The Journal of Finance

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

Published: 6/1999,  Volume: 54,  Issue: 3  |  DOI: 10.1111/0022-1082.00134  |  Cited by: 729

Stephen R. Foerster, G. Andrew Karolyi

Non‐U.S. firms cross‐listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton's (1987) investor recognition hypothesis.

General Tests of Latent Variable Models and Mean‐Variance Spanning

Published: 3/1993,  Volume: 48,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1993.tb04704.x  |  Cited by: 59

WAYNE E. FERSON, STEPHEN R. FOERSTER, DONALD B. KEIM

The methods of Gibbons and Ferson (1985) are extended, relaxing the assumption that expected returns are linear functions of predetermined instruments. A model of conditional mean‐variance spanning generalizes Huberman and Kandel (1987). The empirical results indicate that more than a single risk premium is needed to model expected stock and bond returns, but the number of common factors in the expected returns is small. However, when size‐based common stock portfolios proxy for the risk factors, we reject the hypothesis that four of them describe the conditional expected returns of the other assets.

Retail Financial Advice: Does One Size Fit All?

Published: 5/25/2017,  Volume: 72,  Issue: 4  |  DOI: 10.1111/jofi.12514  |  Cited by: 251

STEPHEN FOERSTER, JUHANI T. LINNAINMAA, BRIAN T. MELZER, ALESSANDRO PREVITERO

Using unique data on Canadian households, we show that financial advisors exert substantial influence over their clients' asset allocation, but provide limited customization. Advisor fixed effects explain considerably more variation in portfolio risk and home bias than a broad set of investor attributes that includes risk tolerance, age, investment horizon, and financial sophistication. Advisor effects remain important even when controlling flexibly for unobserved heterogeneity through investor fixed effects. An advisor's own asset allocation strongly predicts the allocations chosen on clients' behalf. This one‐size‐fits‐all advice does not come cheap: advised portfolios cost 2.5% per year, or 1.5% more than life cycle funds.

USES OF FLOW‐OF‐FUNDS ACCOUNTS IN THE FEDERAL RESERVE SYSTEM*

Published: 5/1963,  Volume: 18,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1963.tb00720.x  |  Cited by: 1

Stephen Taylor

Information Diversity and Market Behavior: A Reply

Published: 3/1984,  Volume: 39,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1984.tb03881.x  |  Cited by: 1

STEPHEN FIGLEWSKI

Options Arbitrage in Imperfect Markets

Published: 12/1989,  Volume: 44,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1989.tb02654.x  |  Cited by: 221

STEPHEN FIGLEWSKI

Option valuation models are based on an arbitrage strategy—hedging the option against the underlying asset and rebalancing continuously until expiration—that is only possible in a frictionless market. This paper simulates the impact of market imperfections and other problems with the “standard” arbitrage trade, including uncertain volatility, transactions costs, indivisibilities, and rebalancing only at discrete intervals. We find that, in an actual market such as that for stock index options, the standard arbitrage is exposed to such large risk and transactions costs that it can only establish very wide bounds on equilibrium options prices. This has important implications for price determination in options markets, as well as for testing of valuation models.

Information Diversity and Market Behavior

Published: 3/1982,  Volume: 37,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1982.tb01097.x  |  Cited by: 29

STEPHEN FIGLEWSKI

The paper addresses two major issues raised by information diversity in a speculative market. First, we analyze what property of an investor's information leads to an expected speculative profit and show that independence is more important than accuracy. Second, we consider whether the market price must become fully efficient, in the sense that every investor's information is accurately discounted, when traders use it rationally as an information source. We prove that for any information structure there is a unique equilibrium weighting of investor beliefs at which the price is fully efficient and also every trader's expected profit is zero. Except for special structures, however, this equilibrium need not be attained in finite time.

Futures Trading and Volatility in the GNMA Market

Published: 5/1981,  Volume: 36,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1981.tb00461.x  |  Cited by: 147

STEPHEN FIGLEWSKI

Hedging Performance and Basis Risk in Stock Index Futures

Published: 7/1984,  Volume: 39,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1984.tb03654.x  |  Cited by: 277

STEPHEN FIGLEWSKI

Compensation, Incentives, and the Duality of Risk Aversion and Riskiness

Published: 2/2004,  Volume: 59,  Issue: 1  |  DOI: 10.1111/j.1540-6261.2004.00631.x  |  Cited by: 528

Stephen A. Ross

The common folklore that giving options to agents will make them more willing to take risks is false. In fact, no incentive schedule will make all expected utility maximizers more or less risk averse. This paper finds simple, intuitive, necessary and sufficient conditions under which incentive schedules make agents more or less risk averse. The paper uses these to examine the incentive effects of some common structures such as puts and calls, and it briefly explores the duality between a fee schedule that makes an agent more or less risk averse, and gambles that increase or decrease risk.

