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Journal Cover The Journal of Finance
  [SJR: 14.546]   [H-I: 213]   [138 followers]  Follow
    
   Hybrid Journal Hybrid journal (It can contain Open Access articles)
   ISSN (Print) 0022-1082 - ISSN (Online) 1540-6261
   Published by John Wiley and Sons Homepage  [1592 journals]
  • ISSUE INFORMATION FM
    • Pages: 2377 - 2379
      PubDate: 2018-01-03T13:00:16.021526-05:
      DOI: 10.1111/jofi.12462
       
  • ISSUE INFORMATION BM
    • Pages: 2391 - 2394
      PubDate: 2018-01-03T13:00:12.178517-05:
      DOI: 10.1111/jofi.12463
       
  • MISCELLANEA
    • Pages: 2773 - 2774
      PubDate: 2018-01-03T13:00:11.741389-05:
      DOI: 10.1111/jofi.12461
       
  • ANNOUNCEMENTS
    • Pages: 2775 - 2775
      PubDate: 2018-01-03T13:00:17.443377-05:
      DOI: 10.1111/jofi.12594
       
  • Preliminary Program AFA 2018 PHILADELPHIA MEETINGS SEVENTY EIGHTH ANNUAL
           MEETING AMERICAN FINANCE ASSOCIATION Philadelphia, Pennsylvania
    • Pages: 2777 - 2826
      PubDate: 2018-01-03T13:00:11.80991-05:0
      DOI: 10.1111/jofi.12595
       
  • Participant Schedule Report Participants in the AFA 2018 Philadelphia
           Meetings January 5–7, 2018
    • Pages: 2827 - 2888
      PubDate: 2018-01-03T13:00:11.692469-05:
      DOI: 10.1111/jofi.12596
       
  • American Finance Association
    • Authors: David Hirshleifer
      Pages: 2889 - 2889
      PubDate: 2018-01-03T13:00:14.357774-05:
      DOI: 10.1111/jofi.12597
       
  • Liquidity as Social Expertise
    • Authors: PABLO KURLAT
      Abstract: This paper proposes a theory of liquidity dynamics. Illiquidity results from asymmetric information. Observing the historical track record teaches agents how to interpret public information and helps overcome information asymmetry. However, an illiquidity trap can arise: too much asymmetric information leads to the breakdown of trade, which interrupts learning and perpetuates illiquidity. Liquidity falls in response to unexpected events that lead agents to question their valuation models (especially in newer markets) may be slow to recover after a crisis, and is higher in periods of stability.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-22T10:21:20.233797-05:
      DOI: 10.1111/jofi.12606
       
  • Bank Capital and Lending Relationships
    • Authors: MICHAEL SCHWERT
      Abstract: This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and credit provision. I find that bank-dependent firms borrow from well-capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank-dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-18T06:22:38.757452-05:
      DOI: 10.1111/jofi.12604
       
  • Homeowner Borrowing and Housing Collateral: New Evidence from Expiring
           Price Controls
    • Authors: ANTHONY A. DEFUSCO
      Abstract: I empirically analyze how changes in access to housing collateral affect homeowner borrowing behavior. To isolate the role of collateral constraints from that of wealth effects, I exploit the fully anticipated expiration of resale price controls on owner-occupied housing in Montgomery County, Maryland. I estimate a marginal propensity to borrow out of housing collateral that ranges between $0.04 to $0.13 and is correlated with homeowners' initial leverage. Additional analysis of residential investment and ex-post loan performance indicates that some of the extracted funds generated new expenditures. These results suggest a potentially important role for collateral constraints in driving household expenditures.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-18T05:35:45.913728-05:
      DOI: 10.1111/jofi.12602
       
  • Financial Literacy and Portfolio Dynamics
    • Authors: MILO BIANCHI
      Abstract: We match administrative panel data on portfolio choices with survey measures of financial literacy. When we control for portfolio risk, the most literate households experience 0.4% higher annual returns than the least literate households. Distinct portfolio dynamics are the key determinant of this difference. More literate households hold riskier positions when expected returns are higher, they more actively rebalance their portfolios and do so in a way that holds their risk exposure relatively constant over time, and they are more likely to buy assets that provide higher returns than the assets that they sell.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-16T16:51:20.162293-05:
      DOI: 10.1111/jofi.12605
       
