Knowledge that Transforms

Weekly returns of stock portfolios exhibit substantial autocorrelation. Analytical studies suggest that nonsynchronous trading is capable of explaining from 5% to 65% of the autocorrelation. The varying importance of nonsynchronous trading in these studies arises primarily from differing assumptions regarding nontrading periods of stocks. We simulate the effects of nonsynchronous trading by sampling stock returns from a return generating process using transactions data to obtain the precise time of each stock's last trade. We find that simulated weekly portfolio returns exhibit autocorrelations that are roughly 25% that of their observed (CRSP) weekly returns.

Journal Article Hedging Long-Term Exposures with Multiple Short-Term Futures Contracts Get access Anthony Neuberger Anthony Neuberger London Business School Address correspondence to Anthony Neuberger, London Business School, Sussex Place, Regents Park, London NW1 4SA, UK, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 3, July 1999, Pages 429–459, https://doi.org/10.1093/revfin/12.3.0429 Published: 01 June 2015

Journal Article Introductory Comments: Bloomfield and O'Hara, and Flood, Huisman, Koedijk, and Mahieu Get access Lawrence R. Glosten Lawrence R. Glosten Columbia University Address correspondence to Lawrence R. Glosten, Columbia Business School, Uris Hall, Room 614, Columbia University, 3022 Broadway, New York, NY 10027, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 1, January 1999, Pages 1–3, https://doi.org/10.1093/rfs/12.1.1 Published: 01 June 2015

This article investigates the long-term equity performance of Japanese firms issuing convertible debt and equity. We find that issuing firms perform poorly (except for equity rights issues) compared to nonissuing firms even though the stock-price reaction to convertible debt and equity issues is not negative for Japanese firms. This underperformance is strongest for firms issuing public convertible debt. In contrast to the United States, poor performance is not concentrated in smaller firms and in firms with a high market-to-book ratio. Simple behavioral explanations advanced for the new issue puzzle in the United States do not seem consistent with the Japanese experience.

This article presents a new definition of market completeness that is independent of the notions of no arbitrage and equivalent martingale measures. Our definition has many advantages, all shown herein. First, it preserves the Second Fundamental Theorem of Asset Pricing, even in complex economies. Second, under our definition, the market can be complete yet arbitrage opportunities exist. This is important in practice, and stands in contrast to the traditional definitions. Third, under the assumptions of no arbitrage and when used in the standard models, our definition is equivalent to the traditional one.

We study the precursors and outcomes of refocusing episodes by 107 diversified firms that were not taken over between 1984 and 1993. These firms had more value-reducing diversification policies than diversified firms that did not refocus. However, major disciplinary or incentive-altering events (including management turnover, outside shareholder pressure, changes in management compensation, and financial distress) usually occurred before refocusing took place. The cumulative abnormal returns over a firm's refocusing-related announcements averaged 7.3% and were significantly related to the amount of value reduction associated with the refocuser's diversification policy.

We investigate adaptive or evolutionary learning in a repeated version of the Grossman and Stiglit (1980) model. We demonstrate that any process that is a monotonic selection dynamic will converge to the rational expectations asset demands if the proportion of informed traders is fixed. We also show that these learning processes have a unique asymptotically stable fixed point at the Grossman–Stiglitz (GS) equilibrium. The robustness of learning to noisy experimentation is studied using Binmore and Samuelson's (1999) deterministic drift approximation. Conditions on economic and learning process parameters for adaptive learning to lead to the GS rational expectations equilibrium are presented.

This paper investigates the distribution of equity ownership between entrenched corporate insiders and dispersed outsiders when management has the ability to divert or manipulate the cash flows and when it is costly for equity holders to verify or prove any managerial wrongdoing for a third party such as a court. Management chooses the distribution of equity ownership so as to maximize private benefits against the risk of potential control challenges. When shareholders are long term oriented, then outside shares trade at a premium over their value to management, and management is inclined to sell of its equity stake to dispersed outsiders. When shareholders are short-term oriented, then outside share trade at a discount below their value to management, and disciplinary pressure can be substantially reduced via strategic share purchases.

Portfolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing literature, our main result does not assume independence of returns and depends only on discounting of future cash flows. We also provide a critique of portfolio turnpike results, based on the observations that (1) the time required for convergence is often too large to be relevant, and (2) there is no convergence for consumption withdrawal problems. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Journal Article The Dynamics of Default and Debt Reorganization Get access Pierre Mella-Barral Pierre Mella-Barral London School of Economics Address correspondence to Pierre Mella-Barral, London School of Economics, Houghton St., London WC2A 2AE, UK, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 3, July 1999, Pages 535–578, https://doi.org/10.1093/revfin/12.3.0535 Published: 01 June 2015