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: 7.
Momentum, Business Cycle, and Time‐varying Expected Returns
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00449
Tarun Chordia, Lakshmanan Shivakumar
A growing number of researchers argue that time‐series patterns in returns are due to investor irrationality and thus can be translated into abnormal profits. Continuation of short‐term returns or momentum is one such pattern that has defied any rational explanation and is at odds with market efficiency. This paper shows that profits to momentum strategies can be explained by a set of lagged macroeconomic variables and payoffs to momentum strategies disappear once stock returns are adjusted for their predictability based on these macroeconomic variables. Our results provide a possible role for time‐varying expected returns as an explanation for momentum payoffs.
Brokerage Commission Schedules
Published: 09/01/1993 | DOI: 10.1111/j.1540-6261.1993.tb04758.x
MICHAEL J. BRENNAN, TARUN CHORDIA
It is generally optimal for risk‐sharing reasons to base a charge for information on the signal realization. When this is not possible, a charge based on the amount of trading, a brokerage commission, may be a good alternative. The optimal brokerage commission schedule is derived for a risk‐neutral information seller faced with risk‐averse purchasers who may differ in their risk aversion. Revenues from the brokerage commission are compared with those from a fixed charge for information and the optimal mutual fund management fee.
Trading Volume and Cross‐Autocorrelations in Stock Returns
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00231
Tarun Chordia, Bhaskaran Swaminathan
This paper finds that trading volume is a significant determinant of the lead‐lag patterns observed in stock returns. Daily and weekly returns on high volume portfolios lead returns on low volume portfolios, controlling for firm size. Nonsynchronous trading or low volume portfolio autocorrelations cannot explain these findings. These patterns arise because returns on low volume portfolios respond more slowly to information in market returns. The speed of adjustment of individual stocks confirms these findings. Overall, the results indicate that differential speed of adjustment to information is a significant source of the cross‐autocorrelation patterns in short‐horizon stock returns.
Liquidity and Autocorrelations in Individual Stock Returns
Published: 09/19/2006 | DOI: 10.1111/j.1540-6261.2006.01060.x
DORON AVRAMOV, TARUN CHORDIA, AMIT GOYAL
This paper documents a strong relationship between short‐run reversals and stock illiquidity, even after controlling for trading volume. The largest reversals and the potential contrarian trading strategy profits occur in high turnover, low liquidity stocks, as the price pressures caused by non‐informational demands for immediacy are accommodated. However, the contrarian trading strategy profits are smaller than the likely transactions costs. This lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short‐term reversals is not so egregious after all.
True Spreads and Equilibrium Prices
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00390
Clifford A. Ball, Tarun Chordia
Stocks and other financial assets are traded at prices that lie on a fixed grid determined by the minimum tick size. Observed prices and quoted spreads do not correspond to the equilibrium prices and true spreads that would exist in a market with no minimum tick size. Using Monte Carlo Markov Chain methods, this paper estimates the equilibrium prices and true spreads. For large stocks, most of the quoted spread is attributable to the rounding of prices and the adverse selection component is small. The true spread and the adverse selection component are greater for mid‐sized stocks.
Market Liquidity and Trading Activity
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00335
Tarun Chordia, Richard Roll, Avanidhar Subrahmanyam
Previous studies of liquidity span short time periods and focus on the individual security. In contrast, we study aggregate market spreads, depths, and trading activity for U.S. equities over an extended time sample. Daily changes in market averages of liquidity and trading activity are highly volatile and negatively serially dependent. Liquidity plummets significantly in down markets. Recent market volatility induces a decrease in trading activity and spreads. There are strong day‐of‐the‐week effects; Fridays accompany a significant decrease in trading activity and liquidity, while Tuesdays display the opposite pattern. Long‐ and short‐term interest rates influence liquidity. Depth and trading activity increase just prior to major macroeconomic announcements.
Momentum and Credit Rating
Published: 09/04/2007 | DOI: 10.1111/j.1540-6261.2007.01282.x
DORON AVRAMOV, TARUN CHORDIA, GERGANA JOSTOVA, ALEXANDER PHILIPOV
This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among low‐grade firms, but it is nonexistent among high‐grade firms. The momentum payoffs documented in the literature are generated by low‐grade firms that account for less than 4% of the overall market capitalization of rated firms. The momentum payoff differential across credit rating groups is unexplained by firm size, firm age, analyst forecast dispersion, leverage, return volatility, and cash flow volatility.