New tests are presented on the effects of stock illiquidity on stock return. Over time, expected market illiquidity positively affects ex ante stock excess return (usually called " risk premium "). This complements the positive cross-sectional return-illiquidity relationship. The illiquidity measure here is the average daily ratio of absolute stock return… (More)
The purpose of this article is to explain the spread between spot rates on corporate and government bonds. We find that the spread can be explained in terms of three elements: (1) compensation for expected default of corporate bonds (2) compensation for state taxes since holders of corporate bonds pay state taxes while holders of government bonds do not,… (More)
This paper documents that hedge funds did not exert a correcting force on stock prices during the technology bubble. Instead, they were heavily invested in technology stocks. This does not seem to be the result of unawareness of the bubble: Hedge funds captured the upturn, but, by reducing their positions in stocks that were about to decline, avoided much… (More)
1 We are very grateful to Kumar Visvanathan for graciously sharing the data on foreign currency derivatives. We also greatly appreciate comments received Abstract We examine whether ¯rms use foreign currency derivatives for hedging or for speculative purposes. Using the sample of all S&P 500 non¯nancial ¯rms for 1993, we ¯nd strong evidence that ¯rms use… (More)
This paper explores the relationship between the after-tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds. Previous studies have documented that funds with high pretax returns attract greater inflows. This paper presents evidence, based on a large sample of retail equity mutual funds over the period… (More)
a This paper is based on a previous chapter of my New York University, Ph.D. dissertation. The previous paper was entitled " The Interaction of Insiders and Outsiders in Monitoring: A Theory of Corporate Boards. " Although similar, the current model is more simplified. For comments on this and earlier versions of the paper, I would specially like to thank… (More)
(the editor), and an anonymous referee for helpful comments and suggestions. We also acknowledge the research assistance of Olesya Grishchenko. Abstract We simulate standard tests of performance persistence using alternative return-generating processes, survival criteria, and test methodologies. When survival depends on performance over several periods,… (More)
We would like to thank Michael Babel for providing some of the data used in this study and Yakov comments on an earlier draft of this paper.
and the BSI Gamma Foundation for financial support. We also thank Lipper Inc. and, in particular, Jeffrey C. Keil for supplying incentive fee and fund data. In addition, we would like to thank Deepak Agrawal, Gordon Alexander, and participants in the 2001 meeting of the European Finance Association (Barcelona) for helpful comments. All errors are our own.
Financial theory is often based on the belief that the actions of rational investors determine prices, which leads to the elimination of dominated financial instruments. Recently a series of articles have been published which question the rationality of investor behavior. Standard and Poor's 500 index funds represent one of the simplest vehicles for… (More)