Search results: 50.
COST OF CAPITAL FOR A DIVISION OF A FIRM: COMMENT
Published: 12/1977, Volume: 32, Issue: 5 | DOI: 10.1111/j.1540-6261.1977.tb03373.x | Cited by: 4
J. Fred Weston, Wayne Y. Lee
THE COST OF CAPITAL AND VALUATION OF A TWO‐COUNTRY FIRM: COMMENT
Published: 9/1977, Volume: 32, Issue: 4 | DOI: 10.1111/j.1540-6261.1977.tb03334.x | Cited by: 1
Michael A. Goldberg, Wayne Y. Lee
THE ROLE OF THE MULTINATIONAL FIRM IN THE INTEGRATION OF SEGMENTED CAPITAL MARKETS
Published: 5/1977, Volume: 32, Issue: 2 | DOI: 10.1111/j.1540-6261.1977.tb03286.x | Cited by: 0
Michael Adler, Wayne Y. Lee, Kanwal S. Sachdeva
Screening, Market Signalling, and Capital Structure Theory
Published: 12/1983, Volume: 38, Issue: 5 | DOI: 10.1111/j.1540-6261.1983.tb03837.x | Cited by: 11
WAYNE L. LEE, ANJAN V. THAKOR, GAUTAM VORA
This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt‐equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.
Managers' Trading Around Stock Repurchases
Published: 12/1992, Volume: 47, Issue: 5 | DOI: 10.1111/j.1540-6261.1992.tb04690.x | Cited by: 120
D. SCOTT LEE, WAYNE H. MIKKELSON, M. MEGAN PARTCH
We analyze personal open market trades by managers around stock repurchases by tender offer. With the exception of Dutch auction offers, managers trade their firm's shares prior to repurchase announcements as though repurchases convey favorable inside information to outsiders. Prior to fixed price repurchase offers that do not follow takeover‐related events, managers increase their buying and reduce their selling of their firm's shares. Prior to repurchases that follow takeover‐related events, only a decrease in selling is found. No abnormal trading precedes Dutch auction repurchase offers.
Changes in Expected Security Returns, Risk, and the Level of Interest Rates
Published: 12/1989, Volume: 44, Issue: 5 | DOI: 10.1111/j.1540-6261.1989.tb02650.x | Cited by: 148
WAYNE E. FERSON
Regressions of security returns on treasury bill rates provide insight about the behavior of risk in rational asset pricing models. The information in one‐month bill rates implies time variation in the conditional covariances of portfolios of stocks and fixed‐income securities with benchmark pricing variables, over extended samples and within five‐year subperiods. There is evidence of changes in conditional “betas” associated with interest rates. Consumption and stock market data are examined as proxies for marginal utility, in a general framework for asset pricing with time‐varying conditional covariances.
DISCUSSION
Published: 7/1984, Volume: 39, Issue: 3 | DOI: 10.1111/j.1540-6261.1984.tb03681.x | Cited by: 1
WAYNE H. MIKKELSON
An Examination of Ex‐Dividend Day Stock Price Movements: The Case of Nontaxable Master Limited Partnership Distributions
Published: 6/1991, Volume: 46, Issue: 2 | DOI: 10.1111/j.1540-6261.1991.tb02685.x | Cited by: 18
WAYNE H. SHAW
This study examines the unit (stock) price and volume behavior of master limited partnerships (MLP) around the ex‐dividend day. Since the dividends of MLPs are not taxable to the unitholder, tax based hypotheses predict no abnormal unit movements around the ex‐day. Significant positive excess returns and volume are found before the ex‐dividend day, and significant negative excess returns are found on the ex‐dividend day. The findings which are not significantly impacted by the Tax Reform Act of 1986 suggest ex‐day stock movements are not solely a function of investor marginal tax rates or corporate trading behavior.
HORSE RACING: TESTING THE EFFICIENT MARKETS MODEL
Published: 9/1978, Volume: 33, Issue: 4 | DOI: 10.1111/j.1540-6261.1978.tb02051.x | Cited by: 133
Wayne W. Snyder
DISCUSSION
Published: 7/1986, Volume: 41, Issue: 3 | DOI: 10.1111/j.1540-6261.1986.tb04524.x | Cited by: 0
WAYNE E. FERSON
Are the Latent Variables in Time‐Varying Expected Returns Compensation for Consumption Risk?
