The Journal of Finance

Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability, Wealth Shocks, and State‐Dependent Transaction Costs

Published: 7/19/2011,  Volume: 66,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2011.01662.x  |  Cited by: 74

ANTHONY W. LYNCH, SINAN TAN

Constantinides (1986) documents how the impact of transaction costs on per‐annum liquidity premia in the standard dynamic allocation problem with i.i.d. returns is an order of magnitude smaller than the cost rate itself. Recent papers form portfolios sorted on liquidity measures and find spreads in expected per‐annum return that are the same order of magnitude as the transaction cost spread. When we allow returns to be predictable and introduce wealth shocks calibrated to labor income, transaction costs are able to produce per‐annum liquidity premia that are the same order of magnitude as the transaction cost spread.

Before an Analyst Becomes an Analyst: Does Industry Experience Matter?

Published: 3/21/2017,  Volume: 72,  Issue: 2  |  DOI: 10.1111/jofi.12466  |  Cited by: 307

DANIEL BRADLEY, SINAN GOKKAYA, XI LIU

Using hand‐collected biographical information on financial analysts from 1983 to 2011, we find that analysts making forecasts on firms in industries related to their preanalyst experience have better forecast accuracy, evoke stronger market reactions to earning revisions, and are more likely to be named Institutional Investor all‐stars. Plausibly exogenous losses of analysts with related industry experience have real financial market implications—changes in firms’ information asymmetry and price reactions are significantly larger than those of other analysts. Overall, industry expertise acquired from preanalyst work experience is valuable to analysts, consistent with the emphasis placed on their industry knowledge by institutional investors.

Are Analyst Short‐Term Trade Ideas Valuable?

Published: 6/2022,  Volume: 77,  Issue: 3  |  DOI: 10.1111/jofi.13130  |  Cited by: 24

JUSTIN BIRRU, SINAN GOKKAYA, XI LIU, RENÉ M. STULZ

Short‐term trade ideas are a component of analyst research highly valued by institutional investors. Using a novel and comprehensive database, we find that trade ideas have a stock price impact at least as large as recommendation and target price changes. Trade ideas based on expectations of future events are more informative than those identifying incomplete incorporation of past information in stock prices. Analysts with better access to a firm's management produce better trade ideas. Institutional investors trade in the direction of trade ideas. Investors following trade ideas can earn significant abnormal returns, consistent with analysts possessing valuable short‐term stock‐picking skills.

Model Misspecification and Underdiversification

Published: 11/7/2003,  Volume: 58,  Issue: 6  |  DOI: 10.1046/j.1540-6261.2003.00612.x  |  Cited by: 379

Raman Uppal, Tan Wang

AbstractIn this paper, we study intertemporal portfolio choice when an investor accounts explicitly for model misspecification. We develop a framework that allows for ambiguity about not just the joint distribution of returns for all stocks in the portfolio, but also for different levels of ambiguity for the marginal distribution of returns for any subset of these stocks. We find that when the overall ambiguity about the joint distribution of returns is high, then small differences in ambiguity for the marginal return distribution will result in a portfolio that is significantly underdiversified relative to the standard mean‐variance portfolio.

An Economic View of Corporate Social Impact

Published: 12/15/2025,  Volume: 81,  Issue: 1  |  DOI: 10.1111/jofi.70004  |  Cited by: 2

HUNT ALLCOTT, GIOVANNI MONTANARI, BORA OZALTUN, BRANDON TAN

Growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact, suggesting that consumer impacts deserve more attention from impact investors. Existing environmental, social, and governance (ESG) and social impact ratings are essentially unrelated to our economically grounded measures.