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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The Effect of Options on Stock Prices: 1973 to 1995
Published: 03/31/2007 | DOI: 10.1111/0022-1082.00214
Sorin M. Sorescu
I show that the effect of option introductions on underlying stock prices is best described by a two‐regime switching means model whose optimal switch date occurs in 1981. In accordance with previous studies, I find positive abnormal returns for options listed during 1973 to 1980. By contrast, I find negative abnormal returns for options listed in 1981 and later. Possible causes for this switch include the introduction of index options in 1982, the implementation of regulatory changes in 1981, and the possibility that options expedite the dissemination of negative information.
Evidence of Bank Market Discipline in Subordinated Debenture Yields: 1983–1991
Published: 09/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb04072.x
MARK J. FLANNERY, SORIN M. SORESCU
We examine debenture yields over the period 1983–1991 to evaluate the market's sensitivity to bank‐specific risks, and conclude that investors have rationally reflected changes in the government's policy toward absorbing private losses in the event of a bank failure. Although this evidence does not establish that market discipline can effectively control banking firms, it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major U.S. banking firms.
The Long‐run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of Chance?
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00445
Rodney D. Boehme, Sorin M. Sorescu
We examine the long‐term stock performance following dividend initiations and resumptions from 1927 to 1998. We show that postannouncement abnormal returns are significantly positive for equally weighted calendar time portfolios, but become insignificant when the portfolios are value weighted. Moreover, the equally weighted results are not robust across subsamples. We also document postannouncement reductions in the risk factor loadings of underlying stocks. Cross‐sectionally, these reductions are negatively related to the contemporaneous price drifts, suggesting the price drifts may be a sample‐specific result of chance. Our results underscore the importance of testing for changes in risk loadings in future long‐term event studies.