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

• Amin, K. I., & Bodurtha, J. N. (1995). Discrete-Time Valuation of American Options with Stochastic Interest Rates. Review of Financial Studies, 8, 193–234.

  We develop an arbitrage-free discrete time model to price American-style claims for which domestic term structure risk, foreign term structure risk, and currency risk are important. This model combines a discrete version of the Heath, Jarrow, and Morton (1992) term structure model with the binomial model of Cox, Ross, and Rubinstein (1979). It converges (weakly) to the continuous time models in Amin and Jarrow (1991, 1992). The general model is "path dependent" and can be implemented with arbitrary volatility functions to value claims with maturity up to five years. The model is illustrated with applications to long-dated American currency warrants and a cross-rate swap from the quanto class.

• Badrinath, S. G., Kale, J. R., & Noe, T. H. (1995). Of Shepherds, Sheep, and the Cross-autocorrelations in Equity Returns. Review of Financial Studies, 8, 401–430.

  We present an economic mechanism and supportive empirical evidence for the transmission of information between equity securities first documented by Lo and MacKinlay (1990). It is argued that the past returns on stocks held by informed institutional traders will be positively correlated with the contemporaneous returns on stocks held by noninstitutional uninformed traders. Evidence consistent with this hypothesis is then presented. We document that the returns on the portfolio of stocks with the highest level of institutional ownership lead the returns on portfolios of stocks with lower levels of institutional ownership. This effect persists even after firm size is controlled for and is apparent at longer lags than the size-related lag effects documented in Lo and MacKinlay (1990).

• Basak, S. (1995). A General Equilibrium Model of Portfolio Insurance. Review of Financial Studies, 8, 1059–1090.

  This article examines the effects of portfolio insurance on market and asset price dynamics in a general equilibrium continuous-time model. Portfolio insurers are modeled as expected utility maximizing agents. Martingale methods are employed in solving the individual agents' dynamic consumption-portfolio problems. Comparisons are made between the optimal consumption processes, optimally invested wealth and portfolio strategies of the portfolio insurers and "normal agents." At a general equilibrium level, comparisons across economies reveal that the market volatility and risk premium are decreased, and the asset and market price levels increased, by the presence of portfolio insurance.

• Berens, J. L., & Cuny, C. J. (1995). The Capital Structure Puzzle Revisited. Review of Financial Studies, 8, 1185–1208.

  Corporate finance researchers have long been puzzled by low corporate debt ratios given debt's corporate tax advantage. This article recognizes that firm value typically reflects a growing stream of earnings, while current debt reflects a nongrowing stream of interest payments. Debt to value is therefore a distorted measure of corporate tax shielding. Even with very small debt- related costs, this may explain the observed magnitude and cross- sectional variation of debt ratios. Since this variation may be independent of tax shielding, debt ratios provide an inappropriate framework for empirically examining the trade-off theory of capital structure.

• Bergman, Y. Z. (1995). Option Pricing with Differential Interest Rates. Review of Financial Studies, 8, 475–500.

  The classic option pricing model is generalized to a more realistic, imperfect, dynamically incomplete capital market with different interest rates for borrowing and for lending and a return differential between long and short positions in stock. It is found that, in the absence of arbitrage opportunities, the equilibrium price of any contingent claim must lie within an arbitrage-band. The boundaries of an arbitrage-band are computed as solutions to a quasi-linear partial differential equation, and, in generals each end-point of such a band depends on both interest rates for borrowing and for lending. This, in turn, implies that the vector of concurrent equilibrium prices of different contingent claims - even claims that are written on different underlying assets - must lie within a computable arbitrage-oval in the price space.

• Berk, J. B. (1995). A Critique of Size-Related Anomalies. Review of Financial Studies, 8, 275–286.

  This article argues that the size-related regularities in asset prices should not be regarded as anomalies. Indeed, the opposite result is demonstrated. Namely, a truly anomalous regularity would be if an inverse relation between size and return was not observed. We show theoretically (1) that the size-related regularities should be observed in the economy and (2) why size will in general explain the part of the cross-section of expected returns left unexplained by an incorrectly specified asset pricing model. In light of these results we argue that size-related measures should be used in cross-sectional tests to detect model misspecifications.

• Bernhardt, D., Hollifield, B., & Hughson, E. (1995). Investment and Insider Trading. Review of Financial Studies, 8, 501–543.

  We study insider trading in a dynamic setting. Rational, but uninformed, traders choose between investment projects with different levels of insider trading Insider trading distorts investment toward assets with less private information. However, when investment is sufficiently information elastic, insider trading can be welfare-enhancing because of more informative prices. When insiders repeatedly receive information, they trade to reveal it when investment is information elastic because good news increases investment and hence future insider profits. Thus, more information is revealed and uninformed agents are exploited less frequently by insiders. Both effects are Pareto-improving. Finally, we consider various insider-trading regulations.

• Bodurtha, J. N., Kim, D.-S., & Lee, C. M. C. (1995). Closed-End Country Funds and U.S. Market Sentiment. Review of Financial Studies, 8, 879–918.

  Closed-end country funds can trade at large premiums and discounts from their foreign asset vales (NAVs). Investigating this anomaly, we find that individual fund premiums move together, primarily because of the comovement of their stock prices with the U.S. market. Moreover, an index of country fund premiums differentiates size-ranked U.S. portfolio returns and forecasts country fund stock returns. These findings suggest that international equity prices are affected by local risk. In particular, we show that country fund premium movements reflect a U.S specific risk, which may be interpreted as U.S. market sentiment.

• Booth, G. G., Lin, J.-C., & Sanger, G. C. (1995). Trade Size and Components of the Bid-Ask Spread. Review of Financial Studies, 8, 1153–1183.

  The relation between theorized components of the bid-ask spread and trade size for a sample of NYSE firms is examined. We find that the adverse selection component increases uniformly with trade size. Conversely, order processing costs decrease with increases in trade size for all but the largest trades. We find that order persistence decreases with trade size. The adverse selection component is highest at the beginning of the day and lowest at the end of the day for all but the largest trades. Trades of NYSE firms executed on regional exchanges or NASDAQ contain a large order processing cost component but no significant adverse information effect.

• Broadie, M., & Detemple, J. (1995). American Capped Call Options on Dividend-Paying Assets. Review of Financial Studies, 8, 161–191.

  This article addresses the problem of valuing American call options with caps on dividend paying assets. Since early exercise is allowed, the valuation problem requires the determination of optimal exercise policies. Options with two types of caps are analyzed: constant caps and caps with a constant growth rate. For constant caps, it is optimal to exercise at the first time at which the underlying asset's price equals or exceeds the minimum of the cap and the optimal exercise boundary for the corresponding uncapped option. For caps that grow at a constant rate, the optimal exercise strategy can be specified by three endogenous parameters.