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

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Results 485 resources

  • A large and rapidly growing literature examines the impact of misvaluation on firm policies by using mutual fund outflow‐induced price pressure to isolate nonfundamental price variation. I demonstrate that the standard approach to computing outflow‐induced price pressure produces a measure that is inadvertently a direct function of a stock's actual realized return during the outflow quarter, raising doubts about its orthogonality to fundamentals. After removing these direct measurements of return, outflows generate a fairly negligible quarterly decline in returns, with no subsequent reversal, and many established results in this literature no longer hold. I provide suggestions for future analysis.

  • I examine the possibility of information‐based trading in a multiperiod consumption setting. I develop a necessary and sufficient condition for trade to occur. Intertemporal substitution introduces a desire to correlate current consumption with future aggregate shocks. When agents have heterogeneous time‐inseparable preferences, information differentially affects relative preferences for current and future consumption, making information‐based trading mutually acceptable. The no‐trade result continues to hold if there is no aggregate shock, or if agents have either homogeneous or time‐separable preferences.

  • We model the strategic interaction between fundamental investors and “back-runners,” whose only information is about the past order flow of fundamental investors. Back-runners partly infer fundamental investors’ information from their order flow and exploit it in subsequent trading. Fundamental investors counteract back-runners by randomizing their orders, unless back-runners’ signals are too imprecise. Surprisingly, a higher accuracy of back-runners’ order flow information can harm back-runners and benefit fundamental investors. As an application of the model, the common practice of payment for (retail) order flow reveals information about institutional order flow and enables back-runners to earn large profits.

  • We propose a new, price-based measure of information risk called abnormal idiosyncratic volatility (AIV) that captures information asymmetry faced by uninformed investors. AIV is the idiosyncratic volatility prior to information events in excess of normal levels. Using earnings announcements as information events, we show that AIV is positively associated with informed return run-ups, abnormal insider trading, short selling, and institutional trading during pre-earnings-announcement periods. We find that stocks with high AIV earn economically and statistically larger future returns than stocks with low AIV. Taken together, our findings support the notion that information risk is priced.

  • I present a model in which bank net worth determines both loan market competition and monetary transmission to firm borrowing rates. In the model, banks are local monopolists for borrowers near them. When they are flush with equity, banks expand their lending, compete for customers at the edges of their markets, and pass through changes in the monetary policy rate to their loan rates. When they lose substantial equity, banks consolidate, retreat from rivalry, and frustrate monetary transmission. The model explains why interest rate pass-through weakens after financial crises. Its predictions are consistent with several facts about bank-to-firm lending.

Last update from database: 5/15/24, 11:01 PM (AEST)