The Journal of Finance

A Bayesian Approach to the Optimal Growth Period Problem: A Note

Published: 03/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb03639.x

ITZHAK VENEZIA

The Effects of Inflation and Taxes on Growth Investments and Replacement Policies

Published: 12/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb03838.x

MENACHEM BRENNER, ITZHAK VENEZIA

This paper investigates the effect of inflation and taxes on the optimal duration of investments. The main conclusion is that inflation does not always increase the duration of investments. For example, in the case of equipment with a short replacement cycle, increased inflation tends to decrease the duration of the cycle. Contrary to the common theoretical analysis, these results imply that inflation may increase some forms of capital investments.

Earnings Announcements and the Components of the Bid‐Ask Spread

Published: 09/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb04078.x

ITZHAK KRINSKY, JASON LEE

This study investigates the behavior of the components of the bid‐ask spread around earnings announcements. We find that the adverse selection cost component significantly increases surrounding the announcements, while the inventory holding and order processing components significantly decline during the same periods. Our results suggest that the directional change in the total bid‐ask spread depends on the relative magnitudes of the changes in these three components. Specifically, the decreases in inventory holding costs and order processing costs imply that earnings announcements may have an insignificant impact on the total bid‐ask spread, even when they result in increased information asymmetry.

Effects of the 1970 Bank Holding Company Act: Evidence from Capital Markets

Published: 09/01/1981   |   DOI: 10.1111/j.1540-6261.1981.tb04887.x

JOSEPH AHARONY, ITZHAK SWARY

This study measures the effects of the 1970 amendment to the Bank Holding Company (BHC) Act on the profitability and risk of BHCs using capital market data. Differences in abnormal returns and risk among three portfolios of bank shares which differ in their regulatory status are examined in various periods preceding and following the enactment. No significant differences in performance and no change in the relative risk of any pair of portfolios were observed. Thus, the null hypothesis that the nonbank expansion provisions of the 1970 amendment had no effect on BHCs' risk and profitability cannot be rejected.

Quarterly Dividend and Earnings Announcements and Stockholders' Returns: An Empirical Analysis

Published: 03/01/1980   |   DOI: 10.1111/j.1540-6261.1980.tb03466.x

JOSEPH AHARONY, ITZHAK SWARY

Returns and Risks of U.S. Bank Foreign Currency Activities

Published: 07/01/1986   |   DOI: 10.1111/j.1540-6261.1986.tb04530.x

THEOHARRY GRAMMATIKOS, ANTHONY SAUNDERS, ITZHAK SWARY

In this paper the risks and returns on U.S. banks' foreign currency positions are analyzed in a portfolio setting when both exchange rate and foreign interest rate risks are present. It is shown that U.S. banks could achieve considerable reductions in risk by optimally selecting their foreign currency positions. Actual foreign currency portfolio returns generated from expected exchange rate changes and exchange rate surprises were positive on average but those generated from interest rate surprises were negative. Although the total portfolio returns were positive, on a risk‐adjusted basis bank return performance was relatively poor. Nevertheless, despite this relatively poor performance, the risk of ruin or failure for a “representative bank” from foreign currency activities was found to be approximately zero when judged in comparison to the capital funds available to large money center banks to cushion such losses.

Can Taxes Shape an Industry? Evidence from the Implementation of the “Amazon Tax”

Published: 04/20/2018   |   DOI: 10.1111/jofi.12687

BRIAN BAUGH, ITZHAK BEN‐DAVID, HOONSUK PARK

For years, online retailers have maintained a price advantage over brick‐and‐mortar retailers by not collecting sales tax at the time of sale. Recently, several states have required that online retailer Amazon collect sales tax during checkout. Using transaction‐level data, we document that households living in these states reduced their Amazon purchases by 9.4% following the implementation of the sales tax laws, implying elasticities of –1.2 to –1.4. The effect is stronger for large purchases, where purchases declined by 29.1%, corresponding to an elasticity of –3.9. Studying competitors in the electronics field, we find some evidence of substitution toward competing retailers.

An Analysis of Risk and Return Characteristics of Corporate Bankruptcy Using Capital Market Data

Published: 09/01/1980   |   DOI: 10.1111/j.1540-6261.1980.tb03516.x

JOSEPH AHARONY, CHARLES P. JONES, ITZHAK SWARY

Do ETFs Increase Volatility?

Published: 09/22/2018   |   DOI: 10.1111/jofi.12727

ITZHAK BEN‐DAVID, FRANCESCO FRANZONI, RABIH MOUSSAWI

Due to their low trading costs, exchange‐traded funds (ETFs) are a potential catalyst for short‐horizon liquidity traders. The liquidity shocks can propagate to the underlying securities through the arbitrage channel, and ETFs may increase the nonfundamental volatility of the securities in their baskets. We exploit exogenous changes in index membership and find that stocks with higher ETF ownership display significantly higher volatility. ETF ownership increases the negative autocorrelation in stock prices. The increase in volatility appears to introduce undiversifiable risk in prices because stocks with high ETF ownership earn a significant risk premium of up to 56 basis points monthly.

The Politics of Foreclosures

Published: 09/22/2018   |   DOI: 10.1111/jofi.12725

SUMIT AGARWAL, GENE AMROMIN, ITZHAK BEN‐DAVID, SERDAR DINC

The U.S. House of Representatives Financial Services Committee considered many important banking reforms in 2009 to 2010. We show that, during this period, foreclosure starts on delinquent mortgages were delayed in the districts of committee members although there was no difference in delinquency rates between committee and noncommittee districts. In these areas, banks delayed the foreclosure starts by 0.5 months (relative to the 12‐month average). The estimated cost of delay to lenders is an order of magnitude greater than the campaign contributions by the political action committees of the largest mortgage servicing banks to the committee members in that period.

Do Hedge Funds Manipulate Stock Prices?

Published: 05/13/2013   |   DOI: 10.1111/jofi.12062

ITZHAK BEN‐DAVID, FRANCESCO FRANZONI, AUGUSTIN LANDIER, RABIH MOUSSAWI

We provide evidence suggesting that some hedge funds manipulate stock prices on critical reporting dates. Stocks in the top quartile of hedge fund holdings exhibit abnormal returns of 0.30% on the last day of the quarter and a reversal of 0.25% on the following day. A significant part of the return is earned during the last minutes of trading. Analysis of intraday volume and order imbalance provides further evidence consistent with manipulation. These patterns are stronger for funds that have higher incentives to improve their ranking relative to their peers.

Mean‐Gini, Portfolio Theory, and the Pricing of Risky Assets

Published: 12/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb04917.x

HAIM SHALIT, SHLOMO YITZHAKI

This paper presents the mean‐Gini (MG) approach to analyze risky prospects and construct optimum portfolios. The proposed method has the simplicity of a mean‐variance model and the main features of stochastic dominance efficiency. Since mean‐Gini is consistent with investor behavior under uncertainty for a wide class of probability distributions, Gini's mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect. The MG approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk. This is further extended to include a degree of risk aversion that can be estimated from capital market data. The analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness.