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The economics of hedge funds
Lan, Yingcong; Wang, Neng; Yang, Jinqiang - In: Journal of Financial Economics 110 (2013) 2, pp. 300-323
Hedge fund managers trade off the benefits of leveraging on the alpha-generating strategy against the costs of inefficient fund liquidation. In contrast to the standard risk-seeking intuition, even with a constant-return-to-scale alpha-generating strategy, a risk-neutral manager becomes...
Persistent link: https://www.econbiz.de/10010702359
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Stock returns and the Miller Modigliani valuation formula: Revisiting the Fama French analysis
Aharoni, Gil; Grundy, Bruce; Zeng, Qi - In: Journal of Financial Economics 110 (2013) 2, pp. 347-357
Fama and French (2006) use the dividend-discount model to develop the role of expected profitability, expected investment, and the book-to-market ratio as predictors of stock returns. One reported empirical result is anomalous. The valuation model establishes that the comparative static relation...
Persistent link: https://www.econbiz.de/10010702366
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The mystery of zero-leverage firms
Strebulaev, Ilya A.; Yang, Baozhong - In: Journal of Financial Economics 109 (2013) 1, pp. 1-23
We present the puzzling evidence that, from 1962 to 2009, an average 10.2% of large public nonfinancial US firms have zero debt and almost 22% have less than 5% book leverage ratio. Zero-leverage behavior is a persistent phenomenon. Dividend-paying zero-leverage firms pay substantially higher...
Persistent link: https://www.econbiz.de/10010665554
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Liquidity risk of corporate bond returns: conditional approach
Acharya, Viral V.; Amihud, Yakov; Bharath, Sreedhar T. - In: Journal of Financial Economics 110 (2013) 2, pp. 358-386
We study the exposure of the US corporate bond returns to liquidity shocks of stocks and Treasury bonds over the period … 1973–2007 in a regime-switching model. In one regime, liquidity shocks have mostly insignificant effects on bond prices … default), suggest the existence of time-varying liquidity risk of corporate bond returns conditional on episodes of flight to …
Persistent link: https://www.econbiz.de/10011039286
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Growth options, macroeconomic conditions, and the cross section of credit risk
Arnold, Marc; Wagner, Alexander F.; Westermann, Ramona - In: Journal of Financial Economics 107 (2013) 2, pp. 350-385
This paper develops a structural equilibrium model with intertemporal macroeconomic risk, incorporating the fact that firms are heterogeneous in their asset composition. Compared with firms that are mainly composed of invested assets, firms with growth options have higher costs of debt because...
Persistent link: https://www.econbiz.de/10010616816
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Cash holdings, risk, and expected returns
Palazzo, Berardino - In: Journal of Financial Economics 104 (2012) 1, pp. 162-185
In this paper I develop and empirically test a model that highlights how the correlation between cash flows and a source of aggregate risk affects a firm's optimal cash holding policy. In the model, riskier firms (i.e., firms with a higher correlation between cash flows and the aggregate shock)...
Persistent link: https://www.econbiz.de/10010571679
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Death and jackpot: Why do individual investors hold overpriced stocks?
Conrad, Jennifer; Kapadia, Nishad; Xing, Yuhang - In: Journal of Financial Economics 113 (2014) 3, pp. 455-475
Campbell, Hilscher, and Szilagyi (2008) show that firms with a high probability of default have abnormally low average future returns. We show that firms with a high potential for default (death) also tend to have a relatively high probability of extremely large (jackpot) payoffs. Consistent...
Persistent link: https://www.econbiz.de/10010906192
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Feedback effects of credit ratings
Manso, Gustavo - In: Journal of Financial Economics 109 (2013) 2, pp. 535-548
Rating agencies are often criticized for being biased in favor of borrowers, for being too slow to downgrade following credit quality deterioration, and for being oligopolists. Based on a model that takes into account the feedback effects of credit ratings, I show that: (i) rating agencies...
Persistent link: https://www.econbiz.de/10010678702
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Limits to arbitrage and hedging: Evidence from commodity markets
Acharya, Viral V.; Lochstoer, Lars A.; Ramadorai, Tarun - In: Journal of Financial Economics 109 (2013) 2, pp. 441-465
We build an equilibrium model of commodity markets in which speculators are capital constrained, and commodity producers have hedging demands for commodity futures. Increases in producers' hedging demand or speculators' capital constraints increase hedging costs via price-pressure on futures....
Persistent link: https://www.econbiz.de/10010678703
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Does risk management matter? Evidence from the U.S. agricultural industry
Cornaggia, Jess - In: Journal of Financial Economics 109 (2013) 2, pp. 419-440
This article constructs triple-difference tests around shifts in the supply of risk management instruments available to agricultural producers to reveal a positive relation between risk management and productivity. This relation is more robust when producers adopt instruments with payoffs linked...
Persistent link: https://www.econbiz.de/10010678709