Journal Article The Role of Trading Halts in Monitoring a Specialist Market Get access Roger Edelen, Roger Edelen University of Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar Simon Gervais Simon Gervais University of Pennsylvania Address correspondence to Simon Gervais, Finance Department, Wharton School, University of Pennsylvania, Steinberg Hall-Dietrich Hall, Suite 2300, Philadelphia, PA 19104-6367, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 16, Issue 1, January 2003, Pages 263–300, https://doi.org/10.1093/rfs/16.1.0263 Published: 16 June 2015

This paper investigates the psychological effects from stock market returns. Using an FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect the well-being of not only investors but also noninvestors. Specifically, a contemporaneous negative (positive) relationship between daily stock market returns and violent crime rates is found for investors (noninvestors). A similar relationship is also found between local earnings surprises and violent crime. The contrasting relationships for investors and noninvestors suggests that relative wealth may influence well-being.

Standard approaches to building and estimating dynamic term structure models rely on the assumption that yields can serve as the factors. However, the assumption is neither theoretically necessary nor empirically supported. This article documents that almost half of the variation in bond risk premia cannot be detected using the cross-section of yields. Fluctuations in this hidden component have strong forecast power for both future short-term interest rates and excess bond returns. They are also negatively correlated with aggregate economic activity, but macroeconomic variables explain only a small fraction of variation in the hidden factor. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

[Standard approaches to building and estimating dynamic term structure models rely on the assumption that yields can serve as the factors. However, the assumption is neither theoretically necessary nor empirically supported. This article documents that almost half of the variation in bond risk premia cannot be detected using the cross-section of yields. Fluctuations in this hidden component have strong forecast power for both future short-term interest rates and excess bond returns. They are also negatively correlated with aggregate economic activity, but macroeconomic variables explain only a small fraction of variation in the hidden factor.]

This article reviews tax research related to domestic and multinational capital structure, payout policy, compensation policy, risk management, and organizational form. For each topic, the theoretical arguments explaining how taxes can affect corporate decision making and firm value are reviewed, followed by a summary of the related empirical evidence and a discussion of unresolved issues. Tax research generally supports the hypothesis that high tax rate firms pursue policies that provide tax benefits. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and whether corporate actions are affected by investor-level taxes.

This article reviews tax research related to domestic and multinational capital structure, payout policy, compensation policy, risk management, and organizational form. For each topic, the theoretical arguments explaining how taxes can affect corporate decision making and firm value are reviewed, followed by a summary of the related empirical evidence and a discussion of unresolved issues. Tax research generally supports the hypothesis that high tax rate firms pursue policies that provide tax benefits. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and whether corporate actions are affected by investor-level taxes.

Under the standard real options approach to investment under uncertainty, agents formulate optimal exercise strategies in isolation and ignore competitive interactions. However, in many real-world asset markets, exercise strategies cannot be determined separately, but must be formed as part of a strategic equilibrium. This article provides a tractable approach for deriving equilibrium investment strategies in a continuous-time Cournot–Nash framework. The impact of competition on exercise strategies is dramatic. For example, while standard real options models emphasize that a valuable “option to wait ” leads firms to invest only at large positive net present values, the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold. The real options approach to analyzing investment under uncertainty has become part of the mainstream literature of financial economics. The real options approach to investment now typically comprises an entire chapter in corporate finance textbooks [see, e.g., Brealey and Myers (2000) and Van Horne (1998)]. Essentially the real options approach posits that the oppor-tunity to invest in a project is analogous to an American call option on the investment opportunity. Once that analogy is made, the vast and rigorous machinery of financial options theory is at the disposal of real investment analysis. The real options approach is well summarized in Dixit and Pindyck (1994) and Trigeorgis (1996).1 A feature that the vast majority of real options articles have in common is the lack of strategic interaction across option holders. Investment (exercise) strategies are formulated in isolation, without regard to the potential impact of other firms ’ exercise strategies. The standard starting point for such models is an exogenous process for underlying asset values (e.g., the stock price in

In most models of market microstructure tractability requires that all market participants know the number (and presence) of competing insiders. I drop this assumption in experimental asset markets. Outcomes are qualitatively consistent with theoretical models when the number of insiders is disclosed prior to trade. When it is not, insiders use the timing and size of trades interactively to hide from the dealers and each other, dealers have difficulty identifying insider trades, and liquidity patterns do not differ as a function of the number of insiders. In general, insider behavior has strategic dimensions not admitted in Kyle (1985) and extensions.

In most models of market microstructure tractability requires that all market participants know the number (and presence) of competing insiders. I drop this assumption in experimental asset markets. Outcomes are qualitatively consistent with theoretical models when the number of insiders is disclosed prior to trade. When it is not, insiders use the timing and size of trades interactively to hide from the dealers and each other, dealers have difficulty identifying insider trades, and liquidity patterns do not differ as a function of the number of insiders. In general, insider behavior has strategic dimensions not admitted in Kyle (1985) and extensions.

Under the standard real options approach to investment under uncertainty, agents formulate optimal exercise strategies in isolation and ignore competitive interactions. However, in many real-world asset markets, exercise strategies cannot be determined separately, but must be formed as part of a strategic equilibrium. This article provides a tractable approach for deriving equilibrium investment strategies in a continuous-time Cournot-Nash framework. The impact of competition on exercise strategies is dramatic. For example, while standard real options models emphasize that a valuable "option to wait" leads firms to invest only at large positive net present values, the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold.