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.
Contracting in Peer Networks
Published: 07/14/2023 | DOI: 10.1111/jofi.13260
PETER M. DEMARZO, RON KANIEL
We consider multiagent multifirm contracting when agents benchmark their wages to those of their peers, using weights that vary within and across firms. When a single principal commits to a public contract, optimal contracts hedge relative wage risk without sacrificing efficiency. But compensation benchmarking undoes performance benchmarking, causing wages to load positively on peer output, and asymmetries in peer effects can be exploited to enhance profits. With multiple principals, a “rat race” emerges: agents are more productive, with effort that can exceed the first best, but higher wages reduce profits and undermine efficiency. Wage transparency and disclosure requirements exacerbate these effects.
Individual Investor Trading and Stock Returns
Published: 01/10/2008 | DOI: 10.1111/j.1540-6261.2008.01316.x
RON KANIEL, GIDEON SAAR, SHERIDAN TITMAN
This paper investigates the dynamic relation between net individual investor trading and short‐horizon returns for a large cross‐section of NYSE stocks. The evidence indicates that individuals tend to buy stocks following declines in the previous month and sell following price increases. We document positive excess returns in the month following intense buying by individuals and negative excess returns after individuals sell, which we show is distinct from the previously shown past return or volume effects. The patterns we document are consistent with the notion that risk‐averse individuals provide liquidity to meet institutional demand for immediacy.
Individual Investor Trading and Return Patterns around Earnings Announcements
Published: 03/27/2012 | DOI: 10.1111/j.1540-6261.2012.01727.x
RON KANIEL, SHUMING LIU, GIDEON SAAR, SHERIDAN TITMAN
This paper provides evidence of informed trading by individual investors around earnings announcements using a unique data set of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose abnormal returns following the event into information and liquidity provision components, and show that about half of the returns can be attributed to private information. We also find that individuals trade in both return‐contrarian and news‐contrarian manners after earnings announcements. The latter behavior has the potential to slow the adjustment of prices to earnings news.
Diversification as a Public Good: Community Effects in Portfolio Choice
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00676.x
Peter M. Demarzo, Ron Kaniel, Ilan Kremer
Within a rational general equilibrium model in which agents care only about personal consumption, we consider a setting in which, due to borrowing constraints, individuals endowed with local resources underparticipate in financial markets. As a result, investors compete for local resources through their portfolio choices. Even with complete financial markets and no aggregate risk, agents may herd into risky portfolios. This yields a Pareto‐dominated outcome as agents introduce “community” risk unrelated to fundamentals. Moreover, if some agents are behaviorally biased, or cannot completely diversify their holdings, rational agents may choose more extreme portfolios and amplify the effect.
The High‐Volume Return Premium
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00349
Simon Gervais, Ron Kaniel, Dan H. Mingelgrin
The idea that extreme trading activity contains information about the future evolution of stock prices is investigated. We find that stocks experiencing unusually high (low) trading volume over a day or a week tend to appreciate (depreciate) over the course of the following month. We argue that this high‐volume return premium is consistent with the idea that shocks in the trading activity of a stock affect its visibility, and in turn the subsequent demand and price for that stock. Return autocorrelations, firm announcements, market risk, and liquidity do not seem to explain our results.
Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00438
Mark M. Carhart, Ron Kaniel, David K. Musto, Adam V. Reed
We present evidence that fund managers inflate quarter‐end portfolio prices with last‐minute purchases of stocks already held. The magnitude of price inflation ranges from 0.5 percent per year for large‐cap funds to well over 2 percent for small‐cap funds. We find that the cross section of inflation matches the cross section of incentives from the flow/performance relation, that a surge of trading in the quarter's last minutes coincides with a surge in equity prices, and that the inflation is greatest for the stocks held by funds with the most incentive to inflate, controlling for the stocks' size and performance.