Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hard-to-borrow situations, it chooses not to borrow and instead fails to deliver stock to its buyers. A part of the value of failing passes through to...

Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962--1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock...

In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional...

We compare two competing theories of financial anomalies: "behavioral" theories built on investor irrationality, and "rational structural uncertainty" theories built on incomplete information about the structure of the economic environment. We find that although the theories relax opposite...

Widespread violations of stochastic dominance by 1-month S&P 500 index call options over 1986--2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although precrash option prices conform to the...