A SIMPLE MODEL OF INFORMATION AND LENDING BEHAVIOR: COMMENT

Published: 3/1977,  Volume: 32,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1977.tb03257.x  |  Cited by: 1

Stephen M. Miller

LaPlace Transforms as Present Value Rules: A Note

Published: 3/1986,  Volume: 41,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1986.tb04502.x  |  Cited by: 17

STEPHEN A. BUSER

The present value equation in finance is shown to be equivalent to the Laplace transformation in mathematics. Based on this observation, the list of known analytic solutions for the present value problem is increased from a handful to more than one hundred. General properties of the Laplace transform are examined as well in light of the newly discovered significance for finance.

The Number of Factors in Security Returns

Published: 12/1989,  Volume: 44,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1989.tb02652.x  |  Cited by: 129

STEPHEN J. BROWN

Both factor analysis of security returns and the analysis of eigenvalues seem to indicate that a market factor explains the major part of security returns. We find that such evidence is consistent with an economy where there are in fact k “equally important” priced factors; eigenvalue analysis in the context of such an economy will lead an investigator to the false inference that the one important “factor” is the return on an equally weighted market index.

EFFICIENT CAPITAL MARKETS: COMMENT

Published: 3/1976,  Volume: 31,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1976.tb03204.x  |  Cited by: 55

Stephen F. LeRoy

AN INTEGRATED DECISION MODEL OF THE FIRM*

Published: 6/1973,  Volume: 28,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1973.tb01403.x  |  Cited by: 0

Stephen P. Mezger

Debt and Taxes and Uncertainty

Published: 7/1985,  Volume: 40,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1985.tb04986.x  |  Cited by: 63

STEPHEN A. ROSS

With a graduated personal tax schedule, Miller showed that there could be an equilibrium debt supply for the corporate sector as a whole. In the presence of uncertainty there is also a unique debt/equity ratio for each individual firm, and this ratio is related to the firm's operational risk characteristics. However, if firms merge and spin off in response to tax incentives, the identity of firms is ambiguous and only the corporate sector is a meaningful construct. These arguments are developed in both discrete and continuous models that employ extensions of the arbitrage‐free pricing theory.

AN EMPIRICAL TEST OF GUIDES TO SELECTION OF INDUSTRIAL COMMON STOCKS FOR INSTITUTIONS*

Published: 3/1960,  Volume: 15,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1960.tb04838.x  |  Cited by: 0

Stephen H. Archer

Survival

Published: 7/1995,  Volume: 50,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1995.tb04039.x  |  Cited by: 371

STEPHEN J. BROWN, WILLIAM N. GOETZMANN, STEPHEN A. ROSS

Empirical analysis of rates of return in finance implicitly condition on the security surviving into the sample. We investigate the implications of such conditioning on the time series of rates of return. In general this conditioning induces a spurious relationship between observed return and total risk for those securities that survive to be included in the sample. This result has immediate implications for the equity premium puzzle. We show how these results apply to other outstanding problems of empirical finance. Long‐term autocorrelation studies focus on the statistical relation between successive holding period returns, where the holding period is of possibly extensive duration. If the equity market survives, then we find that average return in the beginning is higher than average return near the end of the time period. For this reason, statistical measures of long‐term dependence are typically biased towards the rejection of a random walk. The result also has implications for event studies. There is a strong association between the magnitude of an earnings announcement and the postannouncement performance of the equity. This might be explained in part as an artefact of the stock price performance of firms in financial distress that survive an earnings announcement. The final example considers stock split studies. In this analysis we implicitly exclude securities whose price on announcement is less than the prior average stock price. We apply our results to this case, and find that the condition that the security forms part of our positive stock split sample suffices to explain the upward trend in event‐related cumulated excess return in the preannouncement period.

THE THEORETICAL VALUE OF A STOCK RIGHT: A COMMENT

Published: 9/1956,  Volume: 11,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1956.tb00111.x  |  Cited by: 1

Stephen H. Archer

Personal Lending Relationships

Published: 12/14/2017,  Volume: 73,  Issue: 1  |  DOI: 10.1111/jofi.12589  |  Cited by: 136

STEPHEN ADAM KAROLYI

I identify the effects of personal relationships on loan contracting using executive deaths and retirements at other firms as a source of exogenous variation in executive turnover. After plausibly exogenous turnover, borrowers choose lenders with which their new executives have personal relationships 4.1 times as frequently, and loans from these lenders have 20 basis points lower spreads and 12.5% larger amounts. Personal relationships benefit firms across loan terms, especially during macroeconomic downturns. Increased financial flexibility from personal relationships insulated firms from financial shocks during the recent financial crisis: they exhibited less constrained investment and were less likely to layoff employees.

