We analyze event abnormal returns when returns predict events. We show that the expected abnormal return is negative for any fixed sample and this increases with the holding period of returns. However, we prove that if the number of events process is stationary, abnormal returns converge to zero...

To test recent theories that suggest valuation errors affect merger activity, we develop a decomposition that breaks M/B into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms' long-run pricing; and long-run...

Does valuation affect mergers? The data suggests that periods of stock merger activity are correlated with high market valuations. The naive explanation that overvalued bidders wish to use stock is incomplete because targets should not be eager to accept stock. However, we show that potential...

To test recent theories that suggest valuation errors affect merger activity, we develop a decomposition that breaks M/B into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms' long-run pricing; and long-run...

This paper extends the theory of non-cash auctions by considering the revenue and efficiency of using different securities. Research on bankruptcy and privatization suggest using non-cash auctions to increase cash-constrained bidder participation. We examine this proposal and demonstrate that...

The practices of preferencing and internalization have been alleged to support collusion, cause worse execution and lead to wider spreads in dealership style markets relative to auction style markets. For a sample of London Stock Exchange stocks, we find that preferenced trades pay higher...

Using London Stock Exchange data, we test the central implication of the canonical model of Ho and Stoll (1983) that relative inventory differences determine dealer behavior. We find that relative inventories explain which dealers obtain large trades and show that movements between best ask,...

In dealership markets disclosure of size and price details of public trades is typically incomplete. We examine whether full and prompt disclosure of public-trade details improves the welfare of a risk-averse investor. We analyse a model of dealership market where a market maker first executes a...

We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize...

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, across institutions and within institutions over time. For...