This paper undertakes an empirical analysis of the existence of psychological barriers in the dollar/DM and the dollar/yen exchange markets. Psychological barriers occur when agents attach some special importance to the last trailing digits of the price of an asset or a currency. Our empirical...

Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to...

The media are increasingly recognized as key players in financial markets. I investigate their causal impact on trading and price formation by examining national newspaper strikes in several countries. Trading volume falls 12% on strike days. The dispersion of stock returns and their intraday...

Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” -- the residual when negativity in managerial tone is regressed on the firm’s recent economic...

This Paper is an exploration into the links between macroeconomics and finance as they affect the FOREX risk premium. SDF theory is used in which the factors are observable macroeconomic variables. Three SDF theories are compared: a benchmark model based on traditional tests of FOREX efficiency;...

We examine the effect of close ties with the NSDAP on the stock price of listed firms in 1932-33. We consider not only links between the National Socialists and executives, as was common in earlier work, but also with supervisory board members – whose importance is hard to overestimate in the...

The covered interest parity (CIP) theorem states that the covered interest differential between two similar assets denominated in different currencies should be zero. This paper utilizes high-quality data recorded by the dealers at the Bank of England to test CIP during periods in which news is...

We characterize the divergence between in informational and economic efficiency in a rational expectations competitive market with asymmetric information about the costs of production. We find that prices may contain too much or too little information with respect o incentive efficient...

This paper re-examines the standard ‘unbiasedness’ hypothesis in foreign exchange markets, according to which the forward premium should be an unbiased predictor of the future change of the spot exchange rate. If traders are heterogeneous, they may consist of ‘fundamentalists’ who...

We examine the risk-return characteristics of a rolling portfolio investment strategy where more than six thousand Nasdaq initial public offering (IPO) stocks are bought and held for up to five years. The average long-run portfolio return is low, but IPO stocks appear as ‘longshots’, as...