Journal of Financial Markets最新文献

Lottery stocks have been shown to severely underperform on average. I find that from 1980 to 2016, while the average stock held by U.S. equity mutual fund managers outperforms those they do not hold by 3.8% per year, lottery stocks held by mutual funds outperform those they avoid by 24%. I find that a fund's loading on lottery stocks is a good predictor of future performance. Lottery stock loading is also correlated with various measures of fund manager skill. Investors can benefit from this information either to find skillful fund managers or to build a profitable copycat portfolio.

I study the sequential entry of intermediaries into an illiquid market. As intermediaries trade with rational counterparts, market depth affects and is affected by the possibility of entry. This feedback loop between entry and depth gives incumbent intermediaries more incentives to deter entrants, creating endogenous barriers to entry. Further, whether entry occurs or not in equilibrium has distinct effects on market quality: while entry improves depth, reduces spreads, and speeds up price convergence, the threat of entry disciplines only spreads. In a contestable market, more competition leads to higher spreads and intermediaries’ counterparties benefit more from deterrence than actual entry.

We use foreign issuers' “Yankee” bonds to benchmark how the Federal Reserve's Secondary Market Corporate Credit Facility (SMCCF) impacted U.S. issuers' bonds of the same credit rating and maturity. The SMCCF reduced the relative yield spreads of short-maturity U.S. investment-grade bonds, which were targeted by the facility. Yet it also decreased the relative yield spreads of U.S. long-maturity AA- and A-rated bonds. Moreover, relative spreads of U.S. BB-rated bonds rose, indicating that the SMCCF harmed these bonds. Using various illiquidity and default risk measures, we find that the SMCCF affected both the relative illiquidity and default risk of U.S. bonds.

We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP reveals that fees, CCPs’ robustness and activity, dealers’ risk, and market volatility are significant. Dealers’ positions indicate that saving on collateral costs is secondary relative to the benefits of dual membership and quality.

Arbitrage opportunities in markets for cryptocurrencies are well-documented. In this paper, we confirm that they exist; however, their magnitude decreased greatly from April 2018 onward. Analyzing various trading strategies, we show that it is barely possible to exploit existing price differences since then. We discuss and test several mechanisms that may be responsible for the increased market efficiency and find that informed trading is correlated with a reduction in arbitrage opportunities.

We enrich the literature by extracting ambiguity from the options market. Our results show that options market ambiguity contains information regarding future market excess returns, both in the U.S. market and international markets, and the predictive power of options market ambiguity is adjusted by the level of market fear indicated by the implied variance. The findings also show that the discount rate is a critical channel for the forecasting ability of options market ambiguity. The linkages between options market ambiguity and the bond and CDS spreads provide additional evidence for the relationship between ambiguity and the discount rate.

Firms with lower profitability have lower expected returns because such firms perform better than expected when market volatility increases. The better-than-expected performance arises because unprofitable firms are distressed and volatile, their equity resembles a call option on the assets, and call options value increases with volatility, all else fixed. Consistent with this hypothesis, the profitability anomaly and its exposure to aggregate volatility risk are stronger for distressed and volatile firms; for such firms, aggregate volatility risk explains roughly half of the profitability anomaly, while in single sorts on profitability about 70% of the anomaly is explained.

Managed futures funds are predominantly trend-followers. By analyzing positioning data, we provide novel evidence for this claim and estimate signals applied by these funds. We write trend-followers aggregate position as a weighted sum of past daily returns and use a generalized ridge regression for regularization and parameter estimation. This procedure prevents overfitting but remains flexible enough to capture various patterns. For the 23 commodities considered, trend-following can explain speculators’ position changes with an average $R^2$ of more than 40%. Finally, we document that producers act as contrarians in a way that closely mirrors the behavior of momentum traders.

We construct a model of debt maturity structure and show how a firm trades off between the costs of market liquidity risk and rollover risk. We show that an exogenous shock that directly increases one type of liquidity risk would induce the firm to alter its debt maturity structure and partially offset the impact of the shock by raising its exposure to the other type of risk (i.e., spillover effects exist). We also show that the spillover from market liquidity risk (rollover risk) to rollover risk (market liquidity risk) is more (less) pronounced during recessions or in competitive markets.

The long-run underperformance of initial public offerings (IPOs) suggests that aftermarket prices are overvalued. According to the theory of heterogeneous beliefs and short-sale constraints, the aftermarket price of IPOs is overvalued; in addition, their performance deteriorates when the mean level of optimism and degree of divergence of investors’ opinions increase. I examine this phenomenon by estimating the mean and divergence of investor opinion distribution by focusing on Japanese auction-method IPOs. According to the results, both optimism and divergence cause the overvaluation of IPO’s first-day market price; however, only the mean level of optimism is statistically significant in explaining post-IPO underperformance.