Published: 6/1990, Volume: 45, Issue: 2 | DOI: 10.1111/j.1540-6261.1990.tb03696.x | Cited by: 41
WAYNE E. FERSON
Multibeta asset pricing models are examined using proxies for economic state variables in a framework which exploits time‐varying expected returns to estimate conditional betas. Examples include multiple consumption‐beta models and models where asset returns proxy for the state variables. When the state variables are not specified, the tests indicate two or three time‐varying expected risk premiums in the sample of quarterly asset returns. Conditional betas relative to consumption generate less striking evidence against the model than betas relative to asset returns, but both the consumption and the market variables fail to proxy for the state variables.
Alpha and Performance Measurement: The Effects of Investor Disagreement and Heterogeneity
Published: 7/18/2014, Volume: 69, Issue: 4 | DOI: 10.1111/jofi.12165 | Cited by: 71
WAYNE FERSON, JERCHERN LIN
The literature has not established that a positive alpha, as traditionally measured, means that an investor would want to buy a fund. When alpha is defined using the client's utility function, a positive alpha generally means the client would want to buy. When markets are incomplete, investors will disagree about the attractiveness of a fund. We provide bounds on the expected disagreement with a traditional alpha and study the cross‐sectional relation of disagreement and investor heterogeneity with the flow response to past fund alphas. The effects are both economically and statistically significant.
Investing in Bankrupt Firms
Published: 12/1988, Volume: 43, Issue: 5 | DOI: 10.1111/j.1540-6261.1988.tb03964.x | Cited by: 53
DALE MORSE, WAYNE SHAW
We examine the investment characteristics of firms electing to enter bankruptcy, between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. Our results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankrupt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantly with the filing of bankruptcy, but there is a significant increase in return variance. The financial markets also react to various announcements of stages in the reorganization process.
Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”
Published: 12/1990, Volume: 45, Issue: 5 | DOI: 10.1111/j.1540-6261.1990.tb03729.x | Cited by: 147
MAUREEN O'HARA, WAYNE SHAW
This paper investigates the effect on bank equity values of the Comptroller of the Currency's announcement that some banks were “too big to fail” and that for those banks total deposit insurance would be provided. Using an event study methodology, we find positive wealth effects accruing to TBTF banks, with corresponding negative effects accruing to non‐included banks. We demonstrate that the magnitude of these effects differed with bank solvency and size. We also show that the policy to which the market reacted was that suggested by the Wall Street Journal and not that actually intended by the Comptroller.
DISCUSSION
Published: 5/1975, Volume: 30, Issue: 2 | DOI: 10.1111/j.1540-6261.1975.tb01832.x | Cited by: 0
Gail R. Wilensky, Wayne Vroman
Conditioning Variables and the Cross Section of Stock Returns
Published: 8/1999, Volume: 54, Issue: 4 | DOI: 10.1111/0022-1082.00148 | Cited by: 649
Wayne E. Ferson, Campbell R. Harvey
Previous studies identify predetermined variables that predict stock and bond returns through time. This paper shows that loadings on the same variables provide significant cross‐sectional explanatory power for stock portfolio returns. The loadings are significant given the three factors advocated by Fama and French (1993) and the four factors of Elton, Gruber, and Blake (1995). The explanatory power of the loadings on lagged variables is robust to various portfolio grouping procedures and other considerations. The results carry implications for risk analysis, performance measurement, cost‐of‐capital calculations, and other applications.
Seasonality and Consumption‐Based Asset Pricing
Published: 6/1992, Volume: 47, Issue: 2 | DOI: 10.1111/j.1540-6261.1992.tb04400.x | Cited by: 71
WAYNE E. FERSON, CAMPBELL R. HARVEY
Most of the evidence on consumption‐based asset pricing is based on seasonally adjusted consumption data. The consumption‐based models have not worked well for explaining asset returns, but with seasonally adjusted data there are reasons to expect spurious rejections of the models. This paper examines asset pricing models using not seasonally adjusted aggregate consumption data. We find evidence against models with time‐separable preferences, even when the models incorporate seasonality and allow seasonal heteroskedasticity. A model that uses not seasonally adjusted consumption data and nonseparable preferences with seasonal effects works better according to several criteria. The parameter estimates imply a form of seasonal habit persistence in aggregate consumption expenditures.
Measuring Fund Strategy and Performance in Changing Economic Conditions
Published: 6/1996, Volume: 51, Issue: 2 | DOI: 10.1111/j.1540-6261.1996.tb02690.x | Cited by: 1257
WAYNE E. FERSON, RUDI W. SCHADT
The use of predetermined variables to represent public information and time‐variation has produced new insights about asset pricing models, but the literature on mutual fund performance has not exploited these insights. This paper advocates conditional performance evaluation in which the relevant expectations are conditioned on public information variables. We modify several classical performance measures to this end and find that the predetermined variables are both statistically and economically significant. Conditioning on public information controls for biases in traditional market timing models and makes the average performance of the mutual funds in our sample look better.
The Efficient Use of Conditioning Information in Portfolios
Published: 6/2001, Volume: 56, Issue: 3 | DOI: 10.1111/0022-1082.00351 | Cited by: 156
Wayne E. Ferson, Andrew F. Siegel
We study the properties of unconditional minimum‐variance portfolios in the presence of conditioning information. Such portfolios attain the smallest variance for a given mean among all possible portfolios formed using the conditioning information. We provide explicit solutions for n risky assets, either with or without a riskless asset. Our solutions provide insights into portfolio management problems and issues in conditional asset pricing.
When Is Bad News Really Bad News?
Published: 12/2002, Volume: 57, Issue: 6 | DOI: 10.1111/1540-6261.00504 | Cited by: 209
Jennifer Conrad, Bradford Cornell, Wayne R. Landsman
We examine whether the price response to bad and good earnings shocks changes as the relative level of the market changes. The study is based on a complete sample of annual earnings announcements during the period 1988 to 1998. The relative level of the market is based on the difference between the current market P/E and the average market P/E over the prior 12 months. We find that the stock price response to negative earnings surprises increases as the relative level of the market rises. Furthermore, the difference between bad news and good news earnings response coefficients rises with the market.
The Rule 415 Experiment: Equity Markets
Published: 12/1985, Volume: 40, Issue: 5 | DOI: 10.1111/j.1540-6261.1985.tb02390.x | Cited by: 85
SANJAI BHAGAT, M. WAYNE MARR, G. RODNEY THOMPSON
Rule 415 allows a firm to register all the securities it reasonably expects to sell over the next two years and then, at the management's option, to sell those securities over these two years whenever it chooses. This paper examines whether equity offerings made under Rule 415 (shelf offerings) differ in issuing costs from equity offerings not sold under this rule. We find that shelf offerings cost 13% less for syndicated issues and 51% less for nonsyndicated issues. We also investigate the empirical relevance of the market overhang argument which suggests that shelf registrations depress the price of the registering firm's shares more than traditional registrations. Our data does not support the market overhang argument.
The Persistence of IPO Mispricing and the Predictive Power of Flipping
Published: 6/1999, Volume: 54, Issue: 3 | DOI: 10.1111/0022-1082.00135 | Cited by: 237
Laurie Krigman, Wayne H. Shaw, Kent L. Womack
AbstractThis paper examines underwriters' pricing errors and the information content of first‐day trading activity in IPOs. We show that first‐day winners continue to be winners over the first year, and first‐day dogs continue to be relative dogs. Exceptions are “extra‐hot” IPOs, which provide the worst future performance. We also demonstrate that large, supposedly informed, traders “flip” IPOs that perform the worst in the future. IPOs with low flipping generate abnormal returns of 1.5 percentage points per month over the first six months beginning on the third day. We show that flipping is predictable and conclude that underwriters' pricing errors are intentional.
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.
Spurious Regressions in Financial Economics?
Published: 7/15/2003, Volume: 58, Issue: 4 | DOI: 10.1111/1540-6261.00571 | Cited by: 437
Wayne E. Ferson, Sergei Sarkissian, Timothy T. Simin
Even though stock returns are not highly autocorrelated, there is a spurious regression bias in predictive regressions for stock returns related to the classic studies of Yule (1926) and Granger and Newbold (1974). Data mining for predictor variables interacts with spurious regression bias. The two effects reinforce each other, because more highly persistent series are more likely to be found significant in the search for predictor variables. Our simulations suggest that many of the regressions in the literature, based on individual predictor variables, may be spurious.
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.
Does Weak Governance Cause Weak Stock Returns? An Examination of Firm Operating Performance and Investors' Expectations
Published: 3/9/2006, Volume: 61, Issue: 2 | DOI: 10.1111/j.1540-6261.2006.00851.x | Cited by: 673
JOHN E. CORE, WAYNE R. GUAY, TJOMME O. RUSTICUS
We investigate Gompers, Ishii, and Metrick's (2003) finding that firms with weak shareholder rights exhibit significant stock market underperformance. If the relation between poor governance and poor returns is causal, we expect that the market is negatively surprised by the poor operating performance of weak governance firms. We find that firms with weak shareholder rights exhibit significant operating underperformance. However, analysts' forecast errors and earnings announcement returns show no evidence that this underperformance surprises the market. Our results are robust to controls for takeover activity. Overall, our results do not support the hypothesis that weak governance causes poor stock returns.
Information Asymmetry, Mispricing, and Security Issuance
Published: 8/2/2021, Volume: 76, Issue: 6 | DOI: 10.1111/jofi.13066 | Cited by: 46
JIYOON LEE
I examine the effects of information asymmetry–driven mispricing on security issuance. Using predisclosure changes in purchase obligations as a proxy for information asymmetry–driven mispricing, I find that managers avoid (prefer) issuing securities when they perceive their firms to be undervalued (overvalued). The effects of information asymmetry–driven mispricing are stronger on equity issuance than debt issuance. Consequently, undervaluation (overvaluation) causes an increase (decrease) in leverage. These effects are more pronounced for firms, periods, and securities associated with greater information asymmetry. The stock‐trading patterns that managers follow suggest that their perceived mispricing is an important factor in both private and firm‐level decisions.
Do Firms Knowingly Sell Overvalued Equity?
Published: 9/1997, Volume: 52, Issue: 4 | DOI: 10.1111/j.1540-6261.1997.tb01116.x | Cited by: 208
INMOO LEE
This article examines the relation between top executives' trading and the long‐run stock returns of seasoned equity issuing firms. Primary issuers, who sell mostly newly‐issued primary shares, significantly underperform their benchmarks, regardless of the top executives' prior trading pattern. However, top executives' trading is reliably associated with the stock returns of secondary issuers, who sell mostly secondary shares previously held by existing shareholders. On average, secondary issuers do not underperform their benchmarks. The results suggest that increased free cash flow problems after issue play an important role in explaining the underperformance of issuing firms.
Research Dissemination and Impact: Evidence from Web Site Downloads
Published: 2/2002, Volume: 57, Issue: 1 | DOI: 10.1111/1540-6261.00429 | Cited by: 33
Lee Pinkowitz
The Journal of Finance Web site disseminates research expediently to a broad audience. Papers were downloaded 284,170 times from November 1997 to November 1999. The average paper receives 85 downloads per month and is available 10 months before publication. Articles are downloaded more than shorter papers. Lead articles are downloaded more than other articles because they are of greater interest, and they receive an endorsement as the lead. Downloads are positively correlated with citations and may be a useful measure of research impact. Finally, placing forthcoming articles online does not adversely affect subscriptions and may increase the SSCI impact factor.
ANALYSIS AND ADMINISTRATION OF CONVENIENCE‐AND‐ADVANTAGE LICENSING IN THE SMALL‐LOAN INDUSTRY*
Published: 6/1971, Volume: 26, Issue: 3 | DOI: 10.1111/j.1540-6261.1971.tb01742.x | Cited by: 1
William Lee Sartoris
MEMBER‐BANK BORROWING FROM THE FEDERAL RESERVE BANK OF CHICAGO, 1951–1966*
Published: 9/1968, Volume: 23, Issue: 4 | DOI: 10.1111/j.1540-6261.1968.tb00855.x | Cited by: 0
Jack Lee Cooper
FEDERAL REGULATION OF BANK HOLDING COMPANIES*
Published: 9/1962, Volume: 17, Issue: 3 | DOI: 10.1111/j.1540-6261.1962.tb04318.x | Cited by: 0
Lawrence Lee Crum
AN INVESTIGATION INTO PLANNING TECHNIQUES FOR MAXIMIZATION OF MANPOWER IN ENGLAND AND IN THE UNITED STATES*
Published: 3/1962, Volume: 17, Issue: 1 | DOI: 10.1111/j.1540-6261.1962.tb04255.x | Cited by: 0
Aura‐Lee Ageton
The Pricing of Corporate Debt: A Note
Published: 12/1981, Volume: 36, Issue: 5 | DOI: 10.1111/j.1540-6261.1981.tb01085.x | Cited by: 5
C. JEVONS LEE
CO‐INSURANCE AND CONGLOMERATE MERGER
Published: 12/1977, Volume: 32, Issue: 5 | DOI: 10.1111/j.1540-6261.1977.tb03352.x | Cited by: 9
Li Way Lee
THE EURO‐DOLLAR MULTIPLIER
Published: 9/1973, Volume: 28, Issue: 4 | DOI: 10.1111/j.1540-6261.1973.tb01411.x | Cited by: 5
Boyden E. Lee
Causal Relations Among Stock Returns, Interest Rates, Real Activity, and Inflation
Published: 9/1992, Volume: 47, Issue: 4 | DOI: 10.1111/j.1540-6261.1992.tb04673.x | Cited by: 407
BONG‐SOO LEE
Using a multivariate vector‐autoregression (VAR) approach, this paper investigates causal relations and dynamic interactions among asset returns, real activity, and inflation in the postwar United States. Major findings are (1) stock returns appear Granger‐causally prior and help explain real activity, (2) with interest rates in the VAR, stock returns explain little variation in inflation, although interest rates explain a substantial fraction of the variation in inflation, and (3) inflation explains little variation in real activity. These findings seem more compatible with
Fama (1981)
than with
Geske and Roll (1983)
or with
Ram and Spencer (1983)
.
FUNCTIONAL FORM AND THE DIVIDEND EFFECT IN THE ELECTRIC UTILITY INDUSTRY
Published: 12/1976, Volume: 31, Issue: 5 | DOI: 10.1111/j.1540-6261.1976.tb03226.x | Cited by: 15
Cheng F. Lee
THE MARKET FOR DEPOSIT‐TYPE FINANCIAL ASSETS*
Published: 6/1970, Volume: 25, Issue: 3 | DOI: 10.1111/j.1540-6261.1970.tb00542.x | Cited by: 0
Jerry Lee Jordan
ERRORS‐IN‐VARIABLES ESTIMATION PROCEDURES WITH APPLICATIONS TO A CAPITAL ASSET PRICING MODEL*
Published: 9/1974, Volume: 29, Issue: 4 | DOI: 10.1111/j.1540-6261.1974.tb03114.x | Cited by: 0
Cheng‐few Lee
Management Buyout Proposals and inside Information
Published: 7/1992, Volume: 47, Issue: 3 | DOI: 10.1111/j.1540-6261.1992.tb04005.x | Cited by: 41
D. SCOTT LEE
This paper explores stock price behavior surrounding withdrawn buyout proposals to determine whether managers' proposal announcements reveal any information which is unrelated to the efficiency gains associated with completed buyouts. On average, firms whose managers withdraw buyout proposals do not sustain significantly positive stock price effects unless they receive subsequent acquisition bids. In addition, managers of firms with completed buyouts are no more likely to have access to inside information than managers who withdrew proposals. I interpret this evidence as inconsistent with the notion that inside information commonly motivates management buyout proposals.
TAX INCENTIVES AND INVESTMENT BEHAVIOR IN MANUFACTURING 1954–1968*
Published: 6/1972, Volume: 27, Issue: 3 | DOI: 10.1111/j.1540-6261.1972.tb01005.x | Cited by: 0
James Lee Starkey
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
SOME PORTFOLIO ADJUSTMENT THEOREMS FOR THE CASE OF NON‐NEGATIVITY CONSTRAINTS ON SECURITY HOLDINGS
Published: 6/1971, Volume: 26, Issue: 3 | DOI: 10.1111/j.1540-6261.1971.tb01730.x | Cited by: 1
M. W. Jones-Lee
Market Integration and Price Execution for NYSE‐Listed Securities
Published: 7/1993, Volume: 48, Issue: 3 | DOI: 10.1111/j.1540-6261.1993.tb04028.x | Cited by: 71
CHARLES M. C. LEE
For New York Stock Exchange (NYSE) listed securities, the price execution of seemingly comparable orders differs systematically by location. In general, executions at the Cincinnati, Midwest, and New York stock exchanges are most favorable to trade initiators, while executions at the National Association of Security Dealers (NASD) are least favorable. These intermarket price differences depend on trade size, with the smallest trades exhibiting the biggest per share price difference. Collectively, these results raise questions about the adequacy of the existing intermarket quote system (ITS), the broker's fiduciary responsibility for “best execution,” and the propriety of order flow inducements.
OPTIMAL LIFE INSURANCE: COMMENT
Published: 6/1975, Volume: 30, Issue: 3 | DOI: 10.1111/j.1540-6261.1975.tb01866.x | Cited by: 1
M. W. Jones‐Lee
Financial Constraints, Debt Capacity, and the Cross‐section of Stock Returns
Published: 3/13/2009, Volume: 64, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01452.x | Cited by: 116
JAEHOON HAHN, HANGYONG LEE
Building on a model of corporate investment under collateral constraints, we develop and test a hypothesis on the differential effect of debt capacity on stock returns across financially constrained and unconstrained firms. Consistent with the hypothesis, we find that debt capacity is a significant determinant of stock returns only in the cross‐section of financially constrained firms, after controlling for beta, size, book‐to‐market, leverage, and momentum. The findings suggest that cross‐sectional differences in corporate investment behavior arising from financial constraints, predicted by theories of imperfect capital markets and supported by empirical evidence, are reflected in the stock returns of manufacturing firms.
Regulating Over‐the‐Counter Markets
Published: 5/30/2025, Volume: 80, Issue: 4 | DOI: 10.1111/jofi.13461 | Cited by: 6
TOMY LEE, CHAOJUN WANG
Over‐the‐counter (OTC) trading thrives despite competition from exchanges. We let OTC dealers cream skim from exchanges in an otherwise standard Glosten and Milgrom framework. Restricting the dealer's ability to cream skim induces “cheap substitution”: some traders exit while others with larger gains from trade enter. Cheap substitution implies trading costs, trade volumes, and market shares are poor policy indicators. In a benchmark case, restricting the dealer raises welfare only if trading cost increases, volume falls, and OTC market share is high. By contrast, the restriction improves welfare when adverse selection risk is low. A simple procedure implements the optimal Pigouvian tax.
Earnings Announcements and the Components of the Bid‐Ask Spread
Published: 9/1996, Volume: 51, Issue: 4 | DOI: 10.1111/j.1540-6261.1996.tb04078.x | Cited by: 198
ITZHAK KRINSKY, JASON LEE
This study investigates the behavior of the components of the bid‐ask spread around earnings announcements. We find that the adverse selection cost component significantly increases surrounding the announcements, while the inventory holding and order processing components significantly decline during the same periods. Our results suggest that the directional change in the total bid‐ask spread depends on the relative magnitudes of the changes in these three components. Specifically, the decreases in inventory holding costs and order processing costs imply that earnings announcements may have an insignificant impact on the total bid‐ask spread, even when they result in increased information asymmetry.