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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Retail Investor Sentiment and Return Comovements
Published: 09/19/2006 | DOI: 10.1111/j.1540-6261.2006.01063.x
ALOK KUMAR, CHARLES M.C. LEE
Using a database of more than 1.85 million retail investor transactions over 1991–1996, we show that these trades are systematically correlated—that is, individuals buy (or sell) stocks in concert. Moreover, consistent with noise trader models, we find that systematic retail trading explains return comovements for stocks with high retail concentration (i.e., small‐cap, value, lower institutional ownership, and lower‐priced stocks), especially if these stocks are also costly to arbitrage. Macroeconomic news and analyst earnings forecast revisions do not explain these results. Collectively, our findings support a role for investor sentiment in the formation of returns.
Asset Market Participation and Portfolio Choice over the Life‐Cycle
Published: 01/20/2017 | DOI: 10.1111/jofi.12484
ANDREAS FAGERENG, CHARLES GOTTLIEB, LUIGI GUISO
Using error‐free data on life‐cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life‐cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per‐period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway.
Price Discovery without Trading: Evidence from the Nasdaq Preopening
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00249
Charles Cao, Eric Ghysels, Frank Hatheway
This paper studies Nasdaq market makers' activities during the one and one‐half hour preopening period. Price discovery during the preopening is conducted via price signaling as opposed to the auction used to open the NYSE or the continuous market used during trading. In the absence of trades, Nasdaq dealers use crossed and locked inside quotes to signal to other market makers which direction the price should move. Furthermore, we find evidence of price leadership among market makers that bears little resemblance to their IPO/SEO lead underwriter participation.
The Pricing of Oil and Gas: Some Further Results
Published: 07/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb05030.x
MERTON H. MILLER, CHARLES W. UPTON
The Hotelling Valuation Principle (HVP) implies that the unit value of an exhaustible natural resource can be written as a function of its current price, net of extraction costs; other variables such as interest rates have no additional explanatory power. The results of earlier tests using data from 1979–1981 strongly support the HVP. This paper presents a series of follow‐up tests using time‐series cross‐section data covering the period August 1981 to December 1983. Because the variance of petroleum prices in this period was substantially less than in the earlier period, the follow‐up sample proved generally noninformative. The sample also contains some observations on oil and gas royalty trusts. Tests of the HVP using these trust data yielded generally satisfactory results, although—given the limited sample size—the results must be viewed with caution.
Journal Influence on the Design of Finance Doctoral Education
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb02752.x
CHARLES J. CORRADO, STEPHEN P. FERRIS
This article surveys the influence of research journals on finance doctoral education. Influence is measured by citations from syllabi of finance seminars. A sample of 101 distinct syllabi submitted by 33 finance doctoral programs yields a list of 1,031 articles cited by at least two schools. These 1,031 articles generate 3,273 citations referencing 17 finance, economics, and accounting journals, where multiple citations from a single school are counted as a single citation. The most notable findings are the wide variety of seminar content across finance doctoral programs and the dominance of five finance journals in providing this diverse content.
Price Momentum and Trading Volume
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00280
Charles M.C. Lee, Bhaskaran Swaminathan
This study shows that past trading volume provides an important link between “momentum” and “value” strategies. Specifically, we find that firms with high (low) past turnover ratios exhibit many glamour (value) characteristics, earn lower (higher) future returns, and have consistently more negative (positive) earnings surprises over the next eight quarters. Past trading volume also predicts both the magnitude and persistence of price momentum. Specifically, price momentum effects reverse over the next five years, and high (low) volume winners (losers) experience faster reversals. Collectively, our findings show that past volume helps to reconcile intermediate‐horizon “underreaction” and long‐horizon “overreaction” effects.
Does the Specialist Matter? Differential Execution Costs and Intersecurity Subsidization on the New York Stock Exchange
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01123.x
CHARLES CAO, HYUK CHOE, FRANK HATHEWAY
This article tests for differences in execution costs among specialist firms for New York Stock Exchange listed securities. Execution cost differences provide a measure of the relative performance of specialist firms. We find a substantial difference in effective spreads and order processing costs across specialist firms, controlling for stock characteristics. While economically significant, the differences in execution costs between specialist firms are much smaller than the cross‐market differences reported by Huang and Stoll (1996). Within a specialist firm, there is a positive relation between order processing costs and trading activity that is consistent with the hypothesis that active stocks subsidize inactive stocks.
Municipal Bond Pricing and the New York City Fiscal Crisis
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03615.x
DAVID S. KIDWELL, CHARLES A. TRZCINKA
This paper's findings suggests that the New York City fiscal crisis by itself did not lead to a fundamental change in risk perceptions of investors, resulting in higher interest rates in the municipal bond market. The monthly prediction errors generated by time series tests were relatively small and none were statistically significant. Only the signs on the prediction errors for June, July, and August were consistent with a New York City effect. Thus, if the New York City default had an impact on aggregate interest rates, it was at most small and of short duration.
The Economics of Hedge Fund Startups: Theory and Empirical Evidence
Published: 02/05/2021 | DOI: 10.1111/jofi.13009
CHARLES CAO, GRANT FARNSWORTH, HONG ZHANG
This paper examines how market frictions influence the managerial incentives and organizational structure of new hedge funds. We develop a stylized model in which new managers search for accredited investors and have stronger incentives to acquire managerial skill when encountering low investor demand. Fund families endogenously arise to mitigate frictions and weaken the performance incentives of affiliated new funds. Empirically, based on a TASS‐HFR‐BarclayHedge merged database, we find that ex ante identified cold inceptions facing low investor demand outperform existing hedge funds and hot inceptions facing high demand and that cold stand‐alone inceptions outperform all types of family‐affiliated inceptions.