If liquidity is priced, as suggested by Amihud and Mendelson (1986) and Acharya and Pedersen (2004), shareholders of firms that experience drastic declines in liquidity should experience a significant decline in their wealth. We first hypothesize and confirm that an involuntary delisting is...

We provide a model in which irrational investors trade based upon considerations that have no inherent connection to fundamentals. However, trading activity affects market prices, and because of feedback from security prices to cash flows, the irrational trades influence underlying cash flows....

This paper investigates the dynamic relation between market-wide trading activity and returns in 46 markets. Many stock markets exhibit a strong positive relation between turnover and past returns. These findings stand up in the face of various controls for volatility, alternative definitions...

Why do firms pay dividends? If they didn’t their asset and capital structures would eventually become untenable as the earnings of successful firms outstrip their investment opportunities. Had they not paid dividends, the 25 largest long-standing 2002 dividend payers would have cash holdings...

This paper provides evidences that there are limits to arbitrage in the index options market, and that the pricing kernel depends investor sentiment. First, we find that sentiment of the institutional investors is a significant determinant for index options demand, as well as the deviation of...

This paper documents a dramatic difference in the abnormal announcement period returns of the first bidder to announce an acquisition attempt in a particular industry. Typical of the literature, the set of all bidders in our sample earn abnormal returns indistinguishable from zero. However,...

Using a unique dataset from a well-known survey on derivatives use, this paper examines several questions about the use of derivatives to “take a view” on interest-rate and currency movements. Tests of what motivates firms to take a view suggest that firms view speculation as a profitable...

This paper discusses the extent to which derivatives pose threats to firms and to the economy. After reviewing the derivatives markets and putting in perspective the various measures of the size of these markets, the paper shows who uses derivatives and why. The difficulties firms face in...