  • Option Mispricing Around Nontrading Periods
    • Authors: CHRISTOPHER S. JONES; JOSHUA SHEMESH
      Abstract: We find that option returns are significantly lower over nontrading periods, the vast majority of which are weekends. Our evidence suggests that nontrading returns cannot be explained by risk, but rather are the result of widespread and highly persistent option mispricing driven by the incorrect treatment of stock return variance during periods of market closure. The size of the effect implies that the broad spectrum of finance research involving option prices should account for nontrading effects. Our study further suggests how alternative industry practices could improve the efficiency of option markets in a meaningful way.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-16T16:41:03.024209-05:
      DOI: 10.1111/jofi.12603
       
  • Short-Selling Risk
    • Authors: JOSEPH E. ENGELBERG; ADAM V. REED, MATTHEW C. RINGGENBERG
      Abstract: Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short-selling risk affects prices among the cross-section of stocks. Stocks with more short-selling risk have lower returns, less price efficiency, and less short selling.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-15T06:21:06.498693-05:
      DOI: 10.1111/jofi.12601
       
  • Institutional and Legal Context in Natural Experiments: The Case of State
           Antitakeover Laws
    • Authors: JONATHAN M. KARPOFF; MICHAEL D. WITTRY
      Abstract: We argue and demonstrate empirically that a firm's institutional and legal context has first-order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm-level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.This article is protected by copyright. All rights reserved
      PubDate: 2017-12-15T06:21:00.552279-05:
      DOI: 10.1111/jofi.12600
       
  • Agency, Firm Growth, and Managerial Turnover
    • Authors: RONALD W. ANDERSON; M. CECILIA BUSTAMANTE, STÉPHANE GUIBAUD, MIHAIL ZERVOS
      Abstract: We study managerial incentive provision under moral hazard when growth opportunities arrive stochastically and pursuing them requires a change in management. A trade-off arises between the benefit of always having the “right” manager and the cost of incentive provision. The prospect of growth-induced turnover limits the firm's ability to rely on deferred pay, resulting in more front-loaded compensation. The optimal contract may insulate managers from the risk of growth-induced dismissal after periods of good performance. The evidence for the United States broadly supports the model's predictions: Firms with better growth prospects experience higher CEO turnover and use more front-loaded compensation.
      PubDate: 2017-11-16T10:36:46.918846-05:
      DOI: 10.1111/jofi.12583
       
  • The Paradox of Financial Fire Sales: The Role of Arbitrage Capital in
           Determining Liquidity
    • Authors: JAMES DOW; JUNGSUK HAN
      Abstract: How can fire sales for financial assets happen when the economy contains well-capitalized but nonspecialist investors' Our explanation combines rational expectations equilibrium and “lemons” models. When specialist (informed) market participants are liquidity-constrained, prices become less informative. This creates an adverse selection problem, decreasing the supply of high-quality assets, and lowering valuations by nonspecialist (uninformed) investors, who become unwilling to supply capital to support the price. In normal times, arbitrage capital can “multiply” itself by making uninformed capital function as informed capital, but in a crisis, this stabilizing mechanism fails.
      PubDate: 2017-11-16T10:31:37.861713-05:
      DOI: 10.1111/jofi.12584
       
  • Measuring Liquidity Mismatch in the Banking Sector
    • Authors: JENNIE BAI; ARVIND KRISHNAMURTHY, CHARLES-HENRI WEYMULLER
      Abstract: This paper constructs a liquidity mismatch index (LMI) to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities, for 2,882 bank holding companies over 2002 to 2014. The aggregate LMI decreases from +$4 trillion precrisis to −$6 trillion in 2008. We conduct an LMI stress test revealing the fragility of the banking system in early 2007. Moreover, LMI predicts a bank's stock market crash probability and borrowing decisions from the government during the financial crisis. The LMI is therefore informative about both individual bank liquidity and the liquidity risk of the entire banking system.
      PubDate: 2017-11-16T10:31:02.080929-05:
      DOI: 10.1111/jofi.12591
       
  • Government Credit, a Double-Edged Sword: Evidence from the China
           Development Bank
    • Authors: HONG RU
      Abstract: Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state-owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.
      PubDate: 2017-11-07T11:21:05.051363-05:
      DOI: 10.1111/jofi.12585
       
