Journal•ISSN: 0022-1090
Journal of Financial and Quantitative Analysis
Cambridge University Press
About: Journal of Financial and Quantitative Analysis is an academic journal published by Cambridge University Press. The journal publishes majorly in the area(s): Portfolio & Capital asset pricing model. It has an ISSN identifier of 0022-1090. Over the lifetime, 2810 publications have been published receiving 229682 citations. The journal is also known as: JFQA & J.F.Q.A..
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TL;DR: In this article, the authors develop a positive theory of the hedging behavior of value-maximizing corporations, treating hedging by corporations simply as one part of the firm's financing decisions.
Abstract: We develop a positive theory of the hedging behavior of value-maximizing corporations. We treat hedging by corporations simply as one part of the firm's financing decisions. We examine (1) taxes, (2) contracting costs, and (3) the impact of hedging policy on the firm's investment decisions as explanations of the observed wide diversity of hedging practices among large, widely-held corporations. Our theory provides answers to the questions: (1) why some firms hedge and others do not; (2) why firms hedge some risks but not others; and (3) why some firms hedge their accounting risk exposure while others hedge their economic value.
3,218 citations
TL;DR: In this paper, the authors reviewed previous and current research on the relation between price changes and trading volume in financial markets, and made four contributions: two empirical relations are established: volume is positively related to the magnitude of the price change and, in equity markets, to the price changes per se.
Abstract: This paper reviews previous and current research on the relation between price changes and trading volume in financial markets, and makes four contributions. First, two empirical relations are established: volume is positively related to the magnitude of the price change and, in equity markets, to the price change per se. Second, previous theoretical research on the price-volume relation is summarized and critiqued, and major insights are emphasized. Third, a simple model of the price-volume relation is proposed that is consistent with several seemingly unrelated or contradictory observations. And fourth, several directions for future research are identified.
2,572 citations
TL;DR: The authors examined the use of seven mechanisms to control agency problems between managers and shareholders, including shareholdings of insiders, institutions, and large blockholders, use of outside directors, debt policy, managerial labor market, and market for corporate control.
Abstract: This paper examines the use of seven mechanisms to control agency problems between managers and shareholders. These mechanisms are: shareholdings of insiders, institutions, and large blockholders; use of outside directors; debt policy; the managerial labor market; and the market for corporate control. We present direct empirical evidence of interdependence among these mechanisms in a large sample of firms. This finding suggests that crosssectional OLS regressions of firm performance on single mechanisms may be misleading. Indeed, we find relationships between firm performance and four of the mechanisms when each is included in a separate OLS regression. These are insider shareholdings, outside directors, debt, and corporate control activity. Importantly, the effect of insider shareholdings disappears when all of the mechanisms are included in a single OLS regression, and the effects of debt and corporate control activity also disappear when estimations are made in a simultaneous systems framework. Together, these findings are consistent with optimal use of each control mechanism except outside directors.
2,372 citations
TL;DR: In contrast to previous empirical work, out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio, and that the target ratio may change over time as the firm's profitability and stock price change as mentioned in this paper.
Abstract: When firms adjust their capital structures, they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt. In contrast to previous empirical work, out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio, and that the target ratio may change over time as the firm's profitability and stock price change. A separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision.
1,969 citations
TL;DR: In this article, the authors investigated the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system and found that a substantial amount of multi-lateral interaction is detected among national stock markets.
Abstract: This paper investigates the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system. Using simulated responses of the estimated VAR system, we (i) locate all the main channels of interactions among national stock markets, and (ii) trace out the dynamic responses of one market to innovations in another. Generally speaking, a substantial amount of multi-lateral interaction is detected among national stock markets. Innovations in the U.S. are rapidly transmitted to other markets in a clearly recognizable fashion, whereas no single foreign market can significantly explain the U.S. market movements. Also, the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets.
1,517 citations