[We find a positive association between short selling and accruals during 1988—2009, and that asymmetry between the up- and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Short arbitrage occurs primarily among firms in the top accrual decile. Asymmetry is present only on NASDAQ. Thus, there is short arbitrage of the accrual anomaly, but short-sale constraints limit its effectiveness.]

[We have developed Bayesian Markov chain Monte Carlo (MCMC) methods for inferences of continuous-time models with stochastic volatility and infinite-activity Lévy jumps using discretely sampled data. Simulation studies show that (i) our methods provide accurate joint identification of diffusion, stochastic volatility, and Lévy jumps, and (ii) the affine jump-diffusion (AJD) models fail to adequately approximate the behavior of infinite-activity jumps. In particular, the AJD models fail to capture the "infinitely many" small Lévy jumps, which are too big for Brownian motion to model and too small for compound Poisson process to capture. Empirical studies show that infinite-activity Lévy jumps are essential for modeling the S&P 500 index returns.]

On August 12–13, 2005, the department of finance at the Kelley School of Business, Indiana University, collaborated with the Review of Financial Studies to host a conference titled “The Causes and Consequences of Recent Financial Market Bubbles.” This article begins with our overview of the themes and findings of the conference, and it ends with the questions that the literature has yet to answer.

We use a unique quasi-experiment–spillovers from the imposition of purchase restrictions on local housing to nearby unregulated cities–to study the effects of out-of-town housing demand on house prices and consumer spending. While these restrictions effectively stymied the surge in local house prices, they induced capital flight and sharp abnormal increases in house prices in nearby unregulated cities. The effect of the house price increases on consumer spending is positive in the aggregate, but echoing Favilukis and Van Nieuwerburgh (2021), is redistributive, that is, negative for renters and positive for homeowners.

A four-factor model with two "mispricing" factors, in addition to market and size factors, accommodates a large set of anomalies better than notable four-and five-factor alternative models. Moreover, our size factor reveals a small-firm premium nearly twice usual estimates. The mispricing factors aggregate information across 11 prominent anomalies by averaging rankings within two clusters exhibiting the greatest return co-movement. Investor sentiment predicts the mispricing factors, especially their short legs, consistent with a mispricing interpretation and the asymmetry in ease of buying versus shorting. A three-factor model with a single mispricing factor also performs well, especially in Bayesian model comparisons.

[In this article, we present a new method for pricing and hedging American options along with an efficient implementation procedure. The proposed method is efficient and accurate in computing both option values and various option hedge parameters. We demonstrate the computational accuracy and efficiency of this numerical procedure in relation to other competing approaches. We also suggest how the method can be applied to the case of any American option for which a closed-form solution exists for the corresponding European option.]

We propose a tractable model of an informationally inefficient market featuring nonrevealing prices, general preferences and payoff distributions, but not noise traders. We show the equivalence between our model and a substantially simpler one in which investors face distortionary investment taxes depending on both their identity and the asset class. This equivalence allows us to account for such phenomena as underdiversification. We further employ the model to assess approaches to performance evaluation and find that it provides a theoretical basis for some intuitive practices, such as style analysis, that have been adopted by finance professionals.

This paper finds that banks and nonbanks respond differently to increased competition in consumer credit markets. Increased competition and a greater threat of failure induces banks to specialize in relationship business lending, and surviving banks are more profitable. However, nonbanks change their credit policy when faced with more competition and expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the effects of competition depend on the form of intermediation. They also suggest that increased competition can cause credit risk to migrate outside the traditional supervisory umbrella.

Social media has become a popular venue for individuals to share the results of their own analysis on financial securities. This paper investigates the extent to which investor opinions transmitted through social media predict future stock returns and earnings surprises. We conduct textual analysis of articles published on one of the most popular social media platforms for investors in the United States. We also consider the readers' perspective as inferred via commentaries written in response to these articles. We find that the views expressed in both articles and commentaries predict future stock returns and earnings surprises.

[Individual investor trading results in systematic and economically large losses. Using a complete trading history of all investors in Taiwan, we document that the aggregate portfolio of individuals suffers an annual performance penalty of 3.8 percentage points. Individual investor losses are equivalent to 2.2% of Taiwan's gross domestic product or 2.8% of the total personal income. Virtually all individual trading losses can be traced to their aggressive orders. In contrast, institutions enjoy an annual performance boost of 1.5 percentage points, and both the aggressive and passive trades of institutions are profitable. Foreign institutions garner nearly half of institutional profits.]