Syllabus

FIN 395.4 Empirical Methods in Finance
Syllabus

Course Description

This course represents an advanced study of asset pricing in financial economics. We focus on the empirical techniques used most often in the analysis of financial markets and how they are applied to actual market data. The list of topics includes: (a) empirical tests of Asset Pricing Models b) statistical properties of asset returns, (b) unconditional tests of asset pricing models (CAPM, APT), (c) conditional tests of asset pricing models (d) efficient markets hypothesis and anomalies, (d) behavioral finance, (e) mutual fund and fund flows, (f) international finance, and (g) miscellaneous topics. The relative emphasis that each topic receives within category (d-g) will likely depend on the interests of the students.

Class Meetings and Format

We will meet each Wednesday and some Monday’s 2-5 pm. Each week, I will assign relevant readings. These readings will consist of statistical background readings at times and specific papers in empirical financial economics. You are expected to read the material before the class. The class will not follow a lecture format; rather, I will act as the discussion leader and background resource, especially as it comes to techniques or methodology. I will attempt to devise a list of discussion questions each week to facilitate the presentation of each topic. In addition, I will assign an empirical exercise applying a concept or technique from class that requires the use of a statistical package on a common dataset. I would encourage you to form study groups to discuss the papers, data assignments and project.

Course Resources and Requirements

The textbooks for the course are The Econometrics of Financial Markets by John Campbell, Andrew Lo and Craig MacKinlay (Princeton University Press, 1997). Chapters of Asset Pricing by John H. Cochrane are also recommended and Ch. 1-9 is assumed as background material. I will also assign required readings which are listed in the outline below. I will strive to make available as many of the supplemental (non-required) readings as possible.

The demands of this course are likely to be computation-intensive so that some rudimentary programming and data analysis skills are necessary.

I will not tolerate cheating or dishonorable conduct of any kind (plagiarism (see links to “Scope of Academic Dishonesty” and “The Standard of Academic Integrity”, copying, lying, etc.). I will punish any violations in accordance with University policy.

Grades

Pop Quizes, data assignments, and class discussion. (35 percent)

Research Paper. Research ideas. Students are expected to come up with research ideas from the readings. More details provided in class. (15 percent)

Final Examination. This exam will take place during the scheduled time in the 11th week of the quarter and will last 2 hours. It is designed to act as a dry-run test for the Finance Theory exam. (35 percent)

Classroom Presentation. Students are expected to participate actively in all classroom discussions. However, each student will act as discussion leader for one of the special topics sessions (selected in consultation with the instructor) in the 13 and 14th weeks of the semester. The presentation should comprise a critical review of the articles selected. (15 percent)

Background References

Students should also avail themselves of the following useful reference books:

Cochrane, J. H., 2001. Asset Pricing, Princeton University Press.

Anderson, T., 1984, An Introduction to Multivariate Analysis. New York: John Wiley and Sons.

Bodie, Z., A. Kane and A. Marcus, 1997, Investments, Fourth Edition. New York: Richard D. Irwin.

Cox, J. and M. Rubinstein, 1985, Options Markets. New York: Prentice Hall.

Hamilton, J. D., 1994, Time Series Analysis, Princeton University Press.

Tsay, R. S., 2005, Analysis of Financial Time Series, Wiley-Interscience.

Judge G., W. Griffiths, C. Hill, H. Lutkepohl, T. Lee, 1985, The Theory and Practice of Econometrics, Second Edition. New York: John Wiley and Sons.

O’Hara, M., Market Microstructure Theory, 1994, Basil Blackwell, Oxford, UK.

Silvey, S. D., 1975, Statistical Inference. New York: Chapman and Hall.

Jarrow, R., V. Maksimovic, W. Ziemba, 1995, Finance (Volume 9, Handbooks in Operations Research and Management Science), Elsevier Science, Amsterdam.

Course Outline

Parts of this course are similar to in nature to that from Andrew Karolyi. He designed the coures by seeking input from professors teaching in the top doctoral programs in the U.S. (Professors Tim Bollerslev, Peter Bossaerts, John Campbell, K.C. Chan, Wayne Ferson, Ravi Jagannathan, Bob Korajczyk, Andrew Lo and Jay Shanken). He surveyed a group of faculty that comprise the best empirical researchers in Finance as to the content and format of the Ph.D-level courses in empirical methods they teach. Their incentive to comply with the survey lay in a promise to pool and then disseminate the information to them.

The topics covered in the course are divided into 14 sections, as outlined below. We will cover topic I to X comprehensively in class. I will encourage the students to choose a topic from (IX to XV) for their presentations which will take place during the final week of the quarter.

Asset Pricing Theory (Ch. 1-10 from Cochrane’s on-line text).

Introduction to Empirical Asset Pricing

III. The Random Character of Stock Market Prices
(a) Unconditional Distributions
(b) Conditional Distributions
i. Conditional Means – Mean Reversion
ii. Conditional Means – Instrumental Variables
iii. Conditional Variances
iv. Relationship between Means and Variances
(c) Stock Returns and Volume

Capital Asset Pricing Model

(a) FM Methodology
(b) Unconditional Tests
(c) Conditional Tests – Time Varying Means/Variances

