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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The Structure of Spot Rates and Immunization
Published: 06/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03708.x
EDWIN J. ELTON, MARTIN J. GRUBER, RONI MICHAELY
Empirical studies of the modern theories of bond pricing typically choose proxies for the state variables in a rather arbitrary fashion. This paper empirically analyzes the question of the optimal spot rates to use as state variables. Our findings indicate that the four‐year spot rate serves as the best proxy in the one‐state‐variable model. In the case of the two‐state‐variables model, the six‐year rate and eight‐month rate are identified as best. Tests of the out‐of‐sample prediction ability indicate that our model is superior to Macaulay's duration model and alternative proxies for state variables.
Discrete Expectational Data and Portfolio Performance
Published: 07/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb04534.x
EDWIN J. ELTON, MARTIN J. GRUBER, SETH GROSSMAN
In this article we examine the information content in analysts' recommendations which are made on a five‐point buy, hold, or sell scale. Our data set includes data on 10,000 forecasts per month. Unlike most prior studies, our data set does not suffer from selection or survivorship bias. We find information in analysts' changes in recommendations. Approximately 4.5% extra return can be earned by purchasing new buys rather than new sells.
“ARE BETAS BEST?”†
Published: 12/01/1978 | DOI: 10.1111/j.1540-6261.1978.tb03426.x
Edwin J. Elton, Martin J. Gruber, Thomas J. Urich
Incentive Fees and Mutual Funds
Published: 03/21/2003 | DOI: 10.1111/1540-6261.00545
Edwin J. Elton, Martin J. Gruber, Christopher R. Blake
This paper examines the effect of incentive fees on the behavior of mutual fund managers. Funds with incentive fees exhibit positive stock selection ability, but a beta less than one results in funds not earning positive fees. From an investor's perspective, positive alphas plus lower expense ratios make incentive‐fee funds attractive. However, incentive‐fee funds take on more risk than non‐incentive‐fee funds, and they increase risk after a period of poor performance. Incentive fees are useful marketing tools, since more new cash flows go into incentive‐fee funds than into non‐incentive‐fee funds, ceteris paribus.
Fundamental Economic Variables, Expected Returns, and Bond Fund Performance
Published: 09/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb04056.x
EDWIN J. ELTON, MARTIN J. GRUBER, CHRISTOPHER R. BLAKE
In this article, we develop relative pricing (APT) models that are successful in explaining expected returns in the bond market. We utilize indexes as well as unanticipated changes in economic variables as factors driving security returns. An innovation in this article is the measurement of the economic factors as changes in forecasts. The return indexes are the most important variables in explaining the time series of returns. However, the addition of the economic variables leads to a large improvement in the explanation of the cross‐section of expected returns. We utilize our relative pricing models to examine the performance of bond funds.
A First Look at the Accuracy of the CRSP Mutual Fund Database and a Comparison of the CRSP and Morningstar Mutual Fund Databases
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00410
Edwin J. Elton, Martin J. Gruber, Christopher R. Blake
This paper examines problems in the CRSP Survivor Bias Free U.S. Mutual Fund Database (CRSP, 1998) and compares returns contained in it to those in Morningstar. The CRSP database has an omission bias that has the same effects as survivorship bias. Although all mutual funds are listed in CRSP, return data is missing for many and the characteristics of these funds differ from the populations. The CRSP return data is biased upward and merger months are inaccurately recorded about half the time. Differences in returns in Morningstar and CRSP are a problem for older data and small funds.
Are Investors Rational? Choices among Index Funds
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00633.x
Edwin J. Elton, Martin J. Gruber, Jeffrey A. Busse
S&P 500 index funds represent one of the simplest vehicles for examining rational behavior. They hold virtually the same securities, yet their returns differ by more than 2 percent per year. Although the relative returns of alternative S&P 500 funds are easily predictable, the relationship between cash flows and performance is weaker than rational behavior would lead us to expect. We show that selecting funds based on low expenses or high past returns outperforms the portfolio of index funds selected by investors. Our results exemplify the fact that, in a market where arbitrage is not possible, dominated products can prosper.
Explaining the Rate Spread on Corporate Bonds
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00324
Edwin J. Elton, Martin J. Gruber, Deepak Agrawal, Christopher Mann
The purpose of this article is to explain the spread between rates on corporate and government bonds. We show that expected default accounts for a surprisingly small fraction of the premium in corporate rates over treasuries. While state taxes explain a substantial portion of the difference, the remaining portion of the spread is closely related to the factors that we commonly accept as explaining risk premiums for common stocks. Both our time series and cross‐sectional tests support the existence of a risk premium on corporate bonds.