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Working Paper
Concentrated shareholdings and the number of outside analysts
Assuming some fixed cost to information acquisition, diffuse shareholders in publicly held firms have little incentive to produce information that can substitute for the services of financial analysts. However, we argue that concentrated shareholdings, either by outsiders like institutions or by inside managers, reduce the demand for analyst services. The former group finds it worthwhile to produce its own information and avoid any moral hazard problems associated with analyst forecasts, while the concentration of shareholdings by insiders reduces the moral hazard problem associated with ...
Working Paper
Jump risk, time-varying risk premia, and technical trading profits
In this paper we investigate the recently documented trading profits based on technical trading rules in an asset pricing framework that incorporates jump risk and time-varying risk premia. Following Brock, Lakonishok, and LeBaron (1992), we apply popular technical trading rules to the daily S&P 500 index over a long period of time. Trading profits are examined using bootstrap simulation to address distributional anomalies. We estimate a variety of asset pricing models, including the random walk, autoregressive models, a combined jump diffusion model, and a combined model of jump-diffusion ...
Working Paper
Expected stock returns and volatility in a production economy: a theory and some evidence
The sign of the relationship between expected stock market returns and volatility appears to vary over time, a result that seems at odds with basic notions of risk and return. In this paper we construct an economy where production involves the use of both labor and capital as inputs. We show that when capital investment is "sticky," the sign of the relation between stock market risk and return varies in accordance with the supply of labor but requires no time variation in preferences. In particular, we show that for asset market equilibria where firms face an elastic supply of labor, the ...
Working Paper
Emerging debt and equity markets: an exploratory investigation of integration using daily data
In this paper we examine integration between emerging and U.S. debt and equity markets. We first investigate price changes around significant "events," in this case changes in short-term U.S. interest rates brought about by actions of the Federal Reserve. Second, we estimate the predictability of returns using both domestic and U.S. variables. Finally, we test whether a single latent variable can explain these returns. The evidence suggests that the degree of integration varies with security types and the country of origin. However, these differences between security types become less ...
Journal Article
Analyzing risk and return for mortgage-backed securities
Journal Article
Policy essay--new tools for regulators in a high-tech world
Journal Article
The buck stops where? The role of limited liability in economics
Over the last few centuries laws have increasingly protected individuals and corporations from liability resulting from bad economic outcomes. This evolution in liability provisions, by many accounts, has significantly influenced both the level and distribution of contemporary economic output as well as the allocation of financial resources in today's financial markets. ; Through a review of an extensive and growing literature, the authors of this article consider how limited liability affects investment, labor, and financing decisions made by individuals and corporations as well as ...
Journal Article
The rise of risk management
Risk management is nothing new, despite the increased attention given to the subject over the past decade or two. For well over one hundred years farmers have engaged in risk management, hedging their risks against price fluctuations in commodity markets. Unlike a family farmer, however, a corporation is owned by shareholders, who can, if they so wish, greatly reduce or eliminate the risk of low prices simply by holding a diversified portfolio. ; Why, then, are managers doing for shareholders what shareholders apparently can do for themselves? This article provides a review of the rationales ...
Working Paper
Form invariance in biased sampling problems