The Journal of Finance

Long‐Term Market Overreaction: The Effect of Low‐Priced Stocks

Published: 12/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05234.x

TIM LOUGHRAN, JAY R. RITTER

Conrad and Kaul (1993) report that most of De Bondt and Thaler's (1985) long‐term overreaction findings can be attributed to a combination of bid‐ask effects when monthly cumulative average returns (CARs) are used, and price, rather than prior returns. In direct tests, we find little difference in test‐period returns whether CARs or buy‐and‐hold returns are used, and that price has little predictive ability in cross‐sectional regressions. The difference in findings between this study and Conrad and Kaul's is primarily due to their statistical methodology. They confound cross‐sectional patterns and aggregate time‐series mean reversion, and introduce a survivor bias. Their procedures increase the influence of price at the expense of prior returns.

Depositors' Welfare, Deposit Insurance, and Deregulation

Published: 07/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb05024.x

YUK‐SHEE CHAN, KING‐TIM MAK

We develop an analytical model to address the question of optimal deposit insurance policy and to examine the impact of deregulation on depositors' welfare and the soundness of the insurance system. We find that the optimal level of regulation depends critically on the functional relationship between risk and return. We show that in general deregulation of bank activities and/or of deposit rate ceilings will in volve tradeoff between depositors' welfare and the soundness of the insurance system. Our analysis also indicates that risk‐sensitive premium and capital requirement schedules may not be efficient in managing the risk of banks.

Information Production, Market Signalling, and the Theory of Financial Intermediation: A Reply

Published: 09/01/1982   |   DOI: 10.1111/j.1540-6261.1982.tb03602.x

TIM S. CAMPBELL, WILLIAM A. KRACAW

The Determinants of Default on Insured Conventional Residential Mortgage Loans

Published: 12/01/1983   |   DOI: 10.1111/j.1540-6261.1983.tb03841.x

TIM S. CAMPBELL, J. KIMBALL DIETRICH

This paper presents empirical evidence on the determinants of default for insured residential mortgages. A multinomial logit model is specified and estimated for regional aggregates constructed from cross sectional and time series data. The results document the independent statistical significance of contemporaneous payment/income and loan/ value ratios and unemployment rates as well as more commonly studied determinants of default such as age and the original loan/value ratio.

Information Production, Market Signalling, and the Theory of Financial Intermediation

Published: 09/01/1980   |   DOI: 10.1111/j.1540-6261.1980.tb03506.x

TIM S. CAMPBEL, WILLIAM A. KRACAW

Why Don't U.S. Issuers Demand European Fees for IPOs?

Published: 11/14/2011   |   DOI: 10.1111/j.1540-6261.2011.01699.x

MARK ABRAHAMSON, TIM JENKINSON, HOWARD JONES

We compare fees charged by investment banks for conducting IPOs in the United States and Europe. In recent years, the “7% solution,” as documented by Chen and Ritter (2000), has become even more prevalent in the United States, and is now the norm for IPOs raising up to $250 million. The same banks dominate both markets, but European IPO fees are roughly three percentage points lower, are much more variable, and have been falling. We review explanations for the gap in spreads and find the evidence consistent with strategic pricing. U.S. issuers could have saved over $1 billion a year by paying European fees.

Corporate Risk Management and the Incentive Effects of Debt

Published: 12/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03736.x

TIM S. CAMPBELL, WILLIAM A. KRACAW

This paper demonstrates how the incentive of manager‐equityholders to substitute toward riskier assets, commonly referred to as the “asset substitution problem,” is related to the level of observable risk in the firm. When observable and unobservable risks are sufficiently positively correlated, increases (decreases) in observable risk generate the incentive for manager‐equityholders to increase (decrease) unobservable risk. Thus, credible commitments to hedge observable risk can benefit the firm's manager‐equityholders by reducing the incentive to shift risk and the associated agency cost of debt. This provides a positive rationale for hedging diversifiable risk at the firm level.

Financial Constraints, Competition, and Hedging in Industry Equilibrium

Published: 09/04/2007   |   DOI: 10.1111/j.1540-6261.2007.01280.x

TIM ADAM, SUDIPTO DASGUPTA, SHERIDAN TITMAN

We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

A Comment on Bank Funding Risks, Risk Aversion, and the Choice of Futures Hedging Instrument

Published: 12/01/1990   |   DOI: 10.1111/j.1540-6261.1990.tb03738.x

TIM S. CAMPBELL, WILLIAM A. KRACAW

Quid Pro Quo? What Factors Influence IPO Allocations to Investors?

Published: 06/19/2018   |   DOI: 10.1111/jofi.12703

TIM JENKINSON, HOWARD JONES, FELIX SUNTHEIM

Using data from all of the leading international investment banks on 220 initial public offerings (IPOs) raising $160 billion between January 2010 and May 2015, we test the determinants of IPO allocations. We compare investors’ IPO allocations with proxies for their information production during bookbuilding and the broking (and other) revenues they generate for bookrunners. We find evidence consistent with information revelation theories. We also find strong support for the existence of a quid pro quo whereby broking revenues are a significant determinant of investors’ IPO allocations and profits. The quid pro quo remains when we control for unobserved investor characteristics and investor‐bank relationships.