DISCUSSION

Published: 7/1984,  Volume: 39,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1984.tb03683.x  |  Cited by: 1

STEPHEN J. BROWN

The Predictive Content of Earnings Forecasts and Dividends

Published: 9/1983,  Volume: 38,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1983.tb02290.x  |  Cited by: 97

STEPHEN H. PENMAN

This paper compares the properties of dividend announcements and management earnings forecasts as predictors of earnings and firm value. First, the two predictors are compared on the basis of their ability to predict earnings. Then the information they convey about firm value is assessed by comparison of the performance of investment strategies based on values of the two predictors. Finally, the effects of dividend announcements on stock prices are considered.

ON OPTIMAL FINANCING OF CYCLICAL CASH NEEDS: COMMENT

Published: 9/1975,  Volume: 30,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1975.tb01029.x  |  Cited by: 0

H. Stephen Grace

Expectations Models of Asset Prices: A Survey of Theory

Published: 3/1982,  Volume: 37,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1982.tb01103.x  |  Cited by: 41

STEPHEN F. LEROY

This paper identifies restrictions on preferences under which various classes of “expectations” theories of asset prices—i.e., uncertainty models of asset prices which coincide with the corresponding certainty theory except that expected future prices replace actual future prices—are valid. Major classes of expectations models surveyed are martingale models, the expectations hypothesis of the term structure of interest rates, and models of exhaustible resources and futures markets. In each case the required restriction is related to the assumptiono f risk—neutrality, but the precise nature of the required restriction is shown to differ significantly among the various classes of expectations theories.

AN EMPIRICAL INVESTIGATION OF COMMERCIAL PAPER SUB‐MARKETS: 1955–1968*

Published: 9/1975,  Volume: 30,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1975.tb01041.x  |  Cited by: 0

Stephen E. Skomp

FINANCIAL STRUCTURE AND THE THEORY OF PRODUCTION

Published: 12/1970,  Volume: 25,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1970.tb00868.x  |  Cited by: 6

Stephen J. Turnovsky

COMMERCIAL BANK BEHAVIOR AND THE LEVEL OF ECONOMIC ACTIVITY: AN ECONOMETRIC STUDY*

Published: 9/1965,  Volume: 20,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1965.tb02918.x  |  Cited by: 0

Stephen M. Goldfeld

SEPARATION, DECOMPOSITION, AND DIVERSIFICATION IN THE SINGLE‐PERIOD PORTFOLIO PROBLEM*

Published: 12/1973,  Volume: 28,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1973.tb01470.x  |  Cited by: 0

Stephen A. Buser

DISCUSSION

Published: 5/1970,  Volume: 25,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1970.tb00673.x  |  Cited by: 0

Stephen H. Archer

DISCUSSION

Published: 7/1988,  Volume: 43,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1988.tb04604.x  |  Cited by: 0

STEPHEN J. BROWN

Foreign Exchange Rate Forecasting Techniques: Implications for Business and Policy

Published: 5/1979,  Volume: 34,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1979.tb02104.x  |  Cited by: 42

STEPHEN H. GOODMAN

Information and Volatility: The No‐Arbitrage Martingale Approach to Timing and Resolution Irrelevancy

Published: 3/1989,  Volume: 44,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1989.tb02401.x  |  Cited by: 493

STEPHEN A. ROSS

The no‐arbitrage martingale analysis is used to study the effect on asset prices of changes in the rate of information flow. The analysis is first used to develop some simple tools for asset pricing in a continuous‐time setting. These tools are then applied to determine the effect of information on prices and price volatility, to extend Samuelson's theorem on prices fluctuating randomly, and to study the impact on prices of the resolution of uncertainty. The conditions under which uncertainty resolution is irrelevant for asset pricing are shown to be similar to those which support the MM irrelevance theorems.

DISCUSSION

Published: 5/1977,  Volume: 32,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1977.tb03280.x  |  Cited by: 0

Stephen A. Ross

DISCUSSION

Published: 5/1979,  Volume: 34,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1979.tb02118.x  |  Cited by: 0

STEPHEN A. BUSER

DISCUSSION

Published: 5/1980,  Volume: 35,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1980.tb02171.x  |  Cited by: 4

STEPHEN M. SCHAEFER

A Note on Inflation, Taxation and Investment Returns

Published: 3/1980,  Volume: 35,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1980.tb03480.x  |  Cited by: 4

STEPHEN M. CROSS

SOME FACTORS AFFECTING THE INCREASED RELATIVE USE OF CURRENCY SINCE 1939*

Published: 9/1956,  Volume: 11,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1956.tb00107.x  |  Cited by: 0

Stephen L. McDonald

Discussion

Published: 8/2001,  Volume: 56,  Issue: 4  |  DOI: 10.1111/0022-1082.00374  |  Cited by: 2

Stephen A. Ross

THE INTERNAL DRAIN AND BANK CREDIT EXPANSION*

Published: 12/1953,  Volume: 8,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1953.tb01187.x  |  Cited by: 0