The Arbitrage Pricing Theory

(a) Unconditional Tests
(b) Conditional Tests and Extensions

Efficient Markets Hypothesis
(a) Variance Bounds Tests
(b) Anomalies
(c) Price Momentum
(d) Over-reaction and BE/ME
(e) Earnings Momentum
(f) Post-earnings Announcement Drift
VII. Behavioral Finance
(a) Theoretical papers
(b) Empirical papers
Bubble Theory
Bubble Empirical
iii. Seasonal Effects
VIII. International Finance
(a) International Asset Pricing
(b) Exchange Rate Exposure
(c) Other International Finance Issues– Linkages, Correlations, etc.
(d) Capital Flows and Contagion
(c) Other issues
Investors and Mutual Funds
(a) Institutional Investors
(b) Flows
(c) Performance Evaluation and Mutual funds
(d) Hedge Funds
(e) Short-term behavior and Herding
Market Microstructure
(a) Classics
(b) Institutional Aspects of Market Structure
(c) Non-Synchronous Trading and Measurement Biases
(d) Bid-Ask Spreads and Price Discreteness
(e) Price Discovery
(f) Market Design
(g) Microstructure with parts of Finance
(h) Short-sales
Analyst Forecast
XII. Volume/Volatility
XIII. Consumption and Production Based Asset Pricing Models
(a) Consumption Based Models
(b) State Nonseparable Consumption Models
(c) Habit Formation Models
(d) Production Based Models
XIV. Bayesian Studies in Finance
Event Study Methodology
(a) Traditional Approaches
(b) Long-run Performance Measurement
XVI. Fixed Income Securities
(a) Term Structure of Interest Rates
(b) Pricing Debt with Default Risk
XVII. Pricing Options, Futures and Other Derivative Assets
(a) Option Pricing Models
(b) Futures and Forward Prices
(c) Collateralized Debt Obligations (CDOs)
XVIII. Non-Standard Approaches in Finance
(a) Chaos and Nonlinear Dynamics in Stock Returns
(b) Technical Trading Rules
References
The references below are classified into three categories: (r) denotes a required reading that will be discussed in class, (s), a supplemental reading, and (m) represents a background methodological article that students may attempt to read.

