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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Economic News and the Impact of Trading on Bond Prices
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00660.x
T. Clifton Green
This paper studies the impact of trading on government bond prices surrounding the release of macroeconomic news. The results show a significant increase in the informational role of trading following economic announcements, which suggests the release of public information increases the level of information asymmetry in the government bond market. The informational role of trading is greater after announcements with a larger initial price impact, and the relation is associated with the surprise component of the announcement and the precision of the public information. The results provide evidence that government bond order flow reveals fundamental information about riskless rates.
Market Risk and Model Risk for a Financial Institution Writing Options
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00152
T. Clifton Green, Stephen Figlewski
Derivatives valuation and risk management involve heavy use of quantitative models. To develop a quantitative assessment of model risk as it affects the basic option writing strategy that might be followed by a financial institution, we conduct an empirical simulation, with and without hedging, using data from 1976 to 1996. Results indicate that imperfect models and inaccurate volatility forecasts create sizable risk exposure for option writers. We consider to what extent the damage due to model risk can be limited by pricing options using a higher volatility than the best estimate from historical data.
Tax and Liquidity Effects in Pricing Government Bonds
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00064
Edwin J. Elton, T. Clifton Green
Daily data from interdealer government bond brokers are examined for tax and liquidity effects. We use two approaches to create cash flow matching portfolios of similar securities and look for pricing discrepancies associated with liquidity or tax effects. We also look for the presence of tax and liquidity effects by including a liquidity term when fitting a cubic spline to the after‐tax yield curve. We find evidence of tax timing options and liquidity effects. However, the effects are much smaller than previously reported and the effects of liquidity are primarily due to high volume bonds with long maturities.