Stephen L. McDonald

MONETARY POLICY IN CONTINENTAL WESTERN EUROPE, 1944–52*

Published: 12/1956,  Volume: 11,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1956.tb04097.x  |  Cited by: 0

Stephen F. Sherwin

THE CAPITAL ASSET PRICING MODEL (CAPM), SHORT‐SALE RESTRICTIONS AND RELATED ISSUES

Published: 3/1977,  Volume: 32,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1977.tb03251.x  |  Cited by: 90

Stephen A. Ross

SOME NOTES ON FINANCIAL INCENTIVE‐SIGNALLING MODELS, ACTIVITY CHOICE AND RISK PREFERENCES

Published: 6/1978,  Volume: 33,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1978.tb02018.x  |  Cited by: 33

Stephen A. Ross

A RE‐EXAMINATION OF MARKET AND INDUSTRY FACTORS IN STOCK PRICE BEHAVIOR

Published: 6/1973,  Volume: 28,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1973.tb01390.x  |  Cited by: 45

Stephen L. Meyers

Institutional Markets, Financial Marketing, and Financial Innovation

Published: 7/1989,  Volume: 44,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1989.tb04377.x  |  Cited by: 166

STEPHEN A. ROSS

Firms and institutions are monitored and controlled through a complex set of implicit and explicit contractual relations. Because of these agency theoretic relations, institutional behavior in financial markets is not a simple reflection of the preference structures of individuals. Institutional preferences give rise to a demand for new financial instruments and innovations, even when the returns on these instruments are “spanned” in the sense of complete pricing. The innovations can be thought of as solving moral hazard problems. An agency theoretic example serves to illustrate the demand, supply, and financial marketing of stripped securities. In short, institutions matter.

The Structure of Corporate Ownership in Japan

Published: 7/1992,  Volume: 47,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1992.tb04007.x  |  Cited by: 388

STEPHEN D. PROWSE

I examine the structure of corporate ownership in a sample of Japanese firms in the mid 1980s. Ownership is highly concentrated in Japan, with financial institutions by far the most important large shareholders. Ownership concentration in independent Japanese firms is positively related to the returns from exerting greater control over management. This is not the case in firms that are members of corporate groups (keiretsu). Ownership concentration and the accounting profit rate in both independent and keiretsu firms are unrelated. The results are consistent with the notion that there exist two distinct corporate governance systems in Japan —one among independent firms and the other among firms that are members of keiretsu.

Optimal Aggregation of Money Supply Forecasts: Accuracy, Profitability and Market Efficiency

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02497.x  |  Cited by: 52

STEPHEN FIGLEWSKI, THOMAS URICH

We present a general procedure for aggregating expert forecasts which exploits regularities in the structure of information within the forecaster population. Specific information structures lead to aggregation methods which adjust for additive bias, differences in individual accuracy, and correlation among forecasts. As an application, we construct composite predictions of the weekly change in the money supply from forecasts made by twenty major securities dealers, for which high positive correlation is found to be a significant characteristic. Due to instability in the information structure, our methods cannot improve on the accuracy of a simple average in this case. However, they do capture information about the correlation among money supply forecasts which is not fully impounded in short‐term interest rates. Forecasts from our models accurately predict the direction of price changes for Treasury bills and Treasury bill futures after a money supply announcement.

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

A Note on the Local Expectations Hypothesis: A Discrete‐Time Exposition—Erratum

Published: 6/1987,  Volume: 42,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1987.tb02580.x  |  Cited by: 0

CHRISTIAN GILLES, STEPHEN F. LeROY

Market Risk and Model Risk for a Financial Institution Writing Options

Published: 8/1999,  Volume: 54,  Issue: 4  |  DOI: 10.1111/0022-1082.00152  |  Cited by: 177

T. Clifton Green, Stephen Figlewski

Derivatives valuation and risk management involve heavy use of quantitative models. To develop a quantitative assessment of model risk as it affects the basic option writing strategy that might be followed by a financial institution, we conduct an empirical simulation, with and without hedging, using data from 1976 to 1996. Results indicate that imperfect models and inaccurate volatility forecasts create sizable risk exposure for option writers. We consider to what extent the damage due to model risk can be limited by pricing options using a higher volatility than the best estimate from historical data.

Options, Short Sales, and Market Completeness

Published: 6/1993,  Volume: 48,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1993.tb04738.x  |  Cited by: 322

STEPHEN FIGLEWSKI, GWENDOLYN P. WEBB

This paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales. The significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling. We also find significant effects on option prices, related to the short interest in the underlying stock. We then present evidence that options also increase information efficiency. Earlier work, that is replicated and extended here, has suggested that short sale constraints cause stock prices to underweight negative information. Options appear to reduce that effect.