  • The Share of Systematic Variation in Bilateral Exchange Rates
    • Authors: ADRIEN VERDELHAN
      Abstract: Sorting countries by their dollar currency betas produces a novel cross section of average currency excess returns. A slope factor (long in high beta currencies and short in low beta currencies) accounts for this cross section of currency risk premia. This slope factor is orthogonal to the high-minus-low carry trade factor built from portfolios of countries sorted by their interest rates. The two high-minus-low risk factors account for 18% to 80% of the monthly exchange rate movements. The two risk factors suggest that stochastic discount factors in complete markets' models should feature at least two global shocks to describe exchange rates.
      PubDate: 2017-11-07T11:10:42.196466-05:
      DOI: 10.1111/jofi.12587
       
  • Personal Lending Relationships
    • Authors: STEPHEN ADAM KAROLYI
      Abstract: I identify the effects of personal relationships on loan contracting using executive deaths and retirements at other firms as a source of exogenous variation in executive turnover. After plausibly exogenous turnover, borrowers choose lenders with which their new executive's have personal relationships 4.1 times as frequently, and loans from these lenders have 20 basis points lower spreads and 12.5% larger amounts. Personal relationships benefit firms across loan terms, especially during macroeconomic downturns. Increased financial flexibility from personal relationships insulated firms from financial shocks during the recent financial crisis: they exhibited less constrained investment and were less likely to layoff employees.This article is protected by copyright. All rights reserved
      PubDate: 2017-10-23T07:20:27.378733-05:
      DOI: 10.1111/jofi.12589
       
  • Unshrouding: Evidence from Bank Overdrafts in Turkey
    • Authors: SULE ALAN; MEHMET CEMALCILAR, DEAN KARLAN, JONATHAN ZINMAN
      Abstract: Lower prices produce higher demand… or do they' A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or auto-debit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.This article is protected by copyright. All rights reserved
      PubDate: 2017-10-12T09:50:29.72977-05:0
      DOI: 10.1111/jofi.12593
       
  • Wholesale Funding Dry-Ups
    • Authors: CHRISTOPHE PÉRIGNON; DAVID THESMAR, GUILLAUME VUILLEMEY
      Abstract: We empirically explore the fragility of wholesale funding of banks, using transaction-level data on short-term, unsecured certificates of deposit in the European market. We do not observe a market-wide freeze during the 2008 to 2014 period. Yet many banks suddenly experience funding dry-ups. Dry-ups predict, but do not cause, future deterioration in bank performance. Furthermore, during periods of market stress, banks with high future performance tend to increase reliance on wholesale funding. We therefore fail to find evidence consistent with adverse selection models of funding market freezes. Our evidence is in line with theories highlighting heterogeneity between informed and uninformed lenders.This article is protected by copyright. All rights reserved
      PubDate: 2017-10-10T07:50:28.250443-05:
      DOI: 10.1111/jofi.12592
       
  • The Leverage Ratchet Effect
    • Authors: ANAT R. ADMATI; PETER M. DEMARZO, MARTIN F. HELLWIG, PAUL PFLEIDERER
      Abstract: Firms’ inability to commit to future funding choices has profound consequences for capital structure dynamics. With debt in place, shareholders pervasively resist leverage reductions no matter how much such reductions may enhance firm value. Shareholders would instead choose to increase leverage even if the new debt is junior and would reduce firm value. These asymmetric forces in leverage adjustments, which we call the leverage ratchet effect, cause equilibrium leverage outcomes to be history-dependent. If forced to reduce leverage, shareholders are biased toward selling assets relative to potentially more efficient alternatives such as pure recapitalizations.This article is protected by copyright. All rights reserved
      PubDate: 2017-10-10T01:20:25.326362-05:
      DOI: 10.1111/jofi.12588
       
