The Journal of Finance

Exploiting the Conditional Density in Estimating the Term Structure: An Application to the Cox, Ingersoll, and Ross Model

Published: 9/1994,  Volume: 49,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1994.tb02454.x  |  Cited by: 304

NEIL D. PEARSON, TONG‐SHENG SUN

We propose an empirical method that utilizes the conditional density of the state variables to estimate and test a term structure model with known price formulae, using data on both discount and coupon bonds. The method is applied to an extension of a two‐factor model due to Cox, Ingersoll, and Ross (1985; CIR). Our results show that estimates based on only bills imply unreasonably large price errors for longer maturities. We reject the original CIR model using a likelihood ratio test, and conclude that the extended CIR model also fails to provide a good description of the Treasury market.

SUBSTITUTABILITY OF NON‐BANK INTERMEDIARY LIABILITIES FOR MONEY: THE EMPIRICAL EVIDENCE*

Published: 9/1966,  Volume: 21,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1966.tb00246.x  |  Cited by: 2

Tong Hun Lee

The Allocation of Capital Between Residential and Nonresidential Uses: Taxes, Inflation and Capital Market Constraints

Published: 6/1983,  Volume: 38,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1983.tb02502.x  |  Cited by: 13

PATRIC H. HENDERSHOTT, SHENG CHENG HU

We have constructed a simple two‐sector model of the demand for housing and corporate capital. Economic growth and an increase in the inflation rate were then simulated with a number of model variants. The model and simulation experiments illustrate both the tax bias in favor of housing and the manner in which the increase in inflation between 1965 and 1978 magnified it. The existence of capital‐market constraints offsets the bias against corporate capital, but it introduces a sharp, inefficient reallocation of housing from less wealthy, constrained households to wealthy households who do not have gains on mortgages and are not financially constrained.

AN ECONOMIC ANALYSIS OF THE BURDEN OF PUBLIC DEBT*

Published: 3/1954,  Volume: 9,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1954.tb01212.x  |  Cited by: 0

Norman Sun

Marginal Q

Published: 8/19/2026,  Volume: ,  Issue:   |  DOI: 10.1111/jofi.70074  |  Cited by: 0

VITO D. GALA, JOAO F. GOMES, TONG LIU

We propose a new method to estimate the marginal value of capital under minimal assumptions. By combining asset prices with fundamentals, our method provides a quasi‐model‐free marginal q together with a simple correction for measurement error in (average) Tobin's Q using linear regressions. Marginal q yields plausible and robust estimates of adjustment costs and investment sensitivities to fundamentals. The widening gap between marginal q and Tobin's Q is driven primarily by market power and intangible capital. Our novel findings strongly support the neoclassical theory of investment and challenge the widespread use of Tobin's Q as proxy for investment opportunities.

A Unified Model of Firm Dynamics with Limited Commitment and Assortative Matching

Published: 10/19/2020,  Volume: 76,  Issue: 1  |  DOI: 10.1111/jofi.12980  |  Cited by: 19

HENGJIE AI, DANA KIKU, RUI LI, JINCHENG TONG

We develop a unified theory of dynamic contracting and assortative matching to explain firm dynamics. In our model, neither firms nor managers can commit to arrangements that yield lower payoffs than their outside options, which are microfounded by the equilibrium conditions in a matching market. The model endogenously generates power laws in firm size and CEO compensation, and explains differences in their right tails. We also show that our model quantitatively accounts for many salient features of the time‐series dynamics and the cross‐sectional distribution of firm investment, dividend payout, and CEO compensation.

Would Order‐By‐Order Auctions Be Competitive?

Published: 5/13/2025,  Volume: 80,  Issue: 4  |  DOI: 10.1111/jofi.13449  |  Cited by: 7

THOMAS ERNST, CHESTER SPATT, JIAN SUN

We model two methods of executing segregated retail orders: brokers' routing, whereby brokers allocate orders using the market maker's overall performance, and order‐by‐order auctions, where market makers bid on individual orders, a recent U.S. Securities and Exchange Commission proposal. Order‐by‐order auctions improve allocative efficiency, but face a winner's curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Our results hold when new entrants are less informed or the information structure differs. We also examine the cross‐subsidization of brokers' routing.

Dividend Changes and the Persistence of Past Earnings Changes

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00693.x  |  Cited by: 94

ADAM S. KOCH, AMY X. SUN

We examine whether the market interprets changes in dividends as a signal about the persistence of past earnings changes. Prior to observing this signal, investors may believe that past earnings changes are not necessarily indicative of future earnings levels. We empirically investigate whether a change in dividends alters investors' assessments about the valuation implications of past earnings. Results confirm the hypothesis that changes in dividends cause investors to revise their expectations about the persistence of past earnings changes. This effect varies predictably with the magnitude of the dividend change and the sign of the past earnings change.

FinTech Credit and Entrepreneurial Growth

Published: 8/30/2024,  Volume: 79,  Issue: 5  |  DOI: 10.1111/jofi.13384  |  Cited by: 65

HARALD HAU, YI HUANG, CHEN LIN, HONGZHE SHAN, ZIXIA SHENG, LAI WEI

Based on automated credit lines to vendors trading on Alibaba's online retail platform and a discontinuity in the credit decision algorithm, we document that a vendor's access to FinTech credit boosts its sales growth, transaction growth, and the level of customer satisfaction gauged by product, service, and consignment ratings. These effects are more pronounced for vendors characterized by greater information asymmetry about their credit risk and less collateral, which reveals the information advantage of FinTech credit over traditional credit technology.

Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Published: 6/26/2023,  Volume: 78,  Issue: 5  |  DOI: 10.1111/jofi.13258  |  Cited by: 57

JONATHAN A. PARKER, ANTOINETTE SCHOAR, YANG SUN

Target date funds (TDFs) are designed to provide unsophisticated or inattentive investors with age‐appropriate exposures to different asset classes like stocks and bonds. The rise of TDFs has moved a significant share of retirement investors into macrocontrarian strategies that sell stocks after relatively good stock market performance. This rebalancing drives contrarian flows across equity mutual funds held by TDFs, stabilizing their funding, and reduces stock returns for stocks disproportionately held by these funds when stock market returns are relatively high. Continued growth in TDFs and similar investment products may dampen stock market volatility and increase the transmission of shocks across asset classes.

Earnings Management and Firm Performance Following Open‐Market Repurchases

Published: 4/2008,  Volume: 63,  Issue: 2  |  DOI: 10.1111/j.1540-6261.2008.01336.x  |  Cited by: 273

GUOJIN GONG, HENOCK LOUIS, AMY X. SUN

Both post‐repurchase abnormal returns and reported improvement in operating performance are driven, at least in part, by pre‐repurchase downward earnings management rather than genuine growth in profitability. The downward earnings management increases with both the percentage of the company that managers repurchase and CEO ownership. Pre‐repurchase abnormal accruals are also negatively associated with future performance, with the association driven mainly by those firms that report the largest income‐decreasing abnormal accruals. The study suggests that one reason firms experience post‐repurchase abnormal returns is that post‐repurchase realized earnings growth exceeds expectations formed on the basis of pre‐repurchase deflated earnings numbers.