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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What if Trading Location Is Different from Business Location? Evidence from the Jardine Group
Published: 05/06/2003 | DOI: 10.1111/1540-6261.00564
Kalok Chan, Allaudeen Hameed, Sie Ting Lau
We examine the price behavior and market activity of the Jardine Group companies after they were delisted from Hong Kong in 1994. Although the trading activity of the Jardine Group moved to Singapore, the core businesses remained in Hong Kong and Mainland China. Evidence indicates the Jardine stocks are correlated less (more) with the Hong Kong (Singapore) market after the delisting. This result cannot be explained by various hypotheses, such as relocation of core business, time‐varying betas, migration of trading activity, and currency and tax distortions. We conclude that price fluctuations are affected by country‐specific investor sentiment.
Testing Disagreement Models
Published: 05/11/2022 | DOI: 10.1111/jofi.13137
YEN‐CHENG CHANG, PEI‐JIE HSIAO, ALEXANDER LJUNGQVIST, KEVIN TSENG
We provide plausibly identified evidence for the role of investor disagreement in asset pricing. Our natural experiment exploits the staggered implementation of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, which induces a reduction in investor disagreement. Consistent with models of investor disagreement, EDGAR inclusion helps resolve disagreement around information events, leading to stock price corrections. The reduction in disagreement following EDGAR inclusion also reduces stock price crash risk, especially among stocks with binding short‐sale constraints and high investor optimism.
A REPLY
Published: 09/01/1970 | DOI: 10.1111/j.1540-6261.1970.tb00565.x
Keith V. Smith, John C. Schreiner
An Analysis of Mortgage Contracting: Prepayment Penalties and the Due‐on‐Sale Clause
Published: 03/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04950.x
KENNETH B. DUNN, CHESTER S. SPATT
The due‐on‐sale clause contained in most conventional home mortgage contracts is equivalent to a prepayment penalty equal to the difference between the face value and market value of the loan. We analyze a bilateral game with asymmetric information and show that the bank demands the full penalty unless the market value of the loan is sufficiently low. In that case, the bank demands a prepayment penalty which is independent of the market value of the loan in order to induce additional prepayments. We also demonstrate, by a risk‐sharing argument, that the due‐on‐sale clause is optimal in some settings, even though it eliminates some beneficial home sales.
Predictable Stock Returns: The Role of Small Sample Bias
Published: 06/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04731.x
CHARLES R. NELSON, MYUNG J. KIM
Predictive regressions are subject to two small sample biases: the coefficient estimate is biased if the predictor is endogenous, and asymptotic standard errors in the case of overlapping periods are biased downward. Both biases work in the direction of making t‐ratios too large so that standard inference may indicate predictability even if none is present. Using annual returns since 1872 and monthly returns since 1927 we estimate empirical distributions by randomizing residuals in the VAR representation of the variables. The estimated biases are large enough to affect inference in practice, and should be accounted for when studying predictability.
Collateralization, Bank Loan Rates, and Monitoring
Published: 09/17/2014 | DOI: 10.1111/jofi.12214
GERALDO CERQUEIRO, STEVEN ONGENA, KASPER ROSZBACH
We show that collateral plays an important role in the design of debt contracts, the provision of credit, and the incentives of lenders to monitor borrowers. Using a unique data set from a large bank containing timely assessments of collateral values, we find that the bank responded to a legal reform that exogenously reduced collateral values by increasing interest rates, tightening credit limits, and reducing the intensity of its monitoring of borrowers and collateral, spurring borrower delinquency on outstanding claims. We thus explain why banks are senior lenders and quantify the value of claimant priority.
On the Industry Concentration of Actively Managed Equity Mutual Funds
Published: 08/12/2005 | DOI: 10.1111/j.1540-6261.2005.00785.x
MARCIN KACPERCZYK, CLEMENS SIALM, LU ZHENG
Mutual fund managers may decide to deviate from a well‐diversified portfolio and concentrate their holdings in industries where they have informational advantages. In this paper, we study the relation between the industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. Our results indicate that, on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures. This finding suggests that investment ability is more evident among managers who hold portfolios concentrated in a few industries.
The Private Production of Safe Assets
Published: 12/07/2020 | DOI: 10.1111/jofi.12997
MARCIN KACPERCZYK, CHRISTOPHE PÉRIGNON, GUILLAUME VUILLEMEY
Using high‐frequency, granular panel data on short‐term debt securities issued in Europe, we study the existence, empirical boundaries, and fragility of private assets' safety. We show that only securities with the shortest maturities, issued by banks (certificates of deposit, or CDs), benefit from a safety premium. The supply of such CDs responds positively to excess safety demand. During periods of stress, this relation vanishes for all issuers of private securities, even though their aggregate volumes do not collapse. Other dimensions of heterogeneity, including issuers' balance sheets or their domicile countries' fiscal capacity, are less relevant for private safety.
A VARMA Analysis of the Causal Relations Among Stock Returns, Real Output, and Nominal Interest Rates
Published: 12/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb02389.x
CHRISTOPHER JAMES, SERGIO KOREISHA, MEGAN PARTCH
Previous research has documented a negative relation between common stock returns and inflation. Recently, Fama [3] and Geske and Roll [6] have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.
The Economic Value of Volatility Timing
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00327
Jeff Fleming, Chris Kirby, Barbara Ostdiek
Numerous studies report that standard volatility models have low explanatory power, leading some researchers to question whether these models have economic value. We examine this question by using conditional meanm‐variance analysis to assess the value of volatility timing to short‐horizon investors. We find that the volatility timing strategies outperform the unconditionally efficient static portfolios that have the same target expected return and volatility. This finding is robust to estimation risk and transaction costs.
Learning about Mutual Fund Managers
Published: 02/29/2016 | DOI: 10.1111/jofi.12405
DARWIN CHOI, BIGE KAHRAMAN, ABHIROOP MUKHERJEE
We study capital allocations to managers with two mutual funds, and show that investors learn about managers from their performance records. Flows into a fund are predicted by the manager's performance in his other fund, especially when he outperforms and when signals from the other fund are more useful. In equilibrium, capital should be allocated such that there is no cross‐fund predictability. However, we find positive predictability, particularly among underperforming funds. Our results are consistent with incomplete learning: while investors move capital in the right direction, they do not withdraw enough capital when the manager underperforms in his other fund.
Noncognitive Abilities and Financial Delinquency: The Role of Self‐Efficacy in Avoiding Financial Distress
Published: 09/23/2018 | DOI: 10.1111/jofi.12724
CAMELIA M. KUHNEN, BRIAN T. MELZER
We investigate a novel determinant of financial distress, namely, individuals' self‐efficacy, or belief that their actions can influence the future. Individuals with high self‐efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, noncognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.