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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An Analysis of Changes in Specialist Inventories and Quotations
Published: 12/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb05122.x
ANANTH MADHAVAN, SEYMOUR SMIDT
We develop a dynamic model of market making incorporating inventory and information effects. The market maker is both a dealer and an investor, quoting prices that induce mean reversion in inventory toward targets determined by portfolio considerations. We test the model with inventory data from a New York Stock Exchange specialist. Specialist inventories exhibit slow mean reversion, with a half‐life of over 49 days, suggesting weak inventory effects. However, after controlling for shifts in desired inventories, the half‐life falls to 7.3 days. Further, quote revisions are negatively related to specialist trades and are positively related to the information conveyed by order imbalances.
Volume for Winners and Losers: Taxation and Other Motives for Stock Trading
Published: 09/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb04559.x
JOSEF LAKONISHOK, SEYMOUR SMIDT
Capital gains taxes create incentives to trade. Our major finding is that turnover is higher for winners (stocks, the prices of which have increased) than for losers, which is not consistent with the tax prediction. However, the turnover in December and January is evidence of tax‐motivated trading; there is a relatively high turnover for losers in December and for winners in January. We conclude that taxes influence turnover, but other motives for trading are more important. We were unable to find evidence that changing the length of the holding period required to qualify for long‐term capital gains treatment affected turnover.