  • Optimal Debt and Profitability in the Trade-off Theory
    • Authors: ANDREW B. ABEL
      Abstract: I develop a dynamic model of leverage with tax deductible interest and an endogenous cost of default. The interest rate includes a premium to compensate lenders for expected losses in default. A borrowing constraint is generated by lenders' unwillingness to lend an amount that would trigger immediate default. When the borrowing constraint is not binding, the trade-off theory of debt holds: optimal debt equates the marginal interest tax shield and the marginal expected cost of default. Contrary to conventional interpretation, but consistent with empirical findings, increases in current or future profitability reduce the optimal leverage ratio when the trade-off theory holds.This article is protected by copyright. All rights reserved
      PubDate: 2017-10-10T00:22:31.290971-05:
      DOI: 10.1111/jofi.12590
       
  • How Do Quasi-Random Option Grants Affect CEO Risk-Taking'
    • Authors: KELLY SHUE; RICHARD R. TOWNSEND
      Abstract: We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multiyear compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10% increase in new options granted leads to a 2.8% to 4.2% increase in equity volatility. This increase in risk is driven largely by increased leverage.
      PubDate: 2017-10-04T10:45:32.268374-05:
      DOI: 10.1111/jofi.12545
       
  • Commodity Trade and the Carry Trade: A Tale of Two Countries
    • Authors: ROBERT READY; NIKOLAI ROUSSANOV, COLIN WARD
      Abstract: Persistent interest rate differentials account for much of the currency carry trade profitability. “Commodity currencies” offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods. In the model, domestic production insulates commodity-producing countries from global productivity shocks, forcing final-good producers to absorb them. Commodity-currency exchange rates and risk premia increase with productivity differentials and trade frictions. These predictions are strongly supported in the data.
      PubDate: 2017-10-04T10:31:49.074309-05:
      DOI: 10.1111/jofi.12546
       
  • Diagnostic Expectations and Credit Cycles
    • Authors: PEDRO BORDALO; NICOLA GENNAIOLI, ANDREI SHLEIFER
      Abstract: We present a model of credit cycles arising from diagnostic expectations – a belief formation mechanism based on Kahneman and Tversky's (1972) representativeness heuristic. Diagnostic expectations overweight future outcomes that become more likely in light of incoming data. The expectations formation rule is forward-looking and depends on the underlying stochastic process, and thus is immune to the Lucas critique. Diagnostic expectations reconcile extrapolation and neglect of risk in a unified framework. In our model, credit spreads are excessively volatile, overreact to news, and are subject to predictable reversals. These dynamics can account for several features of credit cycles and macroeconomic volatility.This article is protected by copyright. All rights reserved
      PubDate: 2017-09-26T08:50:21.446-05:00
      DOI: 10.1111/jofi.12586
       
  • Why Do Investors Hold Socially Responsible Mutual Funds'
    • Authors: ARNO RIEDL; PAUL SMEETS
      Abstract: To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.
      PubDate: 2017-09-14T10:45:27.632642-05:
      DOI: 10.1111/jofi.12547
       
  • Why Does Return Predictability Concentrate in Bad Times'
    • Authors: JULIEN CUJEAN; MICHAEL HASLER
      Abstract: We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions polarize. Disagreement thus spikes in bad times, causing returns to react to past news. This phenomenon creates a positive relation between disagreement and future returns. It also generates time-series momentum, which strengthens in bad times, increases with disagreement, and crashes after sharp market rebounds. We provide empirical support for these new predictions.
      PubDate: 2017-09-14T10:40:42.153716-05:
      DOI: 10.1111/jofi.12544
       
  • Nonfundamental Speculation Revisited
    • Authors: LIYAN YANG; HAOXIANG ZHU
      Abstract: We show that a linear pure strategy equilibrium may not exist in the model of Madrigal (1996), contrary to the claim of the original paper. This is because Madrigal's characterization of a pure strategy equilibrium omits a second-order condition. If the nonfundamental speculator's information about noise trading is sufficiently precise, a linear pure strategy equilibrium fails to exist. In parameter regions where a pure strategy equilibrium does exist, we identify a few calculation errors in Madrigal (1996) that result in misleading implications.
      PubDate: 2017-08-28T10:47:56.607736-05:
      DOI: 10.1111/jofi.12548
       
  • Matching Capital and Labor
    • Authors: JONATHAN B. BERK; JULES H. BINSBERGEN, BINYING LIU
      Abstract: We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. The firm's decision to reallocate capital among its mutual fund managers adds at least $474,000 a month, which amounts to over 30% of the total value added of the industry. We provide evidence that this additional value added results from the firm's private information about the skill of its managers. The firm captures this value because investors reward the firm following a capital reallocation decision by allocating additional capital to the firm's funds.
      PubDate: 2017-08-28T10:47:37.680931-05:
      DOI: 10.1111/jofi.12542
       