Asset Pricing Theory

(s) Chapter 1-9 in Cochrane’s text.
(s) Merton, R. C., 1973, “An intertemporal capital asset pricing model,” Econometrica 41, 867-887.
(s) Ross, S. A., 1976, “The arbitrage theory of capital asset pricing,” Journal of Economic Theory 13, 341-360.
(s) Campbell, John Y., 2000, “Asset Pricing at the New Millennium,” Journal of Finance 55, 1515-1568.
Introduction to Empirical Testing
(s) Popper, K. R., 1957, “Science: Conjectures and Refutations” in Conjectures and refutations: The growth of scientific knowledge (Routledge).
(s) Silvey, S. D., 1975, Statistical Inference, Chapter 1. London: Chapman and Hall.
(r) Leamer, E., 1983, “Let’s Take the Con Out of Econometrics,” American Economic Review 73, 31-43.
(s) McAleer, Michael, Adrian R. Pagan, and Paul A. Volker, 1985, “What Will Take the Con Out of Econometrics?”, The American Economic Review 75, 293-307.
(s) McCloskey, 1985, “The Loss Function has been Mislaid: The Rhetoric of Significance Tests,” American Economic Review 75, 201-205.
(s) Duhem, Pierre, 1987, “Physical Theory and Experiment,” In: Kourany, J.(ed.), “Scientific Knowledge,” 158-169.
(s) Popper, Karl, 1987, “Science: Conjectures and Refutations,” In: Kourany, J.(ed.), “Scientific Knowledge,” 139-155.
(s) Cox, D., 1990, “Role of Models in Statistical Analysis,” Statistical Science 5, 169-74.
(s) De Long, J. Bradford and Kevin Lang, 1992, “Are All Economic Hypotheses False?” Journal of Political Economy 100, 1257-1272.
(s) Friedman, M., 1994, “The Methodology of Positive Economics”, The Philosophy of Economics: An Anthology 2, 180–213.
(s) Card, David and Alan B. Krueger, 1995, “Time-series minimum-wage studies: A meta-analysis,” American Economic Review 85, 238-244.
(s) McCloskey, Deirdre N. and Stephen T. Ziliak, 1996, “The standard error of regressions,” Journal of Economic Literature 34, 97-115.
(s) Sokal, Alan D., 1996, “A Physicist Experiments with Cultural Studies”, New York University.
(r) Campbell, J., A. Lo and C. MacKinlay, 1997, “Chapter 1: Introduction” in The Econometrics of Financial Markets. Focus on Sections 1.1 to 1.4
(s) Cochrane, John, 2002, “Stocks as Money: Convenience Yield and the Tech-Stock Bubble.”
(r) Ziliak, Stephen T., and Deirdre N. McCloskey, 2004, “Size Matters: The Standard Error of Regressions in the American Economic Review”, Journal of Socio-Economics 33, 527-546.
(s) Hoover, K. D., and M. V. Siegler, 2008, “Sound and fury: McCloskey and Significance Testing in Economics”, Journal of Economic Methodology 15, 1-37.
III. The Random Character of Stock Market Prices
Unconditional Distributions
(s) Bachelier, L., 1900, “Theorie de la Speculation,” Annales de l’Ecole Normale Superieure 3, Gauthier-Villars, Paris.
(s) Cootner, P., ed., 1964, The Random Character of Stock Market Prices, Cambridge, MA: MIT Press.
(s) Fama, E., 1965, “The Behavior of Stock Prices,” Journal of Business 38, 34-105.
(s) Blattberg, R. and N. Gonedes, 1974, “A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices,” Journal of Business 47, 244-280.
(r) Fama, E., 1976, Foundations of Finance. New York: Basic Books. Chapters 1 and 2.
(s) Kon, S., 1984, “Models of Stock Returns: A Comparison,” Journal of Finance 39, 148-165.
(s) Harris, L., 1986, “A Transactions Data Study of Weekly and Intradaily Patterns in Stock Returns,” Journal of Financial Economics 16, 99-117.
Conditional Distributions
B.1 Conditional Means – Mean Reversion
(m) Dickey, D. and W. Fuller, 1981, “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root” Econometrica 49, 1057-1072.
(s) Conrad, J. and G. Kaul, 1988, “Time Variation in Expected Returns,” Journal of Business, 409-426.
(s) Fama, E. and K. French, 1988, “Permanent and Temporary Components of Stock Prices,” Journal of Political Economy 96, 246-273.
(s) Lo, A. and C. MacKinlay, 1988, “Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test,” Review of Financial Studies 1, 41-66.
(s) Poterba, J. and L. Summers, 1988, “Mean Reversion in Stock Returns: Evidence and Implications,” Journal of Financial Economics 22, 27-60.
(m) Lo, A. and C. MacKinlay, 1989, “The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation,” Journal of Econometrics 40, 203-238.
(m) Schwert, G., 1989, “Tests for Unit Roots: A Monte Carlo Investigation,” Journal of Business and Economics Statistics 7, 147-160.
(s) Jegadeesh, Narasimhan, 1990, “Evidence of Predictable Behavior of Security Returns,” Journal of Finance 45, 881-898.
(s) Richardson, M. and J. Stock, 1990, “Drawing Inferences From Statistics Based on Multiyear Asset Returns,” Journal of Financial Economics 25, 323-348.
(s) Kim, M., C. Nelson, and R. Startz, 1991, “Mean Reversion in Stock Prices: Evidence and Implications,” Review of Economic Studies 58, 515-528.
(s) Lo, A., 1991, “Long-Term Memory in Stock Market Prices,” Econometrica 59, 1279-1313.
(r) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 2: Predictability of Asset Returns” in The Econometrics of Financial Markets.
(r) Mech, Timothy S., 1993, “Portfolio return autocorrelation,” Journal of Financial Economics 34, 307-338.
(s) Boudoukh, J., M. Richardson and R. Whitelaw, 1994, “A Tale of Three Schools: Insights on Autocorrelations of Short-Horizon Stock Returns,” Review of Financial Studies 7, 539-573.
(m) Hamilton, J., 1994, Time Series Analysis, Chapter 1-2.
(m) Hamilton, J., 1994, Time Series Analysis, Chapter 17.
(s) Jegadeesh, Narasimhan and Sheridan Titman, 1995, “Overreaction, Delayed Reaction, and Contrarian Profits,” The Review of Financial Studies 8, 973-993.
(s) Kandel, S. and R. Stambaugh, 1996, “On the Predictability of Stock Returns: An Asset Allocation Perspective,” Journal of Finance 51, 385-424.
(s) Chordia, Tarun and Bhaskaran Swaminathan, 2000, “Trading Volume and Cross-Autocorrelations in Stock Returns,” Journal of Finance 55, 913-935.
(r) Griffin, John M., Patrick J. Kelly, and Federico Nardari, 2008, “Measurement and Determinants of International Stock Market Efficiency,” Working Paper, University of Texas at Austin.
B.2 Conditional Means – Instrumental Variables
(s) Fama, E. and W. Schwert, 1977, “Asset Returns and Inflation,” Journal of Financial Economics 5, 115-146.
(s) Fama, E. and M. Gibbons, 1982, “Inflation, Real Returns and Capital Investment,” Journal of Monetary Economics 9, 297-323.
(s) Fama, E. and K. French, 1988, “Dividend Yields and Expected Stock Returns,” Journal of Financial Economics 22, 3-26.
(r) Fama, E. and K. French, 1989, “Business Conditions and Expected Returns on Stocks and Bonds,” Journal of Financial Economics 25, 23-50.
(s) Keim, D. and R. Stambaugh, 1989, “Predicting Returns in the Stock and Bond Markets,” Journal of Financial Economics 17, 357-390.
(r) Bossaerts, P., and P. Hillion, 1999, “Implementing Statistical Criteria to Select Return Forecasting Models: What Do We Learn?” Review of Financial Studies 12, 405-428.
(s) Cremers, Martijn, 2002, “Stock Return Predictability: A Bayesian Model Selection Perspective,” Review of Financial Studies, Vol. 15, No. 4, 1223-1249.
(s) Goyal, Amit and Ivo Welch, 2003, “Predicting the Equity Premium with Dividend Ratios,” Management Science 49, 639-654.
(s) Lewellen, J., 2004, “Predicting returns with financial ratios”, Journal of Financial Economics 74, 209-235.
(s) Campbell, J. Y., and M. Yogo, 2006, “Efficient tests of stock return predictability”, Journal of Financial Economics 81, 27-60.
(s) Henkel, Sam, Martin J. Spencer, and Federico Nardari, 2006, “TimeVarying Short-Horizon Predictability,” Unpublished Working Paper, Indiana University.
(s) Ang, A., and G. Bekaert, 2007, “Stock return predictability: Is it there?”, Review of Financial Studies 20, 651.
(r) Boudoukh, Jacob, Matthew Richardson, and Robert F. Whitelaw, 2008, “The Myth of Long-Horizon Predictability”, Review Financial Studies 21, 1577-1605.
(s) Campbell, J. Y., and S. B. Thompson, 2008, Predicting the equity premium out of sample: Can anything beat the historical average?, Review of Financial Studies 21, 1509-1531.
(s) Cochrane, John H., 2008, “The Dog that Did not Bark: A Defense of Return Predictability”, Review of Financial Studies 21, 1533-1575.
(r) Welch, Ivo, and Amit Goyal, 2008, “A Comprehensive Look at the Empirical Performance of Equity Premium Prediction”, Review Financial Studies 21, 1455-1508.
(r) Santa-Clara, Pedro, 2008, “Forecasting Stock Market Returns: The Sum of the Parts is More Than the Whole”, Working Paper, UCLA.
B.3 Conditional Variances
(s) Christie, A., 1982, “The Stochastic Behavior of Common Stock Variances: Value, Leverage and Interest Rate Effects,” Journal of Financial Economics 10, 407-432.
(m) Engle, R., 1982, “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of U.K. Inflation,” Econometrica 50, 987-1008.
(s) Bollerslev, T., 1986, “A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return,” Review of Economics and Statistics 69, 542-547.
(s) French, K. and R. Roll, 1986, “Stock Return Variances: The Arrival of Information and the Reaction of Traders,” Journal of Financial Economics 17, 5-26.
(m) Bollerslev, T., 1986, “Generalized Autoregressive Conditional Heteroscedasticity,” Journal of Econometrics 31, 307-327.
(s) Akgiray, V., 1989, “Conditional Heteroscedasticity in Time Series of Stock Returns,” Journal of Business 62, 55-80.
(m) Bollerslev, T., Chou, R. and K.Kroner, 1990, “ARCH Modeling in Finance: A Review of the Theory and Empirical Evidence,” Journal of Econometrics 52, 5-59.
(s) Pagan, A. and G. Schwert, 1990, “Alternative Models for Conditional Stock Volatility,” Journal of Econometrics 45, 267-290.
(s) Schwert, G., 1990, “Why Does Stock Market Volatility Change Over Time,” Journal of Finance 44, 1115-1153.
(s) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 12: Nonlinearities in Financial Data” in The Econometrics of Financial Markets. Sections 12.1 and 12.2 only.
(m) Hamilton, J., 1994, Time Series Analysis, Chapter 21.
(s) Pagan, A., 1996, “The Econometrics of Financial Markets” Journal of Empirical Finance 3, 15-102.
B.4 Relationship between Conditional Means and Variances
(s) Merton, R., 1980, “On Estimating the Expected Return on the Market,” Journal of Financial Economics 8, 323-362.
(s) French, K., Schwert, W. and R. Stambaugh, 1987, “Expected Stock Returns and Volatility,” Journal of Financial Economics 19, 3-30.
(m) Chou, R., 1988, “Volatility Persistence and Stock Valuations,” Journal of Applied Econometrics 3, 279-294.
(m) Pagan, A. and A. Ullah, 1988, “The Econometric Analysis of Models with Risk Terms,” Journal of Applied Econometrics 3, 87-105.
(s) Hamao Y., R. Masulis and V. Ng, 1990, “Correlations in Price Changes and Volatility Across International Stock Markets,” Review of Financial Studies 3, 281-307.
(s) Nelson, D., 1991, “Conditional Heteroscedasticty in Asset Returns:A New Approach,” Econometrica 59, 347-370.
Stock Returns and Volume
(s) Westerfield, R., 1977, “The Distribution of Common Stock Price Changes: An Application of Transactions Time and Subordinated Stochastic Models,” Journal of Financial and Quantitative Analysis 12, 743-765.
(s) Tauchen, G. and M. Pitts, 1983, “The Price Variability-Volume Relationship on Speculative Markets,” Econometrica 51, 485-505.
(s) Harris, L., 1987, “Transactions Data Tests of the Mixture of Distributions Hypothesis,” Journal of Financial and Quantitative Analysis 22, 127-141.
(s) Karpoff, J., 1987, “The Relation between Price Changes and Trading Volume: A Survey,” Journal of Financial and Quantitative Analysis 22, 109-126.
(s) Lamoureux, C. and W. Lastrapes, 1990, “Heteroscedasticity in Stock Return Data: Volume vs. GARCH Effects,” Journal of Finance 46, 221-229.
(s) Gallant, R., Rossi, P. and G. Tauchen, 1992, “Stock Prices and Volume,” Review of Financial Studies 5, 199-242.
(s) Campbell, J., Grossman, S. and J. Wang, 1993, “Trading Volume and Serial Correlation,” Quarterly Journal of Economics 108, 905-939.
(s) Jones, C., G. Kaul and M. Lipson, 1994 “Transactions, Volume and Volatility,” Review of Financial Studies 7, 631-651.
