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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On Stable Factor Structures in the Pricing of Risk: Do Time‐Varying Betas Help or Hurt?
Published: 12/17/2002 | DOI: 10.1111/0022-1082.224803
Eric Ghysels
There is now considerable evidence suggesting that estimated betas of unconditional capital asset pricing models (CAPMs) exhibit statistically significant time variation. Therefore, many have advocated the use of conditional CAPMs. If we succeed in capturing the dynamics of beta risk, we are sure to outperform constant beta models. However, if the beta risk is inherently misspecified, there is a real possibility that we commit serious pricing errors, potentially larger than with a constant traditional beta model. In this paper we show that this is indeed the case, namely that pricing errors with constant traditional beta models are smaller than with conditional CAPMs.
REPLY
Published: 06/01/1972 | DOI: 10.1111/j.1540-6261.1972.tb00998.x
Eric Brucker
Stockholders’ Unrealized Returns and the Market Reaction to Financial Disclosures
Published: 12/13/2018 | DOI: 10.1111/jofi.12743
ERIC WEISBROD
Using both investor‐ and stock‐level data, I examine the relation between stockholders’ unrealized returns since purchase and the market response to earnings announcements. I demonstrate that stockholders’ unrealized gain/loss position moderates their trading behavior in response to earnings announcements. I also find that this behavior generates a short‐window return underreaction to earnings news. My results are generally consistent with predictions from prospect theory regarding the manner in which stockholders’ unrealized returns moderate their trading response to belief shocks. However, my results also suggest that an emotional component (i.e., regret‐avoidance/pride‐seeking) is necessary to explain the observed investor behavior.
Returns to Speculators and the Theory of Normal Backwardation
Published: 03/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04944.x
ERIC C. CHANG
A nonparametric statistical procedure is employed to examine the returns to speculators in wheat, corn, and soybeans futures markets. We find that the theory of normal backwardation is supported. Moreover, the presence of the risk premiums to speculators tends to be more prominent in recent years than in earlier years. We also find that large wheat speculators as a whole possessed some superior forecasting ability. The evidence is inconsistent with the hypothesis that commodity futures prices are unbiased estimates of the corresponding future spot prices.
A MICROECONOMIC APPROACH TO BANKING COMPETITION
Published: 12/01/1970 | DOI: 10.1111/j.1540-6261.1970.tb00874.x
Eric Brucker
A FEDERAL DEPARTMENT OF FINANCE—A PROPOSAL*
Published: 03/01/1952 | DOI: 10.1111/j.1540-6261.1952.tb01520.x
Eric W. Lawson
Preferences for Stock Characteristics As Revealed by Mutual Fund Portfolio Holdings
Published: 03/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb05204.x
ERIC G. FALKENSTEIN
This investigation of the cross‐section of mutual fund equity holdings for the years 1991 and 1992 shows that mutual funds have a significant preference towards stocks with high visibility and low transaction costs, and are averse to stocks with low idiosyncratic volatility. These findings are relevant to theories concerning investor recognition, a potential agency problem in mutual funds, tests of trend‐following and herd behavior by mutual funds, and corporate finance.
Difference Systems in Financial Futures Markets
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03611.x
THOMAS ERIC KILCOLLIN
Many financial futures markets allow substitutions for the par grade of security at delivery. Substitutes are deliverable at premiums or discounts—“differences” in commodities parlance—to the futures price. The rule that establishes these differences is called a difference system. This paper characterizes financial futures market equilibrium with yield‐based difference systems and investigates particular systems in use. The major finding is that currently used difference systems effectively limit deliverable supply in the futures markets and lead to futures prices which understate the cash market price of the par security.
Defaults of Original Issue High‐Yield Convertible Bonds
Published: 03/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04714.x
ERIC S. ROSENGREN
Recent studies using aging analysis have found high rates of default for rated, nonconvertible high‐yield bonds. This paper examines the remainder of the market and concludes that rated and nonrated convertible high‐yield bonds had significantly lower default rates. It also provides some evidence that nonrated, nonconvertible securities may have lower default rates. Even after controlling for issue size and coupon rates in a logit model, these differences remain statistically significant.
DISCUSSION
Published: 07/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb05001.x
ERIC H. SORENSEN
Arrested Development: Theory and Evidence of Supply‐Side Speculation in the Housing Market
Published: 08/29/2018 | DOI: 10.1111/jofi.12719
CHARLES G. NATHANSON, ERIC ZWICK
This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner‐occupancy. As a result, undeveloped land facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation challenges the standard intuition that in cities where construction is easier, house price booms are smaller. It can also explain why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.
Why Invest in Emerging Markets? The Role of Conditional Return Asymmetry
Published: 05/23/2016 | DOI: 10.1111/jofi.12420
ERIC GHYSELS, ALBERTO PLAZZI, ROSSEN VALKANOV
We propose a quantile‐based measure of conditional skewness, particularly suitable for handling recalcitrant emerging market (EM) returns. The skewness of international stock market returns varies significantly across countries over time, and persists at long horizons. In EMs, skewness is mostly positive and idiosyncratic, and significantly relates to a country's financial and trade openness and balance of payments. In an international portfolio setting, return asymmetry leads to sizeable certainty‐equivalent gains and increases the weight on emerging countries to about 30%. Investing in EMs seems to be about expectations of a higher upside than downside, consistent with recent theories.
On the Theory of Rational Insurance Purchasing: A Note
Published: 06/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04974.x
ERIC P. BRIYS, HENRI LOUBERGE
The authors consider the optimal amount of insurance purchased by an individual who behaves according to the Hurwicz criterion of choice under uncertainty. Their results are compared with earlier results obtained in alternative frameworks (expected utility maximization and Savage's regret criterion). It is shown that a positive amount deductible is often suboptimal.
How Wise Are Crowds? Insights from Retail Orders and Stock Returns
Published: 02/07/2013 | DOI: 10.1111/jofi.12028
ERIC K. KELLEY, PAUL C. TETLOCK
We analyze the role of retail investors in stock pricing using a database uniquely suited for this purpose. The data allow us to address selection bias concerns and to separately examine aggressive (market) and passive (limit) orders. Both aggressive and passive net buying positively predict firms’ monthly stock returns with no evidence of return reversal. Only aggressive orders correctly predict firm news, including earnings surprises, suggesting they convey novel cash flow information. Only passive net buying follows negative returns, consistent with traders providing liquidity and benefiting from the reversal of transitory price movements. These actions contribute to market efficiency.
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.