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

• Admati, A. R., & Pfleiderer, P. (2000). Forcing Firms to Talk: Financial Disclosure Regulation and Externalities. Review of Financial Studies, 13, 479–519.

  We analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation. In our model disclosure is costly, it has private and social value, and its precision is endogenous. We show that (i) a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy; (ii) the Nash equilibrium of a voluntary disclosure game is often socially inefficient; (iii) regulation that requires a minimal precision level sometimes but not always improves welfare; (iii) the same is true for subsidies that change the perceived cost of disclosures; and (iv) neither regulation method dominates the other.

• Altinkilic, O., & Hansen, R. S. (2000). Are There Economies of Scale in Underwriting Fees? Evidence of Rising External Financing Costs. Review of Financial Studies, 13, 191–218.

  This study examines the behavior of spreads paid in firm underwritten seasoned common stock offerings and straight bond offerings. Estimates indicate that up to 85% of the spread is variable cost and that the marginal spread is rising. Further, offerings that are likely to require greater underwriting services encounter higher marginal spreads. These findings are consistent with there being a family of U-shaped spreads, with lower quality offerings priced on higher spreads, unlike the economies of scale view of spreads. They agree with the views that underwriters provide valuable services and that the marginal cost of external finance is rising.

• Athanasoulis, S. G., & Shiller, R. J. (2000). The Significance of the Market Portfolio. Review of Financial Studies, 13, 301–329.

  Arguments for creating a market to allow trading the portfolio of all endowments in the entire world, the market portfolio: are considered. This world share market would represent a radical innovation, since at the present time only a small fraction of world endowments are traded. Using a stochastic endowment economy where preferences are mean variance. It is shown that creating such a market may be justified in terms of its contribution to social welfare. It is also argued that creating a market for world shares is attractive for certain reasons of robustness and simplicity.

• Bakshi, G., Cao, C., & Chen, Z. (2000). Do Call Prices and the Underlying Stock Always Move in the Same Direction? Review of Financial Studies, 13, 549–584.

  This article empirically analyzes some properties shared by all one-dimensional diffusion option models. Using S&P 500 options, we find that sampled intraday (or interday) call (put) prices often go down (up) even as the underlying price goes up, and call and put prices often increase, or decrease, together. Our results are valid after controlling for time decay and market microstructure effects. Therefore one-dimensional diffusion option models cannot be completely consistent with observed option price dynamics; options are not redundant securities, nor ideal hedging instruments–puts and the underlying asset prices may go down together.

• Basak, S., & Croitoru, B. (2000). Equilibrium Mispricing in a Capital Market with Portfolio Constraints. Review of Financial Studies, 13, 715–748.

  This article develops a general equilibrium, continuous time model where portfolio constraints generate mispricing between redundant securities. Constrained consumption-portfolio optimization techniques are adapted to incorporate redundant, possibly mispriced securities. Under logarithmic preferences, we provide explicit conditions for mispricing and closed-form expressions for all economic quantities. Existence of an equilibrium where mispricing occurs with positive probability is verified in a specific case. In a more general setting, we demonstrate the necessity of mispricing for equilibrium when agents are heterogeneous enough. The construction of a representative agent with stochastic weights allows us to characterize prices and allocations, given mispricing occurs.

• Bekaert, G., & Wu, G. (2000). Asymmetric Volatility and Risk in Equity Markets. Review of Financial Studies, 13, 1–42.

  It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated. We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to examine two potential explanations of the asymmetry: leverage effects and volatility feedback. Our empirical application uses the market portfolio and portfolios with different leverage constructed from Nikkei 225 stocks. We reject the pure leverage model of Christie (1982) and find support for a volatility feedback story. Volatility feedback at the firm level is enhanced by strong asymmetries in conditional covariances. Conditional betas do not show significant asymmetries. We document the risk premium implications of these findings.

• Betton, S., & Eckbo, B. E. (2000). Toeholds, Bid Jumps, and Expected Payoffs in Takeovers. Review of Financial Studies, 13, 841–882.

  We estimate sequentially outcome probabilities and expected payoffs associated with first, second, and final bids in a large sample of tender offer contests. Rival bids arrive quickly and produce large bid jumps. Greater bidder toeholds (prebid ownership of target shares) reduce the probability of competition and target resistance and are associated with both lower bid premiums and lower prebid target stock price runups. The expected payoff to target shareholders is increasing in the bid premium and in the probability of competition, but decreasing in the bidder's toehold. The initial bidder's expected payoff is significantly positive in the "rival-bidder-win" outcome, in part reflecting gains from the pending toehold sale. Despite these dramatic toehold effects, only half of the initial bidders acquire toeholds.

• Bhattacharyya, S., & Nanda, V. (2000). Client Discretion, Switching Costs, and Financial Innovation. Review of Financial Studies, 13, 1101–1127.

  We analyze the incentives of investment banks to develop innovative products. We show that client characteristics and market structure affect these incentives significantly. Investment banks with larger market shares have greater incentives to innovate and smaller banks are likely to share their innovations with the largest bank. Innovation incentives increase in volatile environments and regulatory scrutiny actually encourages loophole exploitation activity. Our predictions are consistent with stylized facts and the analysis has broad testable implications for innovative activity in other markets similarly characterized by a lack of comprehensive protection for intellectual property rights, for example, the software industry.

• Birchler, U. W. (2000). Bankruptcy Priority for Bank Deposits: A Contract Theoretic Explanation. Review of Financial Studies, 13, 813–840.

  Over the past decade several countries, including the US, have introduced or redesigned legislation that confers priority in bankruptcy upon all or some bank deposits. We argue that in the presence of contracting costs such rules can increase efficiency. We first show in a private information model that a borrower can reduce overall costs of finance by letting informationally heterogeneous lenders choose between junior and senior debt. In particular, we find that debt priorities reduce socially wasteful information gathering by investors. We then argue why, particularly in banking, legal standardization of debt priorities may be superior to bilateral private arrangements.

• Cantillo, M., & Wright, J. (2000). How Do Firms Choose Their Lenders? An Empirical Investigation. Review of Financial Studies, 13, 155–189.

  This article investigates which companies finance themselves through intermediaries and which borrow directly from arm's length investors. Our empirical results show that large companies with abundant cash and collateral tap credit markets directly; these markets cater to safe and profitable industries, and are most active when riskless rates or intermediary earnings are low. We show that determinants of lender selection sharpen during investment downturns and that there are substantial asymmetries in the way firms enter and exit capital markets. These results support a theoretical framework where intermediaries have better reorganizational skills but a higher opportunity cost of capital than bondholders.