(s) Andersen, T., 1996, “Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility,” Journal of Finance 51, 169-203.
(s) Chan, Kalok, and Fong, Wai-Ming, 2000, “Trade size, order imbalance, and the volatility-volume relation,” Journal of Financial Economics 57, 247-273.
(s) Chordia, Tarun, Richard Roll, and Avanidhar Subrahmanyam, 2001, “Market Liquidity and Trading Activity,” Journal of Finance 56, 501-530.
(s) Gervais, Simon, Ron Kaniel and Dan H. Mingelgrin, 2001, “The High-Volume Return Premium” The Journal of Finance 56, 877-919.
(s) Griffin, John, Federico Nardari and Rene M. Stulz, 2004, “Daily cross-border equity flows: pushed or pulled?” Review of Economics and Statistics 86, 641-658.
(s) Chordia, Tarun, Sahn-Wook Huh, and Avanidhar Subrahmanyam, 2007, “The Cross-Section of Expected Trading Activity”, Review of Financial Studies 20, 709-740.
The Capital Asset Pricing Model
(r) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 5: The Capital Asset Pricing Model” in The Econometrics of Financial Markets.
FM Methodology
(r) Cochrane (Ch 12)
(s) Petersen, Mitchell A., 2009, “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches”, Review of Financial Studies 22, 435-480.
Unconditional Tests
(r) Black, F., Jensen, M. and M. Scholes, 1972, “The Capital Asset Pricing Model: Some Empirical Tests,” in M. Jensen ed., Studies in the Theory of Capital Markets. New York: Praeger.
(r) Fama, E. and J. MacBeth, 1973, “Risk, Return, and Equilibrium: Empirical Tests,” Journal of Political Economy 91, 607-636.
(s) Fama, E., 1976, Foundations of Finance. New York: Basic Books. Chapter 9.
(s) Roll, R., 1977, “A Critique of the Asset Pricing Theory’s Tests Part 1: On Past and Potential Testability of the Theory,” Journal of Financial Economics 4, 129-176.
(m) Buse, A., 1982, “The Likelihood Ratio, Wald and Lagrange Multiplier Tests: An Expository Note,” American Statistician 36, 153-157.
(s) Gibbons, M., 1982, “Multivariate Tests of Financial Models: A New Approach,” Journal of Financial Economics 10, 3-27.
(m) Anderson, T., 1984, An Introduction to Multivariate Statistical Analysis, New York: John Wiley and Sons, Chapter 5.
(s) Kandel, S., 1985, “The Likelihood Ratio Test Statistic of Mean-Variance Efficiency of a Given Portfolio,” Journal of Financial Economics 13, 575-592.
(s) Shanken, J., 1985, “Multivariate Tests of the Zero-Beta CAPM,” Journal of Financial Economics 14, 327-348.
(s) MacKinlay, C., 1987, “On Multivariate Tests of the CAPM,” Journal of Financial Economics 18, 341-371.
(s) Huberman, G. and S. Kandel, 1988, “Mean-Variance Spanning,” Journal of Finance 43, 873-888.
(s) Gibbons, M., Ross, S. and J. Shanken, 1989, “A Test of the Efficiency of a Given Portfolio,” Econometrica 57, 1121-1152.
(s) Lo, A. and C. MacKinlay, 1990, “Data Snooping Biases in Tests of Financial Asset Pricing Models,” Review of Financial Studies 3, 431-468.
(r) Fama, E. and K. French, 1992, “The Cross-Section of Expected Stock Returns,” Journal of Finance 47, 427-465.
(s) Kan, Raymond and Chu Zhang, 1999, “Two-Pass Tests of Asset Pricing Models with Useless Factors,” Journal of Finance 54, 203-235.
(s) Kothari, S., J. Shanken and R. Sloan, 1995 “Another Look at the Cross-section of Expected Stock Returns,” Journal of Finance 50, 185-224.
Conditional Tests with Time Varying Means and Variances
(s) Hansen, L., 1982, “Large Sample Properties of Generalized Method of Moments Estimators,” Econometrica 50, 1029-1054.
(m) Hansen, L. and K. Singleton, 1982, “Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models,” Econometrica 50, 1269-1286. (Errata in Volume 52, 267-268.)
(s) Gibbons, M. and W. Ferson, 1985, “Testing Asset Pricing Models with Changing Expectations and an Unobservable Market Portfolio,” Journal of Financial Economics 14, 217-236.
(s) Ferson, W., S. Kandel and R. Stambaugh, 1987, “Tests of Asset Pricing with Time-Varying Expected Risk Premiums and Market Betas,” Journal of Finance 42, 201-220.
(s) Bollerslev, T., R. Engle and J. Wooldridge, 1988, “A Capital Asset Pricing Model with Time Varying Covariances,” Journal of Political Economy 96, 116-131.
(s) Harvey, C., 1989, “Time Varying Conditional Covariances in Tests of Asset Pricing Models,” Journal of Financial Economics 24, 289-317.
(s) Harvey, C., 1991, “The World Price of Covariance Risk,” Journal of Finance 46,111-157.
(s) Chan, K.C., G.A. Karolyi and R. Stulz, 1992, “Global Financial Markets and the Risk Premium on U.S. Equity,” Journal of Financial Economics 32, 137-168.
(s) Campbell, J., A. Lo and C. MacKinlay, 1993, “Appendix A.2 and A.4: Generalized Method of Moments and Maximum Likelihood” in The Econometrics of Financial Markets. ) Campbell, J., A. Lo and C. MacKinlay, 1993, “Appendix A.2 and A.4: Generalized Method of Moments and Maximum Likelihood” in The Econometrics of Financial Markets.
(m) Duffie, D. and K. Singleton, 1993, “Simulated Moments Estimation of Markov Models of Asset Prices,” Econometrica 61, 929-952.
(s) Ferson, W., S. Foerster, and D. Keim, 1993, “General Tests of Latent Variable Models and Mean-Variance Spanning,” Journal of Finance 48, 131-155.
(s) Ogaki, Masao, 1993, Generalized Method of Moments: Econometric Applications, Handbook of Statistics, Vol 11.
(m) Hamilton, J., 1994, Time Series Analysis, Chapter 14.
(s) Jagannathan, R. and Z. Wang, 1996, “The Conditional CAPM and the Cross-Section of Expected Returns,” Journal of Finance 51, 3-54.
(s) Cochrane, 2001, GMM sections (Ch. 10, Ch. 11 Optional).
(s) Fama, E. F., and K. R. French, 2004, “”The Capital Asset Pricing Model: Theory and Evidence”, Journal of Economic Perspectives 18, 25-46.
(s) Lewellen, Jonathan and Stefan Nagel, 2006, “The Conditional CAPM Does Not Explain Asset-Pricing Anomalies,” Forthcoming in the Journal of Financial Economics
(s) Jagannathan, R., and Y. Wang, 2007, “Lazy Investors, Discretionary Consumption, and the Cross-Section of Stock Returns”, Journal of Finance 62, 1623-1661.
The Arbitrage Pricing Theory
(r) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 6: Multifactor Pricing Models” in The Econometrics of Financial Markets.
