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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Investor Sentiment and the Closed‐End Fund Puzzle
Published: 03/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb03746.x
CHARLES M. C. LEE, ANDREI SHLEIFER, RICHARD H. THALER
This paper examines the proposition that fluctuations in discounts of closed‐end funds are driven by changes in individual investor sentiment. The theory implies that discounts on various funds move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts are correlated with prices of other securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that both closed‐end funds and small stocks tend to be held by individual investors, and that the discounts on closed‐end funds narrow when small stocks do well.
Futures Markets and Informational Efficiency: A Laboratory Examination
Published: 09/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb03887.x
ROBERT FORSYTHE, THOMAS R. PALFREY, CHARLES R. PLOTT
Through the use of laboratory market methodology, the effect of a futures market on the time path of asset prices is studied and competing models of asset pricing are analyzed. With replication of market conditions, the predictions of a rational expectations equilibrium model are relatively accurate whether or not futures markets are present. However, the presence of futures markets increases the speed with which an efficient equilibrium is achieved. While this more rapid adjustment can increase the variance of spot market prices as they move to equilibrium, this increased variance reflects efficiency gains due to better information.
Stock Volatility and the Levels of the Basis and Open Interest in Futures Contracts
Published: 03/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05174.x
NAI‐FU CHEN, CHARLES J. CUNY, ROBERT A. HAUGEN
This article tests a theoretical model of the basis and open interest of stock index futures. The model is based on the differences between stock and futures in terms of investors' ability to customize stock portfolios and liquidity. Empirical evidence confirms the model's prediction that increased volatility decreases the basis and increases open interest.
DISCUSSION
Published: 05/01/1955 | DOI: 10.1111/j.1540-6261.1955.tb01261.x
Paul M. Van Arsdell, Bion B. Howard, Charles M. Williams
On the Determinants of Corporate Hedging
Published: 03/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04709.x
DEANA R. NANCE, CLIFFORD W. SMITH, CHARLES W. SMITHSON
Finance theory indicates that hedging increases firm value by reducing expected taxes, expected costs of financial distress, or other agency costs. This paper provides evidence on these hypotheses using survey data on firm's use of forwards, futures, swaps, and options combined with COMPUTSTAT data on firm characteristics. Of 169 firms in the sample, 104 firms use hedging instruments in 1986. The data suggest that firms which hedge face more convex tax functions, have less coverage of fixed claims, are larger, have more growth options in their investment opportunity set, and employ fewer hedging substitutes.
Free Cash Flow, Issuance Costs, and Stock Prices
Published: 09/21/2011 | DOI: 10.1111/j.1540-6261.2011.01680.x
JEAN‐PAUL DÉCAMPS, THOMAS MARIOTTI, JEAN‐CHARLES ROCHET, STÉPHANE VILLENEUVE
We develop a dynamic model of a firm facing agency costs of free cash flow and external financing costs, and derive an explicit solution for the firm's optimal balance sheet dynamics. Financial frictions affect issuance and dividend policies, the value of cash holdings, and the dynamics of stock prices. The model predicts that the marginal value of cash varies negatively with the stock price, and positively with the volatility of the stock price. This yields novel insights on the asymmetric volatility phenomenon, on risk management policies, and on how business cycles and agency costs affect the volatility of stock returns.
Volume, Volatility, and New York Stock Exchange Trading Halts
Published: 03/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb04425.x
CHARLES M. C. LEE, MARK J. READY, PAUL J. SEGUIN
Trading halts increase, rather than reduce, both volume and volatility. Volume (volatility) in the first full trading day after a trading halt is 230 percent (50 to 115 percent) higher than following “pseudohalts”: nonhalt control periods matched on time of day, duration, and absolute net‐of‐market returns. These results are robust over different halt types and news categories. Higher posthalt volume is observed into the third day while higher posthalt volatility decays within hours. The extent of media coverage is a partial determinant of volume and volatility following both halts and pseudohalts, but a separate halt effect remains after controlling for the media effect.
Summing Up
Published: 06/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04744.x
Navin Chopra, Charles M. C. Lee, Andrei Shleifer, Richard H. Thaler
Analyzing the Analysts: When Do Recommendations Add Value?
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00657.x
Narasimhan Jegadeesh, Joonghyuk Kim, Susan D. Krische, Charles M. C. Lee
We show that analysts from sell‐side firms generally recommend “glamour” (i.e., positive momentum, high growth, high volume, and relatively expensive) stocks. Naïve adherence to these recommendations can be costly, because the level of the consensus recommendation adds value only among stocks with favorable quantitative characteristics (i.e., value stocks and positive momentum stocks). In fact, among stocks with unfavorable quantitative characteristics, higher consensus recommendations are associated with worse subsequent returns. In contrast, we find that the quarterly change in consensus recommendations is a robust return predictor that appears to contain information orthogonal to a large range of other predictive variables.
Time Variation in Liquidity: The Role of Market‐Maker Inventories and Revenues
Published: 01/13/2010 | DOI: 10.1111/j.1540-6261.2009.01530.x
CAROLE COMERTON‐FORDE, TERRENCE HENDERSHOTT, CHARLES M. JONES, PAMELA C. MOULTON, MARK S. SEASHOLES
We show that market‐maker balance sheet and income statement variables explain time variation in liquidity, suggesting liquidity‐supplier financing constraints matter. Using 11 years of NYSE specialist inventory positions and trading revenues, we find that aggregate market‐level and specialist firm‐level spreads widen when specialists have large positions or lose money. The effects are nonlinear and most prominent when inventories are big or trading results have been particularly poor. These sensitivities are smaller after specialist firm mergers, consistent with deep pockets easing financing constraints. Finally, compared to low volatility stocks, the liquidity of high volatility stocks is more sensitive to inventories and losses.
A BENEFIT‐COST MODEL FOR CREDIT DECISIONS*
Published: 03/01/1967 | DOI: 10.1111/j.1540-6261.1967.tb01665.x
Carl Crawford Greer
Rational Expectations Model of Term Premia with Some Implications for Empirical Asset Demand Equations
Published: 03/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04937.x
CARL E. WALSH
This paper derives the equilibrium time series processes characterizing the prices of bonds which differ by maturity using the CAPM relationship between expected returns. The assumption of rational expectations requires that asset demand behavior, which determines bond prices in equilibrium, be based on the covariances among returns that are implied by the assumption of market clearing. This requirement imposes nonlinear restrictions on the parameters in the solution for bond prices. Some implications for the types of comparative static exercises for which it is legitimate to assume invariant demand functions are discussed, and some numerical solutions for bond prices are derived.