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: 6.
Futures‐Trading Activity and Stock Price Volatility
Published: 12/01/1992 | DOI: 10.1111/j.1540-6261.1992.tb04695.x
HENDRIK BESSEMBINDER, PAUL J. SEGUIN
We examine whether greater futures‐trading activity (volume and open interest) is associated with greater equity volatility. We partition each trading activity series into expected and unexpected components, and document that while equity volatility covaries positively with unexpected futures‐trading volume, it is negatively related to forecastable futures‐trading activity. Further, though futures‐trading activity is systematically related to the futures contract life cycle, we find no evidence of a relation between the futures life cycle and spot equity volatility. These findings are consistent with theories predicting that active futures markets enhance the liquidity and depth of the equity markets.
Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00463
Hendrik Bessembinder, Michael L. Lemmon
Spot power prices are volatile and since electricity cannot be economically stored, familiar arbitrage‐based methods are not applicable for pricing power derivative contracts. This paper presents an equilibrium model implying that the forward power price is a downward biased predictor of the future spot price if expected power demand is low and demand risk is moderate. However, the equilibrium forward premium increases when either expected demand or demand variance is high, because of positive skewness in the spot power price distribution. Preliminary empirical evidence indicates that the premium in forward power prices is greatest during the summer months.
Market Making Contracts, Firm Value, and the IPO Decision
Published: 05/12/2015 | DOI: 10.1111/jofi.12285
HENDRIK BESSEMBINDER, JIA HAO, KUNCHENG ZHENG
We examine the effects of secondary market liquidity on firm value and the IPO decision. Competitive aftermarket liquidity provision is associated with reduced welfare and a discounted secondary market price that can dissuade IPOs. The competitive market fails in particular for firms or at times when uncertainty regarding fundamental value and asymmetric information are large in combination. In these cases, firm value and welfare are improved by a contract where the firm engages a designated market maker to enhance liquidity. Such contracts represent a market solution to a market imperfection, particularly for small, growth firms.
Noisy Prices and Inference Regarding Returns
Published: 11/26/2012 | DOI: 10.1111/jofi.12010
ELENA ASPAROUHOVA, HENDRIK BESSEMBINDER, IVALINA KALCHEVA
Temporary deviations of trade prices from fundamental values impart bias to estimates of mean returns to individual securities, to differences in mean returns across portfolios, and to parameters estimated in return regressions. We consider a number of corrections, and show them to be effective under reasonable assumptions. In an application to the Center for Research in Security Prices monthly returns, the corrections indicate significant biases in uncorrected return premium estimates associated with an array of firm characteristics. The bias can be large in economic terms, for example, equal to 50% or more of the corrected estimate for firm size and share price.
Capital Commitment and Illiquidity in Corporate Bonds
Published: 05/14/2018 | DOI: 10.1111/jofi.12694
HENDRIK BESSEMBINDER, STACEY JACOBSEN, WILLIAM MAXWELL, KUMAR VENKATARAMAN
We study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank‐affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank‐affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.
Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure
Published: 03/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05178.x
HENDRIK BESSEMBINDER, JAY F. COUGHENOUR, PAUL J. SEGUIN, MARGARET MONROE SMOLLER
We use the term structure of futures prices to test whether investors anticipate mean reversion in spot asset prices. The empirical results indicate mean reversion in each market we examine. For agricultural commodities and crude oil the magnitude of the estimated mean reversion is large; for example, point estimates indicate that 44 percent of a typical spot oil price shock is expected to be reversed over the subsequent eight months. For metals, the degree of mean reversion is substantially less, but still statistically significant. We detect only weak evidence of mean reversion in financial asset prices.