(s) Ferson, W., 1994, “Theory and Empirical Testing of Asset Pricing Models,” in The Finance Handbook, Jarrow, R., W. Ziemba and V. Maksimovic, (eds), North-Holland Publishers.
Unconditional Tests
(s) Roll, R. and S. Ross, 1980, “An Empirical Investigation of the Arbitrage Pricing Theory,” Journal of Finance 35, 1073-1103.
(s) Shanken, J., 1982, “The Arbitrage Pricing Theory: Is It Testable?” Journal of Finance 37, 1129-1140.
(s) Chen, N., 1983, “Some Empirical Tests of Arbitrage Pricing,” Journal of Finance 38, 1393-1414.
(s) Dhrymes, P., Friend, I., Gultekin, B. and M. Gultekin, 1984, “A Critical Reexamination of the Empirical Evidence on the Arbitrage Pricing Theory,” Journal of Finance 39, 323-346.
(m) Anderson, T., 1984, An Introduction to Multivariate Statistical Analysis, New York: John Wiley and Sons, Chapter 11 and 14.
(s) Roll, R. and S. Ross, 1984, “A Critical Reexamination of the Empirical Evidence on the Arbitrage Pricing Theory: A Reply,” Journal of Finance 39, 347-350.
(s) Chan, K.C., N. Chen and D. Hsieh, 1985, “An Exploratory Investigation of the Firm Size Effect,” Journal of Financial Economics 14, 451-471.
(s) Dybvig, P. and S. Ross, 1985, “Yes, the APT is Testable,” Journal of Finance 40, 1173-1188.
(s) Shanken, J., 1985, “Multi-Beta CAPM or Equilibrium APT?: A Reply,” Journal of Finance 40, 1189-1196.
(r) Chen, N., Roll, R. and S. Ross, 1986, “Economic Forces and the Stock Market: Testing the APT and Alternative Asset Pricing Theories,” Journal of Business 59, 383-403.
(s) Trzcinka, C., 1986, “On the Number of Factors in the Arbitrage Pricing Model,” Journal of Finance 41, 347-368.
(s) Huberman, G., S. Kandel and R. Stambaugh, 1987, “Mimicking Portfolios and Exact Arbitrage Pricing,” Journal of Finance 42, 1-10.
(s) Connor, G. and R. Korajczyk, 1988, “Risk and Return in an Equilibrium APT: Application of a New Test Methodology,” Journal of Financial Economics 21, 255-289.
(s) Lehmann, B. and D. Modest, 1988, “The Empirical Foundations of the Arbitrage Pricing Theory,” Journal of Financial Economics 21, 213-254.
(s) Shukla, R. and C. Trzcinka, 1990, “Sequential Tests of the Arbitrage Pricing Theory: A Comparison of Principal Components and Maximum Likelihood Factors,” Journal of Finance 45, 1541-1564.
(r) Fama, Eugene F., and Kenneth R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3-56.
Conditional Tests and Extensions
(s) Ferson, W. and C. Harvey, 1991, “The Variation of Economic Risk Premiums,” Journal of Political Economy 99, 385-415.
(s) Bansal, R. and S. Viswanathan, 1993, “No Arbitrage and Arbitrage Pricing: A New Approach,” Journal of Finance 48, 1231-1261.
(s) Bansal, R., D. Hsieh, and S. Viswanathan, 1993, “A New Approach to International Arbitrage Pricing,” Journal of Finance 48, 1719-1747..
(s) Connor, G. and R. Korajczyk, 1995, “The Arbitrage Pricing Theory and Multifactor Models of Asset Returns,” Finance, Handbooks in Operations Research and Management Science Volume 9, Ch. 4.
(s) Chan, L., J. Karceski and J. Lakonshok, 1998, “The Risk and Return from Factors” Journal of Financial and Quantitative Analysis 33, 159-187.
(s) Ghysels, E., 1998, “On Stable Factor Structures in the Pricing of Risk: Do Time-Varying Betas Help or Hurt?” Journal of Finance 53, 549-573.
(s) Jagannathan, R. and Z. Wang, 1998, “An Asymptotic Theory for Estimating Beta-Pricing Models Using Cross-sectional Regression,” Journal of Finance 53, 1285-1309.
(s) Ferson, Wayne E. and Campbell R. Harvey, 1999, “Conditioning Variables and the Cross Section of Stock Returns,” Journal of Finance 54, 1325-1360.
(s) Wang, Kevin Q., 2003, “Asset Pricing with Conditioning Information: A New Test,” Journal of Finance 58, 161-196.
(s) Campbell, John Y. and Tuomo Vuolteenaho, 2004, “Inflation Illusion and Stock Prices,” The American Economic Review 94, 19-23.
The Efficient Markets Hypothesis
(s) Fama, E., 1970, “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance 25, 383-417.
(s) Fama, E., 1976, Foundations of Finance. New York: Basic Books. Chapter 5.
(s) Grossman, S. and J. Stiglitz, 1980, “On the Impossibility of Informationally Efficient Markets,” American Economic Review 70, 393-408.
(s) Grossman, S., 1989, The Informational Role of Prices. Cambridge: MIT. Press.
(s) Fama, E., 1991, “Efficient Capital Markets: II,” Journal of Finance 46, 1575-1617.
Variance Bounds Tests
(s) LeRoy, S. and R. Porter, 1981, “The Present Value Relation: Tests Based on Variance Bounds,” Econometrica 49, 555-574.
(s) Shiller, R., 1981, “Do Stock Prices Move Too Much To Be Justified By Subsequent Changes in Dividends?” American Economic Review 71, 421-436.
(s) Flavin, M., 1983, “Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence,” Journal of Political Economy 91, 929-956.
(s) Kleidon, A., 1986, “Variance Bounds Tests and Stock Price Valuation Models,” Journal of Political Economy 94, 953-1001.
(s) Marsh, T. and R. Merton, 1986, “Dividend Variability and Variance Bounds Tests for the Rationality of Stock Market Prices,” American Economic Review 76, 483-498.
(s) Campbell, J. and R. Shiller, 1987, “Co-integration and Tests of Present Value Models,” Journal of Political Economy 95, 1062-1088.
(m) Engle, R. and C. Granger, 1987, “Co-Integration & Error Correction: Representation, Estimation and Testing,” Econometrica 55, 251-276.
(m) Johansen, S., 1988, “Statistical Analysis of Cointegrating Vectors,” Journal of Economics, Dynamics and Control 12, 231-254.
(s) West, K., 1988, “Dividend Innovations and Stock Price Volatility,” Econometrica 56, 37-61.
(s) LeRoy, S., 1989, “Efficient Capital Markets and Martingales,” Journal of Economic Literature 27, 1583-1621.
(m) Johansen, S., 1991, “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models,” Econometrica 59, 1551-1581.
(s) Bollerslev, T. and R. Hodrick, 1992, “Financial Market Efficiency Tests,” in The Handbook of Applied Econometrics, I, Macroeconomics, M. Pesaran and R. Wickins (eds), North-Holland Publishers.
