The evidence in this paper suggests that downgrades by both Moody's and Standard and Poor's are associated with negative abnormal stock returns in the two-day window beginning the day of the press release by the rating agency. Significant negative abnormal performance can still be detected after eliminating observations containing obvious concurrent (potentially contaminating) news releases. There is little evidence of abnormal performance on announcement of an upgrade. Significant abnormal returns are associated with announcements of additions to the Standard and Poor's Credit Watch List, if either a potential downgrade or a potential upgrade is indicated.

This paper examines how financial markets responded to the longest circuit breaker in American financial history: the four-month suspension of trading on the New York Stock Exchange following the outbreak of World War I. The suspension that began on July 31, 1914 fostered a substitute trading forum called the New Street market. Trading on New Street began almost immediately and offered economically meaningful liquidity services despite its impaired price transparency. A simple cross-sectional model of bid–ask spreads on New Street demonstrates that New Street liquidity responded to economic incentives. New Street's success implies that, from a public policy perspective, expensive back-up trading facilities are not required to preserve liquidity during a trading suspension in established markets. Back-up records of share ownership and transfer facilities, however, are crucial to maintaining liquidity.

We hypothesize that firms choose dividend increases to distribute relatively permanent cash-flow shocks and repurchases to distribute more transient shocks. As predicted, we find that post-shock cash flows of dividend increasing firms exhibit less reversion to pre-shock levels compared with repurchasing firms. We also examine whether the stock market uses the announcement of the payout method to update its beliefs about the permanence of cash-flow shocks. Controlling for payout size and the market's expectation about the permanence of the cash-flow shock, the stock price reaction to dividend increases is more positive than the reaction to repurchases.

Christie and Schultz (1994), (Journal of Finance, 49, 1813–1840) find that market makers in many active Nasdaq stocks avoid odd-eighth quotes. This paper studies 67 (58) Nasdaq stocks whose market makers initiate (withdraw) odd-eighth quotes. These regime shifts are often completed within the span of a day, and coincide with dramatic changes in dollar, percentage and effective spreads. In most cases, we are unable to identify comparable changes in the costs of making markets. We do identify long-run changes in average prices that may provide a partial explanation. However, we also find that these patterns are not shared by stocks traded in auction markets.

This paper documents the effects of large (block) transactions on the prices of common stocks traded on the New York Stock Exchange. We examine whether mean temporary and permanent price effects associated with large and small transactions differ and whether the price effects vary cross-sectionally according to the size of the block. Alternative definitions of block size are investigated – percentage of the equity traded, block volume in relation to normal trading volume, and dollar value of the block. The results suggest that price effects are predominantly temporary for seller-initiated transactions and permanent for buyer-initiated transactions.

Currency carry trades exploiting violations of uncovered interest rate parity in G10 currencies deliver significant excess returns with annualized Sharpe ratios equal to or greater than those of equity market factors (1990–2012). Using data on out-of-the-money foreign exchange options, I compute returns to crash-hedged portfolios and demonstrate that the high returns to carry trades are not due to peso problems. A comparison of the returns to hedged and unhedged trades indicates crash risk premia account for at most one-third of the excess return to currency carry trades.

I document the shift of high-yield issuance from the public to the Rule 144A private placement market and exploit data on credit spreads to investigate whether investors regard disclosure in the two markets as comparable. The key implications of the inadequate-disclosure hypothesis are that investors require premiums on 144A securities and that such premiums are largest for first-time bond issuers and privately owned firms about whom less information is publicly available. I find that 144A premiums, though positive initially, have vanished over time, and I find no evidence of larger 144A premiums for first-time issuers or private firms. Investors do, however, require premiums of first-time issuers, and to a lesser extent of privately owned firms, regardless of whether securities are issued in the 144A or public market. These findings imply that sophisticated investors do not value the incremental information provided by securities registration, but do value ongoing disclosure.

This paper examines the innovative corporate structure of Thermo Electron Corporation which holds controlling interests in 11 units taken public in equity carve-outs. Carve-outs subject units of the company to the scrutiny of the capital markets, allow the compensation contracts of unit managers to be based on market performance, and shift capital acquisition and investment decisions from centralized control to unit managers. Thermo carve-outs substantially increase capital and R&D expenditures following carve-outs and generate significant value from their capital investments. Since the first carve-out in 1983, gains to shareholders have been substantially greater than industry and market benchmarks.

In a sample of 111 MBO offers between 1984 and 1987, almost 30% attract new blockholders. These blockholders are primarily professional investors who act to facilitate a takeover by a higher bidder, thus increasing returns to both themselves and other public shareholders. In contrast, I find little evidence that pre-existing blockholders, particularly institutional holders, affect either the offer outcome or actively participate in the buyout contest once it begins. The overall pattern of results suggests that professional investors, particularly equity-holding companies, are ‘control specialists’ who provide valuable services as brokers in the market for corporate control.