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 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 examine the relation between analyst forecast characteristics and the cost of debt financing. Consistent with the view that the information contained in analysts' forecasts is economically significant across asset classes, we find that analyst activity reduces bond yield spreads. We also find...

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...

In this paper we derive a general formula for the cost of capital of government's claim (rg). Given our valuation framework that distinguishes three claimholders-equity holders, debt holders and government-we show for the models used in Myers (1974), Miles and Ezzell (1980) and Harris and...

The q-theory implies that investment is a first-order determinant of the cross section of expected returns, and that optimal investment drives the external financing anomalies. Our neoclassical model simultaneously and in many cases quantitatively reproduces: Procyclical equity issuance waves;...

More financially constrained firms are riskier and earn higher expected returns than less financially constrained firms, although this effect can be subsumed by size and book-to-market. Further, because the stochastic discount factor makes capital investment more procyclical, financial...

A recently published paper by Gugler and Weigand (Applied Economics Letters, 10, 483-486, 2003) addresses the problem of the endogeneity of ownership, but an unresolved question remains. Where does this endogeneity come from? We show that the main source of endogeneity is the simultaneity...