(s) Kothari, S. and J. Shanken, 1992, “Stock Return Variation and Expected Dividends: A Time-Series and Cross-Sectional Analysis,” Journal of Financial Economics 31, 177-210.
(r) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 7: Present Value Relations” in The Econometrics of Financial Markets.
(s) Ackert, L. and B. Smith, 1993, “Stock Price Volatility, Ordinary Dividends, and Other Cash Flows to Shareholders,” Journal of Finance 48, 1147-1159.
(m) Hamilton, J., 1994, Time Series Analysis, Chapter 17.
(s) Lee, Bong-Soo, 1998, “Permanent, Temporary and Non-Fundamental Components of Stock Prices” Journal of Financial and Quantitative Analysis 33, 1-32.
Anomalies
(s) Banz, R., 1981, “The Relationship Between Return and Market Value of Common Stock,” Journal of Financial Economics 9, 3-18.
(s) Reinganum, M., 1981, “Misspecification of Capital Asset Pricing: Empirical Anomalies Based on Earnings Yields and Market Values,” Journal of Financial Economics 9, 19-46.
(s) Keim, D., 1983, “Size-Related Anomalies and Stock Return Seasonality: Further Empirical Evidence,” Journal of Financial Economics 12, 13-32.
(s) Rosenberg, B., Reid, K. and R. Lanstein, 1985, “Persuasive Evidence of Market Inefficiency,” Journal of Portfolio Management 12, 9-16.
(s) Lakonishok, J. and S. Smidt, 1988, “Are Seasonal Anomalies Real? A Ninety-Year Perspective,” Review of Financial Studies 1, 403-427.
Price Momentum
(s) Jegadeesh, N., 1990, “Evidence of predictable behavior of security returns,” Journal of Finance 45, 881-898.
(s) Lehmann, B., 1990, “Fads, Martingales, and Market Efficiency,” Quarterly Journal of Economics 105, 1-28.
(s) Lo, A. and C. MacKinlay, 1990, “When Are Contrarian Profits Due to Stock Market Overreaction?” Review of Financial Studies 3, 175-207.
(s) Zarowin, P., 1990, “Size, Seasonality and Stock Market Overreaction,” Journal of Financial and Quantitative Analysis 25, 113-125.
(s) Chopra, N., Lakonishok, J. and J. Ritter, 1992, “Measuring Abnormal Performance: Do Stocks Overreact?” Journal of Financial Economics 31, 235-268.
(r) Jegadeesh, N. and S. Titman, 1993, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Journal of Finance 48, 65-91.
(s) Badrinath, S., J. Kale, and T. Noe, 1995, “Of Shepherds, Sheep and the Cross-autocorrelation in Equity Returns” Review of Financial Studies 8, 401-430.
(s) Chan, L., N. Jegadeesh, and J. Lakonishok, 1996, “Momentum Strategies” Journal of Finance 51, 1681-1713.
(s) Loughran, T., and J. R. Ritter, 1996, “Long-term market overreaction: The effect of low-priced stocks,” Journal of Finance 51, 1959-1970.
(s) Liew, Jimmy and Maria Vassalou, 1999, “Can book-to-market, size and momentum be risk factors that predict economic growth?” Journal of Financial Economics 57, 221-245.
(s) Hong, H., T. Lim, and J. C. Stein, 2000, “Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies,” Journal of Finance 55, 265-295.
(s) Grundy, Bruce D. and J. Spencer Martin, 2001, “Understanding the Nature of the Risks and the Source of the Rewards to Momentum Investing,” Review of Financial Studies 14, 29-78.
(r) Jegadeesh, N. and S. Titman, 2001, “Profitability of Momentum Strategies: An Evaluation of Alternative Explanations.” Journal of Finance 56, 699-720.
(s) Chordia, Tarun and Lakshmanan Shivakumar, 2002, “Momentum, Business Cycle, and Time-Varying Expected Returns,” Journal of Finance 57, 985-1019.
(s) Lewellen, Jonathan, 2002, Momentum and autocorrelation in stock returns, Review of Financial Studies 15, 533-564.
(r) Griffin, John, Susan Ji, and Spencer Martin, 2003, “Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole”, Journal of Finance 58, 2515-2547.
(s) Cooper, M. J., R. C. Gutierrez, and A. Hameed, 2004, Market states and momentum, The Journal of Finance 59, 1345-1365.
(s) Korajczyk, Robert A. and Ronnie Sadka, 2004, “Are Momentum Profits Robust to Trading Costs?” Journal of Finance 59, 1039-1082.
(s) Grinblatt, Mark and Tobias J. Moskowitz, 2004, “Predicting stock price movements from past returns: the role of consistency and tax-loss selling,” Journal of Financial Economics 71, 541-579.
(r) Grinblatt, Mark and Bing Han, 2005, “Prospect theory, mental accounting, and momentum,” Journal of Financial Economics 78, 311-339.
(s) Sadka, R., 2006, Momentum and post-earnings-announcement drift anomalies: The role of liquidity risk, Journal of Financial Economics 80, 309-349.
(s) Hvidkjaer, S., 2006, A trade-based analysis of momentum, Review of Financial Studies 19, 457-491.
(s) Sagi, J. S., and M. S. Seasholes, 2007, Firm-specific attributes and the cross-section of momentum, Journal of Financial Economics 84, 389-434.
(r) Asness, Clifford S., Tobias J. Moskowitz, and Lasse H. Pedersen, 2008, Value and Momentum Everywhere, Working Paper, University of Chicago.
(s) Chui, Andy C. W., Sheridan Titman, and K.C. John Wei, 2008, Individualism and Momentum around the World, Working Paper, University of Texas at Austin.
(s) Gutierrez, R. C., and E. K. Kelley, 2008, The long-lasting momentum in weekly returns, The Journal of Finance 63, 415-447.
Earnings Momentum
(s) Chan, Louis K.C., Narasimhan Jegadeesh, and Josef Lakonishok, 1996, “Momentum Strategies,” Journal of Finance 51, 1681-1713.
(s) Griffin, John, Susan Ji, and Spencer Martin, 2005, “Global Momentum Strategies: A Portfolio Perspective,” Journal of Portfolio Management (Winter), 23-39.
Overreaction and BE/ME
(s) Graham, B., and D. Dodd, 1934, Security Analysis, McGraw-Hill, New York.
(s) DeBondt, W. and R. Thaler, 1985, “Does the Stock Market Overreact?” Journal of Finance 40, 793-805.
(s) DeBondt, W. and R. Thaler, 1987, “Further Evidence of Investor Overreaction and Stock Market Seasonality,” Journal of Finance 42, 557-581.
(s) Chan, K.C., 1988, “On the Contrarian Investment Strategy,” Journal of Business 61, 147-163.
(s) Ball, R. and S. Kothari, 1989, “Nonstationary Expected Returns: Implications for Tests of Market Efficiency and Serial Correlation in Returns,” Journal of Financial Economics 25, 51-74.
