This study examines whether differential interpretation of earnings announcements is affected by earnings and firm characteristics. We find that Kandel and Pearson's (1995) forecast measures of differential interpretation are: 1) negatively related to earnings predictability, firm size, and...

This paper analyzes convertible arbitrage, one of the most successful hedge fund strategies. The aim of the strategy is to exploit underpricing of convertible bonds by taking a long position in a convertible and a short position in the underlying asset. We find that convertible bonds are...

The monthly volatility of IPO initial returns is substantial, fluctuates dramatically over time, and is considerably larger during quot;hotquot; IPO markets. Consistent with IPO theory, the volatility of initial returns is higher among firms whose value is more difficult to estimate, i.e., among...

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

We show that the agency theory of overvalued equity (see Jensen, 2005) rather than investors' fixation on accruals explains the accrual anomaly, i.e., abnormal returns to an accrual trading strategy (see Sloan, 1996).Under the agency theory of overvalued equity, managers of overvalued firms are...

This paper hypothesizes that hot convertible debt markets represent periods with smaller convertible debt-related financing costs. In line with this assumption, we find that the stock price impact of Western European convertible debt announcements is less negative during hot convertible debt...

This paper examines asset fire sales, and institutional price pressure more generally, in equity markets, using market prices of mutual fund transactions caused by capital flows from 1980 to 2003. Funds experiencing large outflows (inflows) tend to decrease (increase) existing positions, which...

Post-1970, the change in shares outstanding exhibits a strong cross-sectional ability to predict stock returns. This predictive ability is more statistically significant than the individual predictive ability of size, book-to-market, or momentum. Our finding is related to research that finds...

Burkart and Ellingsen (2004) develop a model of trade credit and bank credit rationing which predicts that trade credit will be used by medium-wealth and low-wealth firms to help ease bank credit rationing. This paper tests this and other predictions of the Burkart and Ellingsen model using a...