A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

• Amin, K. I., & Ng, V. K. (1997). Inferring Future Volatility from the Information in Implied Volatility in Eurodollar Options: A New Approach. Review of Financial Studies, 10, 333–367.

  We study the information content of implied volatility from several volatility specifications of the Heath-Jarrow-Morton (1992) (HJM) models relative to popular historical volatility models in the Eurodollar options market. The implied volatility from the HJM models explains much of the variation of realized interest rate volatility over both daily and monthly horizons. The implied volatility dominates the GARCH terms, the Glosten et al. (1993) type asymmetric volatility terms, and the interest rate level. However, it cannot explain that the impact of interest rate shocks on the volatility is lower when interest rates are low than when they are high.

• Bansal, R. (1997). An Exploration of the Forward Premium Puzzle in Currency Markets. Review of Financial Studies, 10, 369–403.

  A standard empirical finding is that expected changes in exchange rates and interest rate differentials across countries are negatively related, implying that uncovered interest rate parity is violated in the data. This article provides new empirical evidence that suggests that violations of uncovered interest rate parity, and its economic implications, depend on the sign of the interest rate differentially. A framework related to term structure models is developed to account for the puzzling relationship between expected changes in exchange rates and interest rate differentials. Estimation results suggest that a particular term structure model can account for the puzzling empirical evidence.

• Battalio, R., Greene, J., & Jennings, R. (1997). Do Competing Specialists and Preferencing Dealers Affect Market Quality? Review of Financial Studies, 10, 969–993.

  We empirically demonstrate that the opportunities the Boston Stock Exchange and the Cincinnati Stock Exchange offer members to take the other side of their customers' orders through affiliated market makers (to internalize orders) have little short-run effect on posted or effective bid-ask spreads. This is true despite substantial movement of order flow away from the New York Stock Exchange when trading under one of these regional stock exchange programs begins. These results contrast with the adverse effects of market fragmentation and internalization predicted by some theoretical market microstructure analyses and the popular financial press.

• Bernhardt, D., & Hughson, E. (1997). Splitting Orders. Review of Financial Studies, 10, 69–101.

  A standard presumption of market microstructure models is that competition between risk-neutral market makers inevitably leads to price schedules that leave market makers zero expected profits conditional on the order flow. This article documents an important lack of robustness of this zero-profit result. In particular, we show that if traders can split orders between market makers, then market makers set less-competitive price schedules that earn them strictly positive profits and hence raise trading costs. Thus, this article can explain why somebody might willingly make a market for a stock when there are fixed costs to doing so. The analysis extends to a limit order book, which by its nature is split against incoming market orders: equilibrium limit order schedules necessarily yield those agents positive expected profits.

• Bhattacharya, U. (1997). Communication Costs, Information Acquisition, and Voting Decisions in Proxy Contests. Review of Financial Studies, 10, 1065–1097.

  This article synthesizes some recent progress in the theories of corporate control and political lobbying to model the proxy campaign as a political campaign. The model yields a number of testable implications, only some of which have been examined in the literature. For example, if the loss from voting for a "bad" dissident exceeds the gain from voting for a "good" dissident, the model predicts that as communication costs fall, the number of proxy fights increases, announcement day returns decrease, and the fraction of dissident wins first increases and then decreases.

• Biais, B., & Gollier, C. (1997). Trade Credit and Credit Rationing. Review of Financial Studies, 10, 903–937.

  Asymmetric information between banks and firms can preclude financing of valuable projects. Trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers. Incentive compatibility conditions prevent collusion between two of the agents (e.g., the buyer and the seller) against the third (e.g., the bank). Consistent with the empirical findings of Petersen and Rajan (1995), firms without relationships with banks resort more to trade credit, and sellers with greater ability to generate cash lows provide more trade credit. Finally, small firms react to monetary contractions by using trade credit, consistent with the empirical results of Nilsen (1994).

• Boot, A. W. A., & Thakor, A. V. (1997). Banking Scope and Financial Innovation. Review of Financial Studies, 10, 1099–1131.

  We explore the implications of financial system design for financial innovation. We begin with assumptions about the investment opportunities of firms, their observable attributes, and the roles of commercial banks, investment banks, and the financial market. We examine the borrower's choice between bank and financial market funding, the commercial bank's choice of monitoring capacity, and the investment bank's choice of whether to invest in financial innovation. Our main result is that financial innovation in a universal banking system is stochastically lower than innovation in a financial system in which commercial and investment banks are functionally separated.

• Boot, A. W. A., & Thakor, A. V. (1997). Financial System Architecture. Review of Financial Studies, 10, 693–733.

  This article builds a theory of financial system architecture. We ask: what is a financial market, what is a bank, and what determines the economic role of each? Starting with basic assumptions about primitives–the types of agents and the nature of the informational asymmetries–we provide a theory that explains which agents coalesce to form banks and which trade in the capital market. It is shown that borrowers of higher observable qualities access the financial market. Moreover, a financial system in its infancy will be bank-dominated, and increased financial market sophistication diminishes bank lending.

• Boudoukh, J. (1997). Pricing Mortgage-Backed Securities in a Multifactor Interest Rate Environment: A Multivariate Density Estimation Approach. Review of Financial Studies, 10, 405–446.

  Multivariate density estimation (MDE) suggests that mortgage-backed security (MBS) prices can be well described as a function of the level and slope of the term structure. We analyze bow this function varies across MBSs with different coupons. An important finding is that the interest rate level proxies for the moneyness of the option, the expected level of prepayments, and the average life of the cash flows, while the term structure slope controls for the average rate at which these cash flows should be discounted. Though the origination and prepayment behavior of mortgages differ substantially across coupons, there remains an unexplained common factor in MBS prices. This factor does not seem to be related to the usual suspects and therefore presents a puzzle to financial economists. Coauthors are Robert F. Whitelaw, Matthew Richardson, and Richard Stanton.

• Cai, J., Chan, K. C., & Yamada, T. (1997). The Performance of Japanese Mutual Funds. Review of Financial Studies, 10, 237–273.

  We analyze the performance of Japanese opentype stock mutual funds for the 1981-1992 period. The results show that, regardless of the performance measures and benchmarks employed, most of the Japanese mutual funds underperform the benchmarks by between 3.6% and 10.8% per annum. These funds tend to invest more in large stocks with low book-to-market ratios. But this feature does not explain the underperformance. A potential explanation is the dilution effect caused by inflows offends. In Japan, a new investor of an open-type fund only pays in the after-tax value of the net asset value. We conduct a bootstrap experiment to assess the magnitude of this dilution effect.