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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Financial Investment Opportunities and the Macroeconomy
Published: 06/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb02673.x
NAI‐FU CHEN
This paper studies the relation between changes in financial investment opportunities and changes in the macroeconomy. States variables such as the lagged production growth rate, the default premium, the term premium, the short‐term interest rate and the market dividend‐price ratio are shown to be indicators of recent and future economic growth. Further, the market excess return is negatively correlated with recent economic growth and positively correlated with expected future economic growth. These results offer straightforward interpretations of recent evidence on the forecasts of the market excess return by state variable via their forecasts on the macroeconomy.
Some Empirical Tests of the Theory of Arbitrage Pricing
Published: 12/01/1983 | DOI: 10.1111/j.1540-6261.1983.tb03831.x
NAI‐FU CHEN
We estimate the parameters of Ross's Arbitrage Pricing Theory (APT). Using daily return data during the 1963–78 period, we compare the evidence on the APT and the Capital Asset Pricing Model (CAPM) as implemented by market indices and find that the APT performs well. The theory is further supported in that estimated expected returns depend on estimated factor loadings, and variables such as own variance and firm size do not contribute additional explanatory power to that of the factor loadings.
Structural and Return Characteristics of Small and Large Firms
Published: 09/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb04626.x
K. C. CHAN, NAI‐FU CHEN
We examine differences in structural characteristics that lead firms of different sizes to react differently to the same economic news. We find that a small firm portfolio contains a large proportion of marginal firms‐firms with low production efficiency and high financial leverage. We construct two size‐matched return indices designed to mimic the return behavior of marginal firms and find that these return indices are important in explaining the time‐series return difference between small and large firms. Furthermore, risk exposures to these indices are as powerful as log(size) in explaining average returns of size‐ranked portfolios.
An Unconditional Asset‐Pricing Test and the Role of Firm Size as an Instrumental Variable for Risk
Published: 06/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb03941.x
K. C. CHAN, NAI‐FU CHEN
In an intertemporal economy where both risk (stock beta) and expected return are time varying, the authors derive a linear relation between the unconditional beta and the unconditional return under certain stationarity assumptions about the stochastic process of size‐portfolio betas. The model suggests the use of long time periods to estimate the unconditional portfolio betas. The authors find that, after controlling for the betas thus estimated, a firm‐size proxy, such as the logarithm of the firm size, does not have explanatory power for the averaged returns across the size‐ranked portfolios.
A Rejoinder
Published: 06/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04743.x
Nai‐Fu Chen, Raymond Kan, Merton H. Miller
Stock Volatility and the Levels of the Basis and Open Interest in Futures Contracts
Published: 03/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb05174.x
NAI‐FU CHEN, CHARLES J. CUNY, ROBERT A. HAUGEN
This article tests a theoretical model of the basis and open interest of stock index futures. The model is based on the differences between stock and futures in terms of investors' ability to customize stock portfolios and liquidity. Empirical evidence confirms the model's prediction that increased volatility decreases the basis and increases open interest.