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: 4.
Endogenous Liquidity in Asset Markets
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00625.x
Andrea L. Eisfeldt
This paper analyzes a model in which long‐term risky assets are illiquid due to adverse selection. The degree of adverse selection and hence the liquidity of these assets is determined endogenously by the amount of trade for reasons other than private information. I find that higher productivity leads to increased liquidity. Moreover, liquidity magnifies the effects of changes in productivity on investment and volume. High productivity implies that investors initiate larger scale risky projects which increases the riskiness of their incomes. Riskier incomes induce more sales of claims to high‐quality projects, causing liquidity to increase.
Organization Capital and the Cross‐Section of Expected Returns
Published: 02/15/2013 | DOI: 10.1111/jofi.12034
ANDREA L. EISFELDT, DIMITRIS PAPANIKOLAOU
Organization capital is a production factor that is embodied in the firm's key talent and has an efficiency that is firm specific. Hence, both shareholders and key talent have a claim to its cash flows. We develop a model in which the outside option of the key talent determines the share of firm cash flows that accrue to shareholders. This outside option varies systematically and renders firms with high organization capital riskier from shareholders' perspective. We find that firms with more organization capital have average returns that are 4.6% higher than firms with less organization capital.
Complex Asset Markets
Published: 07/20/2023 | DOI: 10.1111/jofi.13264
ANDREA L. EISFELDT, HANNO LUSTIG, LEI ZHANG
Investors' individual arbitrage models introduce idiosyncratic risk into complex asset strategies, driving up average returns and Sharpe ratios. However, despite the attractive risk‐return trade‐off, participation is limited. This is because effective Sharpe ratios in complex asset markets vary with investors' expertise. Investors with higher expertise, better models, and lower resulting idiosyncratic risk exposures realize higher Sharpe ratios. Their demand deters entry by less sophisticated investors. As predicted by our model, market dislocations are characterized by an increase in idiosyncratic risk, investor exit, and persistently elevated alphas and Sharpe ratios. The selection effect from higher expertise agents' more favorable Sharpe ratios is unique to our model and key to our main results.
The Cross Section of MBS Returns
Published: 06/15/2021 | DOI: 10.1111/jofi.13055
PETER DIEP, ANDREA L. EISFELDT, SCOTT RICHARDSON
We present a simple, linear asset pricing model of the cross section of Mortgage‐Backed Security (MBS) returns. MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate risk loadings using prepayment forecasts versus realizations. Estimated loadings on prepayment risk decrease monotonically in securities' coupons relative to the par coupon, consistent with the predicted effect of prepayment on bond value. Prepayment risk appears to be priced by specialized MBS investors. The price of prepayment risk changes sign over time with the sign of a representative MBS investor's exposure to prepayment shocks.