Corporate debt sales have been regarded as “no news” events because there is no significant price reaction on average to their announcement. We explore the hypothesis that this lack of average price reaction to debt sale announcements is explained by the partial anticipation of debt offers. Theory suggests that the demand for debt capital is fundamentally related to changes in the sources and uses of funds, and we find evidence that earnings are significantly lower, investment growth is significantly higher, and, for some issuers, debt refunding requirements are significantly greater in the period immediately prior to issue than in periods well before and after the issue. We find that this preissue information conditions investors’ expectations of issue, thereby affecting the cross-sectional announcement date price reaction to debt sales in two ways. First, announcement date price reactions are negative, on average, for unanticipated offers or for those offers where prior information suggests that an issue is unlikely. Second, holding the probability of issue constant, announcement date price reactions are significantly more negative for offers that raise more capital than investors expected. These results are consistent with cash flow signaling and asymmetric information models of corporate financings.

Journal Article Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs Get access Oya Altınkılıç, Oya Altınkılıç Virginia Tech Search for other works by this author on: Oxford Academic Google Scholar Robert S. Hansen Robert S. Hansen Virginia Tech Address correspondence to Robert S. Hansen, Department of Finance, Pamplin College of Business, Virginia Tech, Blacksburg, VA 24061, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 13, Issue 1, January 2000, Pages 191–218, https://doi.org/10.1093/rfs/13.1.191 Published: 15 June 2015

Corporate debt sales have been regarded as “no news” events because there is no significant price reaction on average to their announcement. We explore the hypothesis that this lack of average price reaction to debt sale announcements is explained by the partial anticipation of debt offers. Theory suggests that the demand for debt capital is fundamentally related to changes in the sources and uses of funds, and we find evidence that earnings are significantly lower, investment growth is significantly higher, and, for some issuers, debt refunding requirements are significantly greater in the period immediately prior to issue than in periods well before and after the issue. We find that this preissue information conditions investors’ expectations of issue, thereby affecting the cross-sectional announcement date price reaction to debt sales in two ways. First, announcement date price reactions are negative, on average, for unanticipated offers or for those offers where prior information suggests that an issue is unlikely. Second, holding the probability of issue constant, announcement date price reactions are significantly more negative for offers that raise more capital than investors expected. These results are consistent with cash flow signaling and asymmetric information models of corporate financings.

Abstract We introduce a pricing kernel with time-varying volatility risk aversion to explain the observed time variations in the shape of the pricing kernel. When combined with the Heston-Nandi GARCH model, this framework yields a tractable option pricing model in which the variance risk ratio (VRR) emerges as a key variable. We show that the VRR is closely linked to economic fundamentals, as well as sentiment and uncertainty measures. A novel approximation method provides analytical option pricing formulas, and we demonstrate substantial reductions in pricing errors through an empirical application to the S&P 500 index, the CBOE VIX, and option prices.

In this article we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency, and derive the limiting distribution of these estimators. The analysis incorporates market frictions such as short-sale constraints and proportional transactions costs. Among several applications we show how to use the methods to assess specific asset pricing models and to provide non-parametric characterizations of asset pricing anomalies.

. We develop models of robust decision-making and pricing when there are contemporaneous big and small shocks. We illustrate these models using a stochasticgrowth economy. Large shocks are infrequent changes in the technological growth rate, and small shocks are continuous movements in the technology process. Large shocks evolve as a Markov jump process whereas small shocks are a Brownian motion. Robust decision-making is formalized as a two-player game. In contrast to rational expectations agents, our investors are decision-makers who treat models as approximations and fear misspecication. As an algorithmic device to enforce robustness, investors imagine a second, malevolent player, who has the ability to perturb the baseline model. We study two economies, each of which decentralizes a robust resource allocation problem with hidden growth rates. The economies dier in the manner in which the the model is viewed as an approximation. We compare the pricing implications to those that em...

In this article we characterize and estimate the process for short-term interest rates using federal funds interest rate data. We presume that we are observing a discrete-time sample of a stationary scalar diffusion. We concentrate on a class of models in which the local volatility elasticity is constant and the drift has a flexible specification. To accommodate missing observations and to break the link between “economic time” and calendar time, we model the sampling scheme as an increasing process that is not directly observed. We propose and implement two new methods for estimation. We find evidence for a volatility elasticity between one and one-half and two. When interest rates are high, local mean reversion is small and the mechanism for inducing stationarity is the increased volatility of the diffusion process.