The large number of initial public offerings (IPOs) with a 7% spread suggests either that investment bankers collude to profit from 7% IPOs or that the 7% contract is an efficient innovation that better suits the IPO. My tests do not support the collusion theory. Low concentration and ease of entry characterize the IPO market. Moreover, the 7% spread is not abnormally profitable, nor has its use been diminished by public awareness of collusion allegations. In support of the efficient contract theory, banks compete in pricing 7% IPOs on the basis of reputation, placement service, and underpricing.

Expected discounting in seasoned equity offers is a cost of uncertainty about firm value, marketing new shares, and acquiring information that raises the offer price. Stockholders incorporate predictable discounting in stock prices when equity offers are first announced. The surprise component of discounting, reflecting the lead bank's final adjustment to the offer price, releases information that often causes economically large price swings on the offer day. Disparities between the issuer's closing price and the price suggested in the lead bank's final order book are a primary source of information. The discount surprise appears to be used by lead banks to update capital suppliers with that eleventh-hour information before they commit their funds.

This paper examines post-revision return drift, or PRD, following analysts’ revisions of their stock recommendations. PRD refers to the finding that the analysts’ recommendation changes predict future long-term returns in the same direction as the change (i.e., upgrades are followed by positive returns, and downgrades are followed by negative returns). During the high-frequency algorithmic trading period of 2003–2010, average PRD is no longer significantly different from zero. The new findings agree with improved market efficiency after declines in real trading cost inefficiencies. They are consistent with a reduced information production role for analysts in the supercomputer era.

We document the phenomenon that average excess returns of out-of-the-money puts and calls on bond futures are negative, both unconditionally and conditionally on economic states. To explain these findings, we develop economically motivated restrictions in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. Our reconciliation is a framework that introduces market incompleteness and priced unspanned volatility risks, allowing for time-varying downside and upside futures risk premiums. The estimated model shows consistency with data on bond yields, yield volatilities, bond futures return volatilities, option prices, and option risk premiums.