  • Consumer Ruthlessness and Mortgage Default during the 2007 to 2009 Housing
           Bust
    • Authors: NEIL BHUTTA; JANE DOKKO, HUI SHAN
      Abstract: From 2007 to 2009 U.S. house prices plunged and mortgage defaults surged. While ostensibly consistent with widespread “ruthless default,” analysis of detailed mortgage and house price data indicates that borrowers do not walk away until they are deeply underwater—far deeper than traditional models predict. The evidence suggests that lender recourse is not the major driver of this result. We argue that emotional and behavioral factors play an important role in decisions to continue paying. Borrower reluctance to walk away implies that the moral hazard cost of default as a form of social insurance may be lower than suspected.
      PubDate: 2017-08-28T10:40:50.112207-05:
      DOI: 10.1111/jofi.12523
       
  • The Macroeconomics of Shadow Banking
    • Authors: ALAN MOREIRA; ALEXI SAVOV
      Abstract: We build a macrofinance model of shadow banking—the transformation of risky assets into securities that are money-like in quiet times but become illiquid when uncertainty spikes. Shadow banking economizes on scarce collateral, expanding liquidity provision, boosting asset prices and growth, but also building up fragility. A rise in uncertainty raises shadow banking spreads, forcing financial institutions to switch to collateral-intensive funding. Shadow banking collapses, liquidity provision shrinks, liquidity premia and discount rates rise, asset prices and investment fall. The model generates slow recoveries, collateral runs, and flight-to-quality effects, and it sheds light on Large-Scale Asset Purchases, Operation Twist, and other interventions.
      PubDate: 2017-08-28T10:37:16.77877-05:0
      DOI: 10.1111/jofi.12540
       
  • A Model of Monetary Policy and Risk Premia
    • Authors: ITAMAR DRECHSLER; ALEXI SAVOV, PHILIPP SCHNABL
      Abstract: We develop a dynamic asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk-tolerant agents (banks) borrow from risk-averse agents (i.e., take deposits) to fund levered investments. Leverage exposes banks to funding risk, which they insure by holding liquidity buffers. By changing the nominal rate the central bank influences the liquidity premium, and hence the cost of taking leverage. Lower nominal rates make liquidity cheaper and raise leverage, resulting in lower risk premia and higher asset prices, volatility, investment, and growth. We analyze forward guidance, a “Greenspan put,” and the yield curve.
      PubDate: 2017-07-26T12:30:51.133481-05:
      DOI: 10.1111/jofi.12539
       
  • Are CDS Auctions Biased and Inefficient'
    • Authors: SONGZI DU; HAOXIANG ZHU
      Abstract: We study the design of credit default swaps (CDS) auctions, which determine the payments by CDS sellers to CDS buyers following defaults of bonds. Using a simple model, we find that the current design of CDS auctions leads to biased prices and inefficient allocations. This is because various restrictions imposed in CDS auctions prevent certain investors from participating in the price discovery and allocation process. The imposition of a price cap or floor also gives dealers large influence on the final auction price. We propose an alternative double auction design that delivers more efficient price discovery and allocations.
      PubDate: 2017-07-18T13:55:40.678551-05:
      DOI: 10.1111/jofi.12541
       
  • Financial Transaction Taxes, Market Composition, and Liquidity
    • Authors: JEAN-EDOUARD COLLIARD; PETER HOFFMANN
      Abstract: We use the introduction of a financial transaction tax (FTT) in France in 2012 to test competing theories on its impact. We find no support for the idea that an FTT improves market quality by affecting the composition of trading volume. Instead, our results are in line with the hypothesis that a lower trading volume reduces liquidity and in turn market quality. Consistent with theories of asset pricing under transaction costs, we document a shift in security holdings from short-term to long-term investors. Finally, we find that moderate aggregate effects on market quality can mask large adjustments made by individual agents.
      PubDate: 2017-04-06T06:00:41.327205-05:
      DOI: 10.1111/jofi.12510
       
 
 
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