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Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 - one of the most severe financial crises of the 20th century. We estimate that the run on the market increased...
Persistent link: https://www.econbiz.de/10011207393
Value stocks have higher exposure to innovations in the nominal bond risk premium than growth stocks. Since the nominal bond risk premium measures cyclical variation in the market’s assessment of future output growth, this results in a value risk premium provided that good news about future...
Persistent link: https://www.econbiz.de/10011083286
This Paper solves explicitly a simple equilibrium asset pricing model with liquidity risk – the risk arising from unpredictable changes in liquidity over time. In our liquidity-adjusted capital asset pricing model, a security’s required return depends on its expected liquidity as well as on...
Persistent link: https://www.econbiz.de/10005791242
This paper examines the extent to which individual investors provide liquidity to the stock market, and whether they are compensated for doing so.We show that the ability of aggregate retail order imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced...
Persistent link: https://www.econbiz.de/10011096103
With only minimal restrictions on security payoffs and trader preferences, noisy aggregation of heterogeneous information drives a systematic wedge between the impact of fundamentals on the price of a security, and the corresponding impact on cash flow expectations. From an ex ante perspective,...
Persistent link: https://www.econbiz.de/10011083236
We present a model of quantitative trading as an automated system under human supervision. Contrary to previous literature we show that price-contingent trading is the profitable equilibrium strategy of large rational agents in efficient markets. The key ingredient is uncertainty about whether a...
Persistent link: https://www.econbiz.de/10011083393
We combine self-collected historical data from 1867 to 1907 with CRSP data from 1926 to 2012, to examine over 140 years of risk and return of one of the most popular mechanical trading strategies—momentum. We find that the momentum strategy has earned abnormally high risk-adjusted returns—a...
Persistent link: https://www.econbiz.de/10011083413
The 2005 inclusion of Fitch ratings in the Lehman composite index ratings provides a quasi-natural experiment to identify rating-based market segmentation in the corporate bond market. Split-rated bonds with favorable Fitch rating that were mechanically upgraded to investment-grade status...
Persistent link: https://www.econbiz.de/10011083426
On September 15, 2008, Lehman Brothers Inc. announced their filing for bankruptcy. The reaction of Lehman's competitors and market participants to this bankruptcy filing announcement provides a unique field experiment of how the insolvency spills over to other financial institutions and how...
Persistent link: https://www.econbiz.de/10011083604
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...
Persistent link: https://www.econbiz.de/10011083650