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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Search results: 18.
Shareholder Benefits from Corporate International Diversification
Published: 12/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb04910.x
ALI M. FATEMI
This study provides further evidence on the rates of return realized by the shareholders of multinational firms relative to those of purely domestic firms. The results indicate that the risk‐adjusted returns realized by the shareholders are identical across the two groups except where the MNC operates in competitive foreign markets. In that case, MNC shareholders experience negative abnormal returns. The study also provides further evidence on the risk‐reduction effect of international diversification. The results fail to support the hypothesis that the beta is a convex function of the degree of international involvement. Finally, the paper provides some preliminary evidence on the effect of corporate international diversification on shareholders' returns. It is found that abnormal returns rise by some 18 percent during the 14 months preceding the initial foreign diversification.
Leverage Choice and Credit Spreads when Managers Risk Shift
Published: 11/09/2010 | DOI: 10.1111/j.1540-6261.2010.01617.x
MURRAY CARLSON, ALI LAZRAK
We model the debt and asset risk choice of a manager with performance‐insensitive pay (cash) and performance‐sensitive pay (stock) to theoretically link compensation structure, leverage, and credit spreads. The model predicts that optimal leverage trades off the tax benefit of debt against the utility cost of ex‐post asset substitution and that credit spreads are increasing in the ratio of cash‐to‐stock. Using a large cross‐section of U.S.‐based corporate credit default swaps (CDS) covering 2001 to 2006, we find a positive association between cash‐to‐stock and CDS rates, and between cash‐to‐stock and leverage ratios.
Optimum Distribution‐Free Tests and Further Evidence of Heteroscedasticity in the Market Model
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03616.x
CARMELO GIACCOTTO, MUKHTAR M. ALI
In this paper several powerful distribution‐free tests for heteroscedasticity are introduced and are used to test the hypothesis of constant variance in the market model. These tests are noted for their flexibility in specifying alternative hypotheses. It is found that the assumption of homoscedasticity is untenable for the majority of stocks analyzed. The implications of this finding for the efficient estimation of the parameters of the market model are also discussed.
Fire‐Sale Spillovers in Debt Markets
Published: 09/14/2021 | DOI: 10.1111/jofi.13078
ANTONIO FALATO, ALI HORTAÇSU, DAN LI, CHAEHEE SHIN
Fire sales induced by investor redemptions have powerful spillover effects among funds that hold the same assets, hurting peer funds' performance and flows, and leading to further asset sales with negative bond price impact. A one‐standard‐deviation increase in our fire‐sale spillover measure leads to a 45 (90) bp decrease in peer fund returns (flows) and a two percentage point increase in the likelihood of a large bond price drop. The results hold in a regression‐discontinuity design addressing identification concerns. Timing, heterogeneity, instrumental‐variable, and placebo tests further support the price‐impact mechanism. Model‐based counterfactual and stress‐test analyses quantify the financial stability implications.
CONSUMERS' CHOICE IN INSURANCE*
Published: 09/01/1953 | DOI: 10.1111/j.1540-6261.1953.tb01175.x
Alice M. Morrison
Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry
Published: 03/01/2024 | DOI: 10.1111/jofi.13321
ALICE BONAIMÉ, YE (EMMA) WANG
Using novel data from the pharmaceutical industry, we study product prices and innovation around mergers. Exploiting within‐deal variation in product market consolidation, we show that prices increase more for drugs in consolidating markets than for matched control drugs. Estimates indicate a 2% average price effect that persists for about one year. Price increases expand with acquirer‐target product similarity and are more pronounced within less competitive product markets with fewer players and no generic competition. Examination of trade‐offs reveals these deals generate significant shareholder value. They also spur labeling and other manufacturing‐related innovation, but not the development of new drugs.
Rent or Buy? Inflation Experiences and Homeownership within and across Countries
Published: 04/19/2024 | DOI: 10.1111/jofi.13332
ULRIKE MALMENDIER, ALEXANDRA STEINY WELLSJO
We show that past inflation experiences strongly predict homeownership within and across countries. First, we collect novel survey data, which reveal inflation protection to be a key motivation for homeownership, especially after high inflation experiences. Second, using household data from 22 European countries, we find that higher exposure to historical inflation predicts higher homeownership rates. We estimate similar associations among immigrants to the United States who experienced different past inflation in their home countries but face the same U.S. housing market. Consistent with the experience effects model, the relationship is strongest in countries with predominantly fixed‐rate mortgages.
The Fed, the Bond Market, and Gradualism in Monetary Policy
Published: 02/12/2018 | DOI: 10.1111/jofi.12614
JEREMY C. STEIN, ADI SUNDERAM
We develop a model of monetary policy with two key features: the central bank has private information about its long‐run target rate and is averse to bond market volatility. In this setting, the central bank gradually impounds changes in its target into the policy rate. Such gradualism represents an attempt to not spook the bond market. However, this effort is partially undone in equilibrium, as markets rationally react more to a given move when the central bank moves more gradually. This time‐consistency problem means that society would be better off if the central bank cared less about the bond market.