Timo P. Korkeamaki and William T. Moore Convertible bonds typically feature both call provisions and call protection terms that revoke or limit issuers’ rights to call their bonds. We examine the determinants of the strength and the length of that call protection. Our findings suggest that issuers consider the timing of their future capital investment… Read more
Articles
REGULATION FAIR DISCLOSURE AND VOLATILITY: AN INTRADAY ANALYSIS
Robert B. Mendelson, Rajneesh Sharma and Daniel G. Weaver Regulation Fair Disclosure (Reg FD) prohibits selective disclosure policies by companies. This study uses a sample of earning announcements before and after Reg FD to examine the impact on trade size, share volume, number of transactions per day, intraday return volatility, and bid–ask spread. Our methodology… Read more
INVESTMENT BANKER DIRECTORS AND AFFILIATED ANALYSTS’ FORECASTS
Murali Jagannathan and Srinivasan Krishnamurthy Equity research analysts of investment banks have been subjected to significant regulatory scrutiny and enforcement action in recent years. Specifically, two major issues have attracted legal attention: (1) whether analysts favorably bias their forecasts to secure investment-banking business, and (2) whether selective disclosure to analysts worsens the firm’s information environment… Read more
DEVELOPING BETTER FEE STRUCTURES FOR MUTUAL FUNDS
Ronald T. Wilcox This paper presents a management decision model for setting mutual fund fees. The model pairs information obtained from a conjoint analysis, designed to uncover investors’ preferences for different fee structures, with information on the expected revenue generated from various fee structures to suggest a set of “efficient” fees to mutual fund managers… Read more
MOTIVATION AND PERFORMANCE FOLLOWING OPEN-ENDING OF CLOSED-END FUNDS
Aigbe Akhigbe, Jeff Madura and Alan Tucker This study investigates the motives for open-ending closed-end funds, and performance of closed-end funds following open-ending announcements. We find that the propensity to open end is higher for funds that are larger, have high expense ratios, exhibit high volatility, and whose prices reflect large discounts from net asset… Read more
GLOBAL DIVERSIFICATION
Meir Statmana and Jonathan Scheid Correlations between the returns of US stocks and international stocks were higher recently than in the past, reaching 0.86 during the 60 months ending in December 2003. Today’s investors note the high correlations between US and international stocks and doubt the benefits of global diversification. We argue that the benefits… Read more
HOW NEW ENTRY IN OPTIONS MARKETS AFFECTED MARKET MAKING AND TRADING COSTS
Patrick de Fontnouvelle, Raymond P. H. Fishe and Jeffrey H. Harris A significant competition for order flow in options markets occurred in August 1999. Before the competition, the majority of option volume arose from exclusive listings. By the end of September 1999, entry by existing option exchanges had shifted the majority of option volume to… Read more
A MARKOV CHAIN MONTE CARLO METHOD FOR DERIVATIVE PRICING AND RISK ASSESSMENT
Sanjiv R. Das and Alistair Sinclair Derivative security pricing and risk measurement relies increasingly on lattice representations of stochastic processes, which are a discrete approximation of the movement of the underlying securities. Pricing is undertaken by summation of node values on the lattice. When the lattice is large (which is the case when high accuracy… Read more
THE YEAR-END PRICE OF RISK IN A MARKET FOR LIQUIDITY
Mark D. Griffiths and Drew B. Winters Musto (1997, Journal of Finance 52(4), 1861–1882) identifies a year-end effect in commercial paper (CP) and suggests that the price of risk may increase at the year-end. Griffiths and Winters (2003, Journal of Business, forthcoming) show that the timing of the year-end effect in CP is consistent with… Read more
IMPLICATIONS OF CORRELATED DEFAULT FOR PORTFOLIO ALLOCATION TO CORPORATE BONDS
Mark B. Wise and Vineer Bhansali This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Using a multivariate normal Copula function for the joint default probabilities we show that retaining the first few moments of the portfolio default… Read more