This paper examines whether investors care more about trading their exact quantity demands at some times than at others. Using a new data set of foreign exchange transactions, I find that customers trade more precise quantities at quarter-end, as evidenced by less trade-size clustering. Customers trade more odd lots and fewer round lots, while the number of trades and total volume are not significantly changed. I also find that the price impact of order flow is greater when customers care more about trading precise quantities. This work sheds new light on trade-size clustering and offers a potential explanation for time-series and cross-sectional variation in common liquidity measures.

We investigate the problem of a firm wishing to finance a project by issuing securities under asymmetric information. We find that, when outside investors can produce (noisy) information on the firm's quality, the degree of information asymmetry resulting in equilibrium is endogenous and depends on the information sensitivity of the security issued. Thus, in contrast to the prediction of the pecking order theory (see, e.g. Myers and Majluf, J. Financial Econom. 13 (1984) 187) a security with low sensitivity to private information, such as debt, does not always dominate one with high information sensitivity, such as equity. A firm's preference for equity rather than debt depends on the costs of information production, the precision of the information-production technology, and the extent of the information asymmetry. We also study the optimal security design problem and find that, depending on the cost and precision of the information-production technology, risky debt or a composite security with a convex payoff emerges as optimal securities.

Two explanations are commonly offered for the large number of recent IPOs by Internet firms. The first argues that Internet firms are trying to grab market share in an industry with large economies of scale. The second argues that Internet firms are rushing to go public when Internet stock prices are irrationally high. In this paper we examine the actions of those closest to Internet firms – firm managers, underwriters, and venture capitalists – to determine their motives for going public. Numerous strategic alliances and mergers and acquisitions provide strong evidence of a rush to grab market share. Other factors provide only weak evidence that Internet IPOs are attempts to sell overpriced stock.

This paper studies the causal effects of personal investment taxes on stock returns and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in capital gains and dividend tax-exempt investment accounts for the first time. Using a difference-in-differences approach, I find that excess stock returns decreased by their pre-legislation change effective tax rate, and that firms adjusted their capital structure and increased their spending on dividends, capital, and labour, in-line with the “traditional view” of corporate investment.

This paper documents, for 1947–2000, seasonalities in economic activity, stock and bond returns, and relationships among them. Evidence is consistent with an annual cycle view of economic activity and risk conditions. The power of lagged stock returns to forecast economic activity is greater for quarters ending in December and March. Mean excess returns on NYSE stocks in October through March account for 78–107% of their annual means and reflect a seasonal asymmetric return reversal tendency, which in turn explains low long-horizon variance ratios. Both market losses in April through September and subsequent returns in October through March are related, but with opposing signs, to October through March economic activity. The forecasting power of five variables is greatest for October through March. Tests of an asset-pricing model indicate that expected returns vary both cross-sectionally and over time. Implications for the debate between efficient markets and behavioral finance are discussed.

This paper investigates the determinants of the market share of investment banks acting as advisors in mergers and tender offers. In both mergers and tender offers, bank market share is positively related to the contingent fee payments charged by the bank and to the percentage of deals completed in the past by the bank. It is unrelated to the performance of the acquirors advised by the bank in the past. In tender offers, the post-acquisition performance of the acquiror is negatively related to the contingent fee payments charged by the bank, suggesting that the contingent fee structure in tender offers ensures that investment banks focus on completing the deal.

This paper uses a methodology robust to recent criticisms of standard long-horizon event study tests to show that bidders in mergers underperform while bidders in tender offers overperform in the three years after the acquisition. However, the long-term underperformance of acquiring firms in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market “glamour” firms. We interpret this finding as evidence that both the market and the management overextrapolate the bidder's past performance (as reflected in the bidder's book-to-market ratio) when they assess the desirability of an acquisition.

This study uses intraday when-issued rate quotes to examine the rewards and risks of the Treasury coupon auctions for bidders who face different tradeoffs between the winner's curse and quantity risk. The data indicate that markups of auction average rates over bid when-issued rates at auction times average 3/8 basis point. I also find that when-issued rates react as strongly to bidding aggressiveness at auctions before the auction results are announced as theydo afterward, and that quantity risk is as important as the winner's curse.

This paper develops a Monte Carlo simulation method for solving option valuation problems. The method simulates the process generating the returns on the underlying asset and invokes the risk neutrality assumption to derive the value of the option. Techniques for improving the efficiency of the method are introduced. Some numerical examples are given to illustrate the procedure and additional applications are suggested.