The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb02751.x
ALBERT S. KYLE, F. ALBERT WANG
In a duopoly model of informed speculation, we show that overconfidence may strictly dominate rationality since an overconfident trader may not only generate higher expected profit and utility than his rational opponent, but also higher than if he were also rational. This occurs because overconfidence acts like a commitment device in a standard Cournot duopoly. As a result, for some parameter values the Nash equilibrium of a two‐fund game is a Prisoner's Dilemma in which both funds hire overconfident managers. Thus, overconfidence can persist and survive in the long run.
The Real Product Market Impact of Mergers
Published: 09/10/2014 | DOI: 10.1111/jofi.12200
ALBERT SHEEN
I document sources of value creation in mergers by analyzing novel data on the quality and price of goods sold by merging firms. When two competitors in a product market merge, their products converge in quality, and prices fall relative to the competition. These effects take two to three years to be fully realized and are stronger in mature industries. Prices do not fall, however, when the acquirer is diversifying into a new product market. This direct evidence of real changes induced by merger activity is consistent with consolidation by related merging firms to achieve operational efficiencies and lower costs.
DISCUSSION
Published: 07/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb05031.x
ALBERT S. KYLE
VARIABLE ANNUITIES*
Published: 05/01/1956 | DOI: 10.1111/j.1540-6261.1956.tb00696.x
M. Albert Linton
Reply
Published: 09/01/1957 | DOI: 10.1111/j.1540-6261.1957.tb04146.x
M. Albert Linton
Competition for Order Flow and Smart Order Routing Systems
Published: 01/10/2008 | DOI: 10.1111/j.1540-6261.2008.01312.x
THIERRY FOUCAULT, ALBERT J. MENKVELD
We study the rivalry between Euronext and the London Stock Exchange (LSE) in the Dutch stock market to test hypotheses about the effect of market fragmentation. As predicted by our theory, the consolidated limit order book is deeper after entry of the LSE. Moreover, cross‐sectionally, we find that a higher trade‐through rate in the entrant market coincides with less liquidity supply in this market. These findings imply that (i) fragmentation of order flow can enhance liquidity supply and (ii) protecting limit orders against trade‐throughs is important.
Contagion as a Wealth Effect
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00373
Albert S. Kyle, Wei Xiong
Financial contagion is described as a wealth effect in a continuous‐time model with two risky assets and three types of traders. Noise traders trade randomly in one market. Long‐term investors provide liquidity using a linear rule based on fundamentals. Convergence traders with logarithmic utility trade optimally in both markets. Asset price dynamics are endogenously determined (numerically) as functions of endogenous wealth and exogenous noise. When convergence traders lose money, they liquidate positions in both markets. This creates contagion, in that returns become more volatile and more correlated. Contagion reduces benefits from portfolio diversification and raises issues for risk management.
Information Revelation in Decentralized Markets
Published: 08/09/2019 | DOI: 10.1111/jofi.12838
BJÖRN HAGSTRÖMER, ALBERT J. MENKVELD
How does information get revealed in decentralized markets? We test several hypotheses inspired by recent dealer‐network theory. To do so, we construct an empirical map of information revelation where two dealers are connected based on the synchronicity of their quote changes. The tests, based on the euro to Swiss franc spot rate (EUR/CHF) quote data including the 2015 crash, largely support theory: strongly connected (i.e., central) dealers are more informed. Connections are weaker when there is less to be learned. The crash serves to identify how a network forms when dealers are transitioned from no‐learning to learning, that is, from a fixed to a floating rate.
DISCUSSION
Published: 05/01/1963 | DOI: 10.1111/j.1540-6261.1963.tb00728.x
Albert Ando, Martin J. Bailey
Barbarians at the Store? Private Equity, Products, and Consumers
Published: 04/11/2022 | DOI: 10.1111/jofi.13134
CESARE FRACASSI, ALESSANDRO PREVITERO, ALBERT SHEEN
We investigate the effects of private equity firms on product markets using price and sales data for an extensive number of consumer products. Following a private equity deal, target firms increase retail sales of their products 50% more than matched control firms. Price increases—roughly 1% on existing products—do not drive this growth; the launch of new products and geographic expansion do. Competitors reduce their product offerings and marginally raise prices. Cross‐sectional results on target firms, private equity firms, the economic environment, and product categories suggest that private equity generates growth by easing financial constraints and providing managerial expertise.