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

• Ahn, D.-H., & Gao, B. (1999). A Parametric Nonlinear Model of Term Structure Dynamics. Review of Financial Studies, 12, 721–762.

  Recent nonparametric estimation studies pioneered by Ait-Sahalia document that the diffusion of the short rate is similar to the parametric function, r[superscript 1.5], estimated by Chan et al., whereas the drift is substantially nonlinear in the short rate. These empirical properties call into question the efficacy of the existing affine term structure models and beg for alternative models which admit the observed behavior. This article presents such a model. Our model delivers closed-form solutions for bond prices and a concave relationship between the interest rate and the yields. We show that in empirical analyses, our model outperforms the one-factor affine models in both time-series as well as cross-sectional tests.

• Back, K., Dybvig, P. H., & Rogers, L. C. G. (1999). Portfolio Turnpikes. Review of Financial Studies, 12, 165–195.

  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.

• Battig, R. J., & Jarrow, R. A. (1999). The Second Fundamental Theorem of Asset Pricing: A New Approach. Review of Financial Studies, 12, 1219–1235.

  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.

• Berger, P. G., & Ofek, E. (1999). Causes and Effects of Corporate Refocusing Programs. Review of Financial Studies, 12, 311–345.

  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.

• Berkovitch, E., & Israel, R. (1999). Optimal Bankruptcy Laws across Different Economic Systems. Review of Financial Studies, 12, 347–377.

  We model fundamental differences across economic systems and propose optimal bankruptcy laws. We show that creditor-debtor relationships in a given economy are affected by the ability of creditors to obtain information about fundamentals and the managers' ability to strategically use their private information. An optimal bankruptcy law utilizes creditors' information while minimizing managers' use of strategic information. Our proposed laws for a developed bank-based system like Germany include a creditor chapter only, for a developed market-based system like the United States include both a creditor chapter and a debtor chapter, and for an underdeveloped system include both a creditor chapter and a debtor chapter that gives the manager more protection than in a market-based system.

• Berlin, M., & Mester, L. J. (1999). Deposits and Relationship Lending. Review of Financial Studies, 12, 579–607.

  We empirically examine whether access to deposits with inelastic rates (core deposits) permits a bank to make contractual agreements with borrowers that are infeasible if the bank must pay market rates for funds. Such access insulates a bank's costs of funds from exogenous shocks, allowing it to insulate its borrowers against exogenous credit shocks. We find that, controlling for loan market competition, banks funded more heavily with core deposits provide more loan rate smoothing in response to exogenous changes in aggregate credit risk. Thus we provide evidence for a novel channel linking bank liabilities to relationship lending.

• Bhattacharyya, S., & Leach, J. C. (1999). Risk Spillovers and Required Returns in Capital Budgeting. Review of Financial Studies, 12, 461–479.

  This article integrates strategic product market analysis with price-taking asset pricing theory. We demonstrate that a firm's market power can lead to scale-dependent and potentially infinite required returns. Scale dependency, which we relate to risk spillovers between expansionary and existing cash flows, reflects the divergence of incremental from existing required returns. The firm-specific nature of risk spillovers potentially destroys the concept of a common industry 'risk class'. Our analysis raises important questions regarding the validity of widely used 'comparables' methods for determining risk-adjusted discount rates.

• Bloomfield, R., & O’Hara, M. (1999). Market Transparency: Who Wins and Who Loses? Review of Financial Studies, 12, 5–35.

  This study uses laboratory experiments to determine the effects of trade and quote disclosure on market efficiency, bid-ask spreads, and trader welfare. We show that trade disclosure increases the informational efficiency of transaction prices, but also increases opening bid-ask spreads, apparently by reducing market-makers' incentives to compete for order flow. As a result, trade disclosure benefits market makers at the expense of liquidity traders and informed traders. We find that quote disclosure has no discernible effects on market performance. Overall our results demonstrate that the degree of market transparency has important effects of market equilibria and on trader and market-maker welfare.

• Bossaerts, P., & Hillion, P. (1999). Implementing Statistical Criteria to Select Return Forecasting Models: What Do We Learn? Review of Financial Studies, 12, 405–428.

  Statistical model selection criteria provide an informed choice of the model with best external (i.e., out-of-sample) validity. Therefore they guard against overfitting ('data snooping'). We implement several model selection criteria in order to verify recent evidence of predictability in excess stock returns and to determine which variables are valuable predictors. We confirm the presence of in-sample predictability in an international stock market dataset, but discover that even the best prediction models have no out-of-sample forecasting power. The failure to detect out-of-sample predictability is not due to lack of power.

• Busse, J. A. (1999). Volatility Timing in Mutual Funds: Evidence from Daily Returns. Review of Financial Studies, 12, 1009–1041.

  I use daily mutual fund returns to shed new light on the question of whether or not mutual fund managers are successful market timers. Previous studies find that funds are unable to time the market return. I study the funds' ability to time market volatility. I show that volatility timing is an important factor in the returns of mutual funds and has led to higher risk-adjusted returns. The returns of surviving funds are especially sensitive to market volatility; those of nonsurvivors are not.