Variance‐ratio Statistics and High‐frequency Data: Testing for Changes in Intraday Volatility Patterns

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00326

Torben G. Andersen, Tim Bollerslev, Ashish Das

Variance‐ratio tests are routinely employed to assess the variation in return volatility over time and across markets. However, such tests are not statistically robust and can be seriously misleading within a high‐frequency context. We develop improved inference procedures using a Fourier Flexible Form regression framework. The practical significance is illustrated through tests for changes in the FX intraday volatility pattern following the removal of trading restrictions in Tokyo. Contrary to earlier evidence, we find nodiscernible changes outside of the Tokyo lunch period. We ascribe the difference to the fragile finite‐sample inference of conventional variance‐ratio procedures and a single outlier.

Block Share Purchases and Corporate Performance

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.244195

Jennifer E. Bethel, Julia Porter Liebeskind, Tim Opler

This paper investigates the causes and consequences of activist block share purchases in the 1980s. We find that activist investors were most likely to purchase large blocks of shares in highly diversified firms with poor profitability. Activists were not less likely to purchase blocks in firms with shark repellents and employee stock ownership plans. Activist block purchases were followed by increases in asset divestitures, decreases in mergers and acquisitions, and abnormal share price appreciation. Industry‐adjusted operating profitability also rose. This evidence supports the view that the market for partial corporate control plays an important role in limiting agency costs in U.S. corporations.

Private Equity Performance: What Do We Know?

Published: 03/27/2014   |   DOI: 10.1111/jofi.12154

ROBERT S. HARRIS, TIM JENKINSON, STEVEN N. KAPLAN

We study the performance of nearly 1,400 U.S. buyout and venture capital funds using a new data set from Burgiss. We find better buyout fund performance than previously documented—performance has consistently exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund's life and more than 3% annually. Venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. Our conclusions are robust to various indices and risk controls. Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss, but is lower in Venture Economics.

Picking Winners? Investment Consultants’ Recommendations of Fund Managers

Published: 05/05/2015   |   DOI: 10.1111/jofi.12289

TIM JENKINSON, HOWARD JONES, JOSE VICENTE MARTINEZ

Investment consultants advise institutional investors on their choice of fund manager. Focusing on U.S. actively managed equity funds, we analyze the factors that drive consultants’ recommendations, what impact these recommendations have on flows, and how well the recommended funds perform. We find that investment consultants’ recommendations of funds are driven largely by soft factors, rather than the funds’ past performance, and that their recommendations have a significant effect on fund flows. However, we find no evidence that these recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.

Financial Fragility with SAM?

Published: 12/03/2020   |   DOI: 10.1111/jofi.12992

DANIEL L. GREENWALD, TIM LANDVOIGT, STIJN VAN NIEUWERBURGH

Shared appreciation mortgages (SAMs) feature mortgage payments that adjust with house prices. They are designed to stave off borrower default by providing payment relief when house prices fall. Some argue that SAMs may help prevent the next foreclosure crisis. However, home owners' gains from payment relief are mortgage lenders' losses. A general equilibrium model in which financial intermediaries channel savings from saver to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk‐sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk‐sharing.

Zombie Credit and (Dis‐)Inflation: Evidence from Europe

Published: 04/11/2024   |   DOI: 10.1111/jofi.13342

VIRAL V. ACHARYA, MATTEO CROSIGNANI, TIM EISERT, CHRISTIAN EUFINGER

We show that “zombie credit”—subsidized credit to nonviable firms—has a disinflationary effect. By keeping these firms afloat, zombie credit creates excess aggregate supply, thereby putting downward pressure on prices. Granular European data on inflation, firms, and banks confirm this mechanism. Markets affected by a rise in zombie credit experience lower firm entry and exit, capacity utilization, markups, and inflation, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. If weakly capitalized banks were recapitalized in 2009, inflation in Europe would have been up to 0.21 percentage points higher post‐2012.

Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts

Published: 07/26/2013   |   DOI: 10.1111/jofi.12082

ULF AXELSON, TIM JENKINSON, PER STRÖMBERG, MICHAEL S. WEISBACH

Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, international sample of buyouts from 1980 to 2008, we find that buyout leverage is unrelated to the cross‐sectional factors, suggested by traditional capital structure theories, that drive public firm leverage. Instead, variation in economy‐wide credit conditions is the main determinant of leverage in buyouts. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.

The Anatomy of the Transmission of Macroprudential Policies

Published: 08/10/2022   |   DOI: 10.1111/jofi.13170

VIRAL V. ACHARYA, KATHARINA BERGANT, MATTEO CROSIGNANI, TIM EISERT, FERGAL MCCANN

We analyze how regulatory constraints on household leverage—in the form of loan‐to‐income and loan‐to‐value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Loan‐level data suggest that mortgage credit is reallocated from low‐ to high‐income borrowers and from urban to rural counties. This reallocation weakens the feedback between credit and house prices and slows house price growth in “hot” housing markets. Banks whose lending to households is more affected by the regulatory constraint drive this reallocation, but also substitute their risk‐taking into holdings of securities and corporate credit.

MARKET POWER, PROFITABILITY AND FINANCIAL LEVERAGE

Published: 12/01/1974   |   DOI: 10.1111/j.1540-6261.1974.tb03123.x

Timothy G. Sullivan

FINANCING BLACK ENTERPRISE

Published: 06/01/1974   |   DOI: 10.1111/j.1540-6261.1974.tb01481.x

Timothy Bates