The Journal of Finance

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: 5.

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.


Heteroskedasticity in Stock Returns

Published: 09/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb02430.x

G. WILLIAM SCHWERT, PAUL J. SEGUIN

We use predictions of aggregate stock return variances from daily data to estimate time‐varying monthly variances for size‐ranked portfolios. We propose and estimate a single factor model of heteroskedasticity for portfolio returns. This model implies time‐varying betas. Implications of heteroskedasticity and time‐varying betas for tests of the capital asset pricing model (CAPM) are then documented. Accounting for heteroskedasticity increases the evidence that risk‐adjusted returns are related to firm size. We also estimate a constant correlation model. Portfolio volatilities predicted by this model are similar to those predicted by more complex multivariate generalized‐autoregressive‐conditional‐heteroskedasticity (GARCH) procedures.


The Irrelevance of Margin: Evidence from the Crash of '87

Published: 09/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb04762.x

PAUL J. SEGUIN, GREGG A. JARRELL

Following the crash of 1987, one contentious regulatory issue has been whether margin activity exacerbated the decline in equity values. We contrast the crash behavior of NASDAQ securities eligible for margin trading with the behavior of ineligible ones. Consistent with the hypothesis that margin‐eligible securities were more frequently subjected to margin calls and forced sales, we find that abnormal volumes were uniformly larger for eligible securities. However, there is no evidence that this activity provoked additional price depreciation. Margin‐eligible securities actually fell by one percent less than the ineligible securities over the period.


Volume, Volatility, and New York Stock Exchange Trading Halts

Published: 03/01/1994   |   DOI: 10.1111/j.1540-6261.1994.tb04425.x

CHARLES M. C. LEE, MARK J. READY, PAUL J. SEGUIN

Trading halts increase, rather than reduce, both volume and volatility. Volume (volatility) in the first full trading day after a trading halt is 230 percent (50 to 115 percent) higher than following “pseudohalts”: nonhalt control periods matched on time of day, duration, and absolute net‐of‐market returns. These results are robust over different halt types and news categories. Higher posthalt volume is observed into the third day while higher posthalt volatility decays within hours. The extent of media coverage is a partial determinant of volume and volatility following both halts and pseudohalts, but a separate halt effect remains after controlling for the media effect.


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.