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Frazzini, Andrea; Pedersen, Lasse Heje - In: Journal of Financial Economics 111 (2014) 1, pp. 1-25

We present a model with leverage and margin constraints that vary across investors and time. We find evidence consistent with each of the model's five central predictions: (1) Because constrained investors bid up high-beta assets, high beta is associated with low alpha, as we find empirically...

Persistent link: https://www.econbiz.de/10010718732

Global, local, and contagious investor sentiment

Baker, Malcolm; Wurgler, Jeffrey; Yuan, Yu - In: Journal of Financial Economics 104 (2012) 2, pp. 272-287

We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of...

Persistent link: https://www.econbiz.de/10010571674

The option to stock volume ratio and future returns

Johnson, Travis L.; So, Eric C. - In: Journal of Financial Economics 106 (2012) 2, pp. 262-286

We examine the information content of option and equity volumes when trade direction is unobserved. In a multimarket asymmetric information model, equity short-sale costs result in a negative relation between relative option volume and future firm value. In our empirical tests, firms in the...

Persistent link: https://www.econbiz.de/10010593832

CAPM for estimating the cost of equity capital: Interpreting the empirical evidence

Da, Zhi; Guo, Re-Jin; Jagannathan, Ravi - In: Journal of Financial Economics 103 (2012) 1, pp. 204-220

We argue that the empirical evidence against the capital asset pricing model (CAPM) based on stock returns does not … returns on stocks need not satisfy the CAPM even when expected returns of projects do. We provide empirical support for our … arguments by developing a method for estimating firms' project CAPM betas and project returns. Our findings justify the …

Persistent link: https://www.econbiz.de/10010702354

A new approach to predicting analyst forecast errors: Do investors overweight analyst forecasts?

So, Eric C. - In: Journal of Financial Economics 108 (2013) 3, pp. 615-640

I provide evidence that investors overweight analyst forecasts by demonstrating that prices do not fully reflect predictable components of analyst errors, which conflicts with conclusions in prior research. I highlight estimation bias in traditional approaches and develop a new approach that...

Persistent link: https://www.econbiz.de/10010665566

Momentum has its moments

Barroso, Pedro; Santa-Clara, Pedro - In: Journal of Financial Economics 116 (2015) 1, pp. 111-120

Compared with the market, value, or size factors, momentum has offered investors the highest Sharpe ratio. However, momentum has also had the worst crashes, making the strategy unappealing to investors who dislike negative skewness and kurtosis. We find that the risk of momentum is highly...

Persistent link: https://www.econbiz.de/10011263126

Asset pricing: A tale of two days

Savor, Pavel; Wilson, Mungo - In: Journal of Financial Economics 113 (2014) 2, pp. 171-201

We show that asset prices behave very differently on days when important macroeconomic news is scheduled for announcement. In addition to significantly higher average returns for risky assets on announcement days, return patterns are much easier to reconcile with standard asset pricing theories,...

Persistent link: https://www.econbiz.de/10010784903

The impact of central clearing on counterparty risk, liquidity, and trading: Evidence from the credit default swap market

Loon, Yee Cheng; Zhong, Zhaodong Ken - In: Journal of Financial Economics 112 (2014) 1, pp. 91-115

This paper examines the impact of central clearing on the credit default swap (CDS) market using a sample of voluntarily cleared single-name contracts. Consistent with central clearing reducing counterparty risk, CDS spreads increase around the commencement of central clearing and are lower than...

Persistent link: https://www.econbiz.de/10010752915

Does option trading convey stock price information?

Hu, Jianfeng - In: Journal of Financial Economics 111 (2014) 3, pp. 625-645

After executing option orders, options market makers turn to the stock market to hedge away the underlying stock exposure. As a result, the stock exposure imbalance in option transactions translates into an imbalance in stock transactions. This paper decomposes the total stock order imbalance...

Persistent link: https://www.econbiz.de/10010743556

Endogenous liquidity in credit derivatives

Qiu, Jiaping; Yu, Fan - In: Journal of Financial Economics 103 (2012) 3, pp. 611-631

We study the determination of liquidity provision in the single-name credit default swap (CDS) market as measured by the number of distinct dealers providing quotes. We find that liquidity is concentrated among large obligors and those near the investment-grade/speculative-grade cutoff....

Persistent link: https://www.econbiz.de/10010571645

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