(s) Davis, J., 1994, “The cross-section of realized stock returns: The pre-Compustat evidence,” Journal of Finance 49, 1579-1593.
(r) Lakonishok, J., A. Shleifer and R. Vishny, 1994, “Contrarian Investment, Extrapolation and Risk,” Journal of Finance 49, 1541-1578.
(s) Berk, J. B., 1995, “A critique of size related anomalies,” Review of Financial Studies 8, 275-286.
(s) Chan, L. K. C., N. Jegadeesh, and J. Lakonishok, 1995, “Evaluating the performance of value versus glamour stocks: The impact of selection bias,” Journal of Financial Economics 38, 269-296.
(r) Fama, E. F., and K. R. French, 1995, “Size and book-to-market factors in earnings and returns,” Journal of Finance 50, 131-155.
(s) Haugen, R., 1995, “The new finance: The case against efficient markets,” (Prentice Hall, Englewood Cliffs, New Jersey.)
(s) Kothari, S. P., J. Shanken, and R. G. Sloan, 1995, “Another look at the cross-section of expected stock returns,” Journal of Finance 50, 185-224.
(s) Fama, E. and K. French, 1996, “Multifactor Explanations of Asset Pricing Anomalies,” Journal of Finance 51, 55-83.
(s) La Porta, R., 1996, “Expectations and the cross-section of stock returns,” Journal of Finance 51, 1715-1742.
(r) Daniel, K., and S. Titman, 1997, “Evidence on the characteristics of cross-sectional variation in stock returns,” Journal of Finance 52, 1-33.
(s) La Porta, R., J. Lakonishok, A. Shleifer, and R. Vishny, 1997, “Good news for value stocks: further evidence on market efficiency,” Journal of Finance 52, 859-874.
(s) Loughran, T., 1997, “Book-to-market across firm size, exchange, and seasonality: Is there an effect?” Journal of Financial and Quantitative Analysis 32, 249-268.
(s) Berk, Jonathan B., 1998, “Sorting out sorts,” Journal of Finance 55, 407-427.
(s) Davis, J., E. F. Fama, and K. R. French, 2000, “Characteristics, covariances, and average returns: 1929-1997,” Journal of Finance 55, 389.
(r) Griffin, John and Michael L. Lemmon, 2002, “Does Book-to-Market Equity proxy for Distress or Overreaction?” Journal of Finance 57, 2317-2336.
(r) Daniel, K., and S. Titman, 2006, “Testing factor-model explanations of market anomalies”, Working Paper, Northwestern University.
(r) Lewellen, Jonathan, Stefan Nagel and Jay Shanken, 2006, “A Skeptical Appraisal of Asset-Pricing Tests,” Unpublished Working Paper, Dartmouth.
Post-earnings Announcement Drift
(r) Ball, Ray, and Philip Brown, 1968, “An empirical evaluation of accounting income numbers,” Journal of Accounting Research Autumn, 1-48.
(r) Bernard, Victor and Jacob K. Thomas, 1989, “Post-earnings-announcement drift: delayed price response or risk premium?” Journal of Accounting Research 27, 1-36.
(s) Abarbanell, Jeffery S. and Victor L. Bernard, 1992, “Tests of Analysts’ Overreaction/Underreaction to Earnings Information as an Explanation for Anomalous Stock Price Behavior,” Journal of Finance 47, 1181-1207.
(s) Griffin, John M., Patrick J. Kelly, and Federico Nardari, 2008, “Measurement and Determinants of International Stock Market Efficiency,” Working Paper, University of Texas at Austin.
VII. Behavioral Finance
A) Mostly Theoretical
(s) Black, Fisher, 1986, Noise, Journal of Finance 41, 529-543.
(s) DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann, 1990a, Noise trader risk in financial markets, Journal of Political Economy 98, 703-738.
(s) DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann, 1990b, “Positive feedback investment strategies and destabilizing rational speculation,” Journal of Finance 45, 379-395.
(s) Scharfstein, David S., and Jeremy C. Stein, 1990, “Herd behavior and investment,” American Economic Review 80, 465-479.
(s) Froot, Kenneth A., David S. Scharfstein, and Jeremy C. Stein, 1992, “Herd on the street: informational inefficiencies in a market with short-term speculation,” Journal of Finance 47, 1461-1484.
(s) Benartzi, S. and R. H. Thaler, 1995, “Myopic loss aversion and the equity premium puzzle,” Quarterly Journal of Economics 110, 73-92.
(r) Shleifer, Andrei, and Robert W. Vishny, 1997, “The Limits of Arbitrage,” Journal of Finance, 52, 35 -55.
(s) Barberis, N., A. Shleifer, and R. Vishny, 1998, “A model of investor sentiment,” Journal of Financial Economics 49, 307-343.
(r) Daniel, K., D. Hirshleirfer, and A. Subrahmanyam, 1998, “Investor Psychology and Security Market Under- and Overreactions,” Journal of Finance 53, 1839-1885.
(r) Hong, Harrison, and Jeremy C. Stein, 1999, “A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets”, Journal of Finance 54, 2143-2184.
(s) Shleifer, Andrei, 2000, Inefficient Markets – An Introduction to Behavioral Finance, Oxford University Press, Oxford.
(s) Hirshleifer, David, 2001, Investor Psychology and Asset Pricing, Journal of Finance 56, 1533-1597.
(s) Barberis, Nicholas, and Andrei Shleifer, 2003, “Style Investing,” Journal of Financial Economics, 68, 161-199.
(s) Barberis, N. and Richard Thaler, 2003, “A Survey of Behavioral Finance”, in the Handbook of the Economics of Finance.
(s) Shiller, Robert J., 2003, “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives, 17, 83-104.
(s) Grinblatt, M., and M. Keloharju, 2006, “Sensation seeking, overconfidence, and trading activity”, Working Paper, UCLA.
B) Empirical
(s) Shleifer, Andrei, 1986, Do Demand Curves for Stocks Slope Down? The Journal of Finance 41, 579-590.
(s) Odean, Terrance, 1998, Are investors reluctant to realize their losses?, Journal of Finance 53, 1775-1798.
(r) Odean, Terrance, 1999, “Do Investors Trade Too Much?”, American Economic Review 89, 1279-1298.
(s) Barber, Brad M., and Terrance Odean, 2000, Trading is hazardous to your wealth: The common stock investment performance of individual investors, Journal of Finance 55, 773-806.
(s) Hong, Harrison, Joseph Chen, and Jeremy Stein, 2002 “Breadth of Ownership and Stock Returns” Journal of Financial Economics 66, 171-205.
(s) Hong, Harrison and Jeremy Stein, 2003, “Differences of Opinion, Short-Sales Constraints and Market Crashes,” Review of Financial Studies 16,487-525.
(s) Odean, Terrance, Brad Barber and Ