PhDs.io — Knowledge that Transforms

Price Convexity and Skewness

Jianguo Xu

Journal of Finance 2007 62(5), 2521-2552

This paper develops a model in which investors who are prohibited from short selling agree to disagree on the precision of a publicly observed signal. The model implies that the equilibrium price is a convex function of the public signal. The model predicts that (1) the stock price reacts more to good news than to bad news; (2) the skewness of stock returns is positively correlated with contemporaneous returns, but negatively correlated with lagged returns; (3) short sale constraints increase rather than decrease skewness; and (4) disagreement about information precision increases skewness. Empirical tests conducted find supportive evidence for all these predictions.

Survival Bias and the Equity Premium Puzzle

Haitao Li; Yuewu Xu

Journal of Finance 2002 57(5), 1981-1995 open access

Previous authors have raised the concern that there could be serious survival bias in the observed U.S. equity premium. Contrary to conventional wisdom, we argue that the survival bias in the U.S. data is unlikely to be significant. To reach this conclusion, we introduce a general framework for modeling survival and derive a mathematical relationship between the ex ante survival probability and the average survival bias. This relationship reveals the fundamental difficulty facing the survival argument: High survival bias requires an ex ante probability of market failure, which seems unrealistically high given the history of world financial markets.

Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution

Ran Duchin; Janet Gao; Qiping Xu

Journal of Finance 2025 80(2), 699-754 open access

We study the asset market for pollutive plants. Firms divest pollutive plants in response to environmental pressures. Buyers are firms facing weaker environmental pressures that have supply chain relationships or joint ventures with the sellers. While pollution levels do not decline following divestitures, sellers highlight their sustainable policies in subsequent conference calls, earn higher returns as they sell more pollutive plants, and benefit from higher Environmental, Social, and Governance (ESG) ratings and lower compliance costs. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution but with substantial gains from trade.

Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk

John Y. Campbell; Martin Lettau; Burton G. Malkiel; Yexiao Xu

Journal of Finance 2001 56(1), 1-43

This paper uses a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels. Over the period from 1962 to 1997 there has been a noticeable increase in firm‐level volatility relative to market volatility. Accordingly, correlations among individual stocks and the explanatory power of the market model for a typical stock have declined, whereas the number of stocks needed to achieve a given level of diversification has increased. All the volatility measures move together countercyclically and help to predict GDP growth. Market volatility tends to lead the other volatility series. Factors that may be responsible for these findings are suggested.

The Legal Origins of Financial Development: Evidence from the Shanghai Concessions

Ross Levine; Chen Lin; Chicheng Ma; Yuchen Xu

Journal of Finance 2023 78(6), 3423-3464

The primary challenge to assessing the legal origins view of comparative financial development is identifying exogenous changes in legal systems. We assemble new data on Shanghai's British and French concessions between 1845 and 1936. Two regime changes altered British and French legal jurisdiction over their respective concessions. By examining the changing application of different legal traditions to adjacent neighborhoods within the same city and controlling for military, economic, and political characteristics, we offer new evidence consistent with the legal origins view: the financial development advantage in the British concession widened after Western legal jurisdiction intensified and narrowed after it abated.

Investor Tax Credits and Entrepreneurship: Evidence from U.S. States

Matthew Denes; Sabrina T. Howell; Filippo Mezzanotti; Xinxin Wang; Ting Xu

Journal of Finance 2023 78(5), 2621-2671

Angel investor tax credits are used globally to spur high‐growth entrepreneurship. Exploiting their staggered implementation in 31 U.S. states, we find that they increase angel investment yet have no significant impact on entrepreneurial activity. Two mechanisms explain these results: crowding out of alternative financing and low sensitivity of professional investors to tax credits. With a large‐scale survey and a stylized model, we show that low responsiveness among professional angels may reflect the fat‐tailed return distributions that characterize high‐growth startups. The results contrast with evidence that direct subsidies to firms have positive effects, raising concerns about promoting entrepreneurship with investor subsidies.

Nonstandard Errors

Albert J. Menkveld; Anna Dreber; Felix Holzmeister; Jürgen Huber; Magnus Johannesson; Michael Kirchler; SEBASTIAN NEUSÜß; Michael Razen; Utz Weitzel; DAVID ABAD-DÍAZ; Menachem Abudy; Tobias Adrian; Yacine Aït-Sahalia; Olivier Akmansoy; Jamie Alcock; Vitali Alexeev; Arash Aloosh; LIVIA AMATO; Diego Amaya; James J. Angel; ALEJANDRO T. AVETIKIAN; AMADEUS BACH; EDWIN BAIDOO; GAETAN BAKALLI; LI BAO; Andrea Barbon; OKSANA BASHCHENKO; Parampreet Christopher Bindra; Geir Høidal Bjønnes; Jeffrey R. Black; Bernard S. Black; DIMITAR BOGOEV; SANTIAGO BOHORQUEZ CORREA; Oleg Bondarenko; CHARLES S. BOS; Ciril Bosch-Rosa; ELIE BOURI; Christian T. Brownlees; ANNA CALAMIA; Viet Nga Cao; Gunther Capelle-Blancard; LAURA M. CAPERA ROMERO; Massimiliano Caporin; Allen Carrion; TOLGA CASKURLU; Bidisha Chakrabarty; Jian Chen; Mikhail Chernov; WILLIAM CHEUNG; LUDWIG B. CHINCARINI; Tarun Chordia; SHEUNG-CHI CHOW; BENJAMIN CLAPHAM; Jean-Edouard Colliard; Carole Comerton-Forde; EDWARD CURRAN; THONG DAO; WALE DARE; Ryan J. Davies; RICCARDO DE BLASIS; GIANLUCA F. DE NARD; Fany Declerck; OLEG DEEV; Hans Degryse; SOLOMON Y. DEKU; CHRISTOPHE DESAGRE; Mathijs A. van Dijk; Chukwuma Dim; Thomas Dimpfl; YUN JIANG DONG; PHILIP A. DRUMMOND; Tom L. Dudda; TEODOR DUEVSKI; Ariadna Dumitrescu; Teodor Dyakov; Anne Haubo Dyhrberg; Michał Dzieliński; ASLI EKSI; Izidin El Kalak; Saskia ter Ellen; Nicolas Eugster; Martin D. D. Evans; Michael Farrell; ESTER FELEZ-VINAS; Gerardo Ferrara; EL MEHDI FERROUHI; Andrea Flori; JONATHAN T. FLUHARTY-JAIDEE; Sean Foley; Kingsley Y. L. Fong; Thierry Foucault; TATIANA FRANUS; Francesco A. Franzoni; Bart Frijns; MICHAEL FRÖMMEL; SERVANNA M. FU; Sascha Füllbrunn; BAOQING GAN; GE GAO; Thomas Gehrig; ROLAND GEMAYEL; DIRK GERRITSEN; Javier Gil-Bazo; Dudley Gilder; Lawrence R. Glosten; THOMAS GOMEZ; Arseny Gorbenko; Joachim Grammig; Vincent Grégoire; Ufuk Güçbilmez; Björn Hagströmer; JULIEN HAMBUCKERS; ERIK HAPNES; Jeffrey H. Harris; Lawrence Harris; SIMON HARTMANN; JEAN-BAPTISTE HASSE; Nikolaus Hautsch; XUE-ZHONG (TONY) HE; Davidson Heath; SIMON HEDIGER; Terrence Hendershott; Ann Marie Hibbert; Erik Hjalmarsson; Seth A. Hoelscher; Peter Hoffmann; Craig W. Holden; Alex R. Horenstein; Wenqian Huang; DA HUANG; Christophe Hurlin; KONRAD ILCZUK; ALEXEY IVASHCHENKO; Subramanian R. Iyer; Hossein Jahanshahloo; NAJI JALKH; Charles M. Jones; SIMON JURKATIS; Petri Jylhä; ANDREAS T. KAECK; GABRIEL KAISER; ARZÉ KARAM; Egle Karmaziene; BERNHARD KASSNER; Markku Kaustia; EKATERINA KAZAK; Fearghal Kearney; Vincent van Kervel; SAAD A. KHAN; MARTA K. KHOMYN; Tony Klein; OLGA KLEIN; Alexander Klos; Michael Koetter; Aleksey Kolokolov; Robert A. Korajczyk; Roman Kozhan; Jan P. Krahnen; PAUL KUHLE; Amy Kwan; QUENTIN LAJAUNIE; F. Y. Eric C. Lam; Marie Lambert; Hugues Langlois; JENS LAUSEN; Tobias Lauter; Markus Leippold; VLADIMIR LEVIN; YIJIE LI; HUI LI; CHEE YOONG LIEW; THOMAS LINDNER; Oliver Linton; JIACHENG LIU; Anqi Liu; Guillermo Llorente; Matthijs Lof; ARIEL LOHR; FRANCIS LONGSTAFF; Alejandro Lopez-Lira; Shawn Mankad; NICOLA MANO; ALEXIS MARCHAL; Charles Martineau; Francesco Mazzola; Debrah Meloso; MICHAEL G. MI; Roxana Mihet; Vijay Mohan; Sophie Moinas; DAVID MOORE; Liangyi Mu; Dmitriy Muravyev; Dermot Murphy; GABOR NESZVEDA; CHRISTIAN NEUMEIER; Ulf Nielsson; Mahendrarajah Nimalendran; Sven Nolte; LARS L. NORDEN; Peter O’Neill; Khaled Obaid; BERNT A. ØDEGAARD; Per Östberg; EMILIANO PAGNOTTA; Marcus Painter; Stefan Palan; IMON J. PALIT; Andreas Park; Roberto Pascual; Paolo Pasquariello; Ľuboš Pástor; VINAY PA℡; Andrew J. Patton; Neil D. Pearson; Loriana Pelizzon; MICHELE PELLI; Matthias Pelster; Christophe Pérignon; CAMERON PFIFFER; Richard Philip; TOMÁŠ PLÍHAL; PUNEET PRAKASH; OLIVER-ALEXANDER PRESS; TINA PRODROMOU; Marcel Prokopczuk; Talis Putnins; YA QIAN; GAURAV RAIZADA; David Rakowski; Angelo Ranaldo; Luca Regis; Stefan Reitz; Thomas Renault; REX W. RENJIE; Roberto Renò; Steven J. Riddiough; Kalle Rinne; PAUL RINTAMÄKI; Ryan Riordan; THOMAS RITTMANNSBERGER; IÑAKI RODRÍGUEZ LONGARELA; Dominik Roesch; LAVINIA ROGNONE; Brian Roseman; Ioanid Roşu; Saurabh Roy; NICOLAS RUDOLF; STEPHEN R. RUSH; Khaladdin Rzayev; ALEKSANDRA A. RZEŹNIK; Anthony Sanford; Harikumar Sankaran; Asani Sarkar; Lucio Sarno; Olivier Scaillet; STEFAN SCHARNOWSKI; KLAUS R. SCHENK-HOPPÉ; ANDREA SCHERTLER; MICHAEL SCHNEIDER; FLORIAN SCHROEDER; Norman Schürhoff; Philipp Schuster; MARCO A. SCHWARZ; Mark S. Seasholes; Norman J. Seeger; Or Shachar; Andriy Shkilko; JESSICA SHUI; MARIO SIKIC; Giorgia Simion; Lee A. Smales; Paul Söderlind; Elvira Sojli; Konstantin Sokolov; JANTJE SÖNKSEN; Laima Spokeviciute; Denitsa Stefanova; Marti G. Subrahmanyam; BARNABAS SZASZI; Oleksandr Talavera; Yuehua Tang; Nick Taylor; Wing Wah Tham; Erik Theissen; Julian Thimme; Ian Tonks; Hai Tran; Luca Trapin; Anders B. Trolle; M. ANDREEA VADUVA; Giorgio Valente; Robert A. Van Ness; Aurelio Vasquez; Thanos Verousis; Patrick Verwijmeren; ANDERS VILHELMSSON; Grigory Vilkov; Vladimir Vladimirov; SEBASTIAN VOGEL; Stefan Voigt; Wolf Wagner; THOMAS WALTHER; Patrick Weiss; Michel van der Wel; Ingrid M. Werner; P. Joakim Westerholm; Christian Westheide; HANS C. WIKA; Evert Wipplinger; Michael Wolf; Christian C. P. Wolff; LEONARD WOLK; WING-KEUNG WONG; Jan Wrampelmeyer; Zhen-Xing Wu; Shuo Xia; Dacheng Xiu; KE XU; CAIHONG XU; Pradeep K. Yadav; JOSÉ YAGÜE; Cheng Yan; Antti Yang; Woongsun Yoo; WENJIA YU; YIHE YU; Shihao Yu; Bart Z. Yueshen; Darya Yuferova; MARCIN ZAMOJSKI; Abalfazl Zareei; STEFAN M. ZEISBERGER; LU ZHANG; S. Sarah Zhang; Xiaoyu Zhang; LU ZHAO; Zhuo Zhong; Z. IVY ZHOU; CHEN ZHOU; XINGYU S. ZHU; Marius Zoican; REMCO ZWINKELS

Journal of Finance 2024 79(3), 2339-2390 open access

In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.