Quarterly Journal of Finance 

About: Quarterly Journal of Finance is an academic journal. The journal publishes majorly in the area(s): Market liquidity & Corporate governance. Over the lifetime, 220 publications have been published receiving 3651 citations.

How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness

Abstract: This paper explores who is financially literate, whether people accurately perceive their own economic decision-making skills, and where these skills come from. Self-assessed and objective measures of financial literacy can be linked to consumers’ efforts to plan for retirement in the American Life Panel, and causal relationships with retirement planning examined by exploiting information about respondent financial knowledge acquired in school. Results show that those with more advanced financial knowledge are those more likely to be retirement-ready.

How Much Does Risk Tolerance Change

Abstract: Stability of preferences is central to how economists study behavior. This paper uses panel data on hypothetical gambles over lifetime income in the Health and Retirement Study to quantify changes in risk tolerance over time and differences across individuals. Maximum-likelihood estimation of a correlated random effects model utilizes information from 12,000 respondents in the 1992–2002 HRS. The results are consistent with constant relative risk aversion and career selection based on preferences. While risk tolerance changes with age and macroeconomic conditions, persistent differences across individuals account for over 70% of the systematic variation.

Estimation of Dynamic Term Structure Models

Abstract: We study the finite-sample properties of some of the standard techniques used to estimate modern term structure models. For sample sizes and models similar to those used in most empirical work, we reach three surprising conclusions. First, while maximum likelihood works well for simple models, it produces strongly biased parameter estimates when the model includes a flexible specification of the dynamics of interest rate risk. Second, despite having the same asymptotic efficiency as maximum likelihood, the small-sample performance of Efficient Method of Moments (a commonly used method for estimating complicated models) is unacceptable even in the simplest term structure settings. Third, the linearized Kalman filter is a tractable and reasonably accurate estimation technique, which we recommend in settings where maximum likelihood is impractical.

The Structure and Pricing of Corporate Debt Covenants

Abstract: We provide evidence on the covenant structure of corporate loan agreements. Building on the work of Jensen and Meckling [1976, Theory of the Firm: Managerial Behavior, Agency Costs, and Captial Str...

Equity Trading in the 21st Century

Abstract: The US equity market has changed dramatically in recent years. Increasing automation and the entry of new trading platforms have resulted in intense competition among trading platforms.Despite these changes, traders still face the same challenges as before. They seek to minimize the total cost of trading, including commissions, bid/ask spreads, and market impact. New technologies allow traders to implement traditional strategies more effectively. For example, dark pools and indications of interest are just an updated form of tactics that NYSE (New York Stock Exchange) floor traders used to search for counterparties while minimizing the exposure of their clients' trading interest to prevent front running.Virtually every measurable dimension of US equity market quality has improved. Execution speeds and retail commissions have fallen. Bid-ask spreads have fallen and remain low, although they spiked upward along with volatility during the recent financial crisis. Market depth has increased. Studies of institutional transactions costs find US costs among the lowest in the world. Unlike during the Crash of 1987, the US equity market mechanism handled the increase in trading volume and volatility without disruption. However, our markets lack a market-wide risk management system that would deal with computer-generated chaos in real time, and our regulators should address this."Make or take" pricing, the charging of access fees to market orders that "take" liquidity and paying rebates to limit orders that "make" liquidity, causes distortions that should be corrected. Such charges are not reflected in the quotations used for the measurement of best execution. Direct access by nonbrokers to trading platforms requires appropriate risk management. Front running orders in correlated securities should be banned.