. Conversely, the presence of negative‐feedback traders makes stock returns less volatile, and prices less responsive to dividends.
Does Money Explain Asset Returns? Theory and Empirical Analysis
Published: 03/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb05212.x
K. C. CHAN, SILVERIO FORESI, LARRY H. P. LANG
A cash‐in‐advance model of a monetary economy is used to derive a money‐based CAPM (M‐CAPM), which allows us to implement tests of asset pricing restrictions without consumption data. A test as in Fama and MacBeth of the model suggests that the money betas have some explanatory power for the cross‐sectional variation of expected returns; however, the model is rejected using conditional information. Consistent with our predictions, estimates of the curvature parameter are lower than those of the consumption CAPM (C‐CAPM) and pricing errors of the M‐CAPM tend to be smaller than those of the C‐CAPM.
Affine Term Structure Models and the Forward Premium Anomaly
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00325
David K. Backus, Silverio Foresi, Chris I. Telmer
One of the most puzzling features of currency prices is the forward premium anomaly: the tendency for high interest rate currencies to appreciate. We characterize the anomaly in the context of affine models of the term structure of interest rates. In affine models, the anomaly requires either that state variables have asymmetric effects on state prices in different currencies or that nominal interest rates take on negative values with positive probability. We find the quantitative properties of either alternative to have important shortcomings.