The Journal of Finance

Spending Less after (Seemingly) Bad News

Published: 4/29/2024,  Volume: 79,  Issue: 4  |  DOI: 10.1111/jofi.13325  |  Cited by: 16

MARK J. GARMAISE, YARON LEVI, HANNO LUSTIG

Using high‐frequency spending data, we show that household consumption displays excess sensitivity to salient macroeconomic news, even when the news is not real. When the announced local unemployment rate reaches a 12‐month maximum, local news coverage of unemployment increases and local consumers reduce their discretionary spending by 1.5% relative to consumers in areas with the same macroeconomic conditions. Low‐income households display greater excess sensitivity to salience. The decrease in spending is not later reversed. Households in treated areas act as if they are more financially constrained than those in untreated areas with the same fundamentals.

Financial Networks: Contagion, Commitment, and Private Sector Bailouts

Published: 11/10/2005,  Volume: 60,  Issue: 6  |  DOI: 10.1111/j.1540-6261.2005.00821.x  |  Cited by: 305

YARON LEITNER

I develop a model of financial networks in which linkages not only spread contagion, but also induce private sector bailouts, where liquid banks bail out illiquid banks because of the threat of contagion. Introducing this bailout possibility, I show that linkages may be optimal ex ante because they allow banks to obtain some mutual insurance even though formal commitments are impossible. However, in some cases (e.g., when liquidity is concentrated among a small group of banks), the whole network may collapse. I also characterize the optimal network size and apply the results to joint liability arrangements and payment systems.

Model Secrecy and Stress Tests

Published: 3/7/2023,  Volume: 78,  Issue: 2  |  DOI: 10.1111/jofi.13207  |  Cited by: 35

YARON LEITNER, BASIL WILLIAMS

Should regulators reveal the models they use to stress‐test banks? In our setting, revealing leads to gaming, but secrecy can induce banks to underinvest in socially desirable assets for fear of failing the test. We show that although the regulator can solve this underinvestment problem by making the test easier, some disclosure may still be optimal (e.g., if banks have high appetite for risk or if capital shortfalls are not very costly). Cutoff rules are optimal within monotone disclosure rules, but more generally optimal disclosure is single‐peaked. We discuss policy implications and offer applications beyond stress tests.

Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles

Published: 8/2004,  Volume: 59,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2004.00670.x  |  Cited by: 3336

Ravi Bansal, Amir Yaron

We model consumption and dividend growth rates as containing (1) a small long‐run predictable component, and (2) fluctuating economic uncertainty (consumption volatility). These dynamics, for which we provide empirical support, in conjunction with Epstein and Zin's (1989) preferences, can explain key asset markets phenomena. In our economy, financial markets dislike economic uncertainty and better long‐run growth prospects raise equity prices. The model can justify the equity premium, the risk‐free rate, and the volatility of the market return, risk‐free rate, and the price–dividend ratio. As in the data, dividend yields predict returns and the volatility of returns is time‐varying.

Underutilization of Forward Markets or Rational Behavior?

Published: 9/1979,  Volume: 34,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1979.tb03453.x  |  Cited by: 3

MAURICE D. LEVI

The Gains from Takeover Deregulation: Evidence from the End of Interstate Banking Restrictions

Published: 12/1998,  Volume: 53,  Issue: 6  |  DOI: 10.1111/0022-1082.00087  |  Cited by: 68

Yaron Brook, Robert Hendershott, Darrell Lee

This paper uses interstate banking deregulation to explore the benefits of takeover deregulation and how these benefits are distributed across different firms. We find large and significant abnormal returns around the Interstate Banking and Branching Efficiency Act of 1994 which imply it created $85 billion of value in the banking industry. Consistent with an active market for corporate control allowing beneficial consolidation and providing needed discipline, there is a strong negative relationship between banks' abnormal returns and their prior performance. Consistent with managerial entrenchment limiting takeover discipline, banks with higher insider ownership, lower outside block ownership, and/or less independent boards have lower abnormal returns.

Oil Futures Prices in a Production Economy with Investment Constraints

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01466.x  |  Cited by: 89

LEONID KOGAN, DMITRY LIVDAN, AMIR YARON

We document a new stylized fact, that the relationship between the volatility of oil futures prices and the slope of the forward curve is nonmonotone and has a V‐shape. This pattern cannot be generated by standard models that emphasize storage. We develop an equilibrium model of oil production in which investment is irreversible and capacity constrained. Investment constraints affect firms' investment decisions and imply that the supply elasticity changes over time. Since demand shocks must be absorbed by changes in prices or changes in supply, time‐varying supply elasticity results in time‐varying volatility of futures prices. Estimating this model, we show it is quantitatively consistent with the V‐shape relationship between the volatility of futures prices and the slope of the forward curve.

Weekend Effects on Stock Returns: A Note

Published: 6/1982,  Volume: 37,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1982.tb02231.x  |  Cited by: 310

JOSEF LAKONISHOK, MAURICE LEVI

Weekend Effects on Stock Returns: A Reply

Published: 3/1985,  Volume: 40,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1985.tb04957.x  |  Cited by: 5

JOSEF LAKONISHOK, MAURICE LEVI

How Risky Are U.S. Corporate Assets?

Published: 1/2/2023,  Volume: 78,  Issue: 1  |  DOI: 10.1111/jofi.13196  |  Cited by: 9

TETIANA DAVYDIUK, SCOTT RICHARD, IVAN SHALIASTOVICH, AMIR YARON

We use market data on corporate bonds and equities to measure the value of U.S. corporate assets and their payouts to investors. In contrast to equity dividends, total corporate payouts are highly volatile, turn negative when corporations raise capital, and are acyclical. At the same time, corporate asset returns are similar to returns on equity, and both are exposed to fluctuations in economic growth. To reconcile this evidence, we argue that acyclical but volatile net repurchases mask the exposure of total payouts' cash components to economic growth risks. We develop an asset pricing framework to quantitatively illustrate this economic channel.

Volatility, the Macroeconomy, and Asset Prices

Published: 11/10/2014,  Volume: 69,  Issue: 6  |  DOI: 10.1111/jofi.12110  |  Cited by: 302

RAVI BANSAL, DANA KIKU, IVAN SHALIASTOVICH, AMIR YARON

How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and volatility risks determine risk premia and show that volatility plays a significant role in explaining the joint dynamics of returns to human capital and equity. Volatility risk carries a sizable positive risk premium and helps account for the cross section of expected returns. Our evidence demonstrates that volatility is important for understanding expected returns and macroeconomic fluctuations.

Fisher, Phillips, Friedman and the Measured Impact of Inflation on Interest

Published: 3/1979,  Volume: 34,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1979.tb02069.x  |  Cited by: 54

MAURICE D. LEVI, JOHN H. MAKIN

Fisher, Phillips, Friedman and the Measured Impact of Inflation on Interest: A Reply

Published: 9/1981,  Volume: 36,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1981.tb04898.x  |  Cited by: 1

MAURICE D. LEVI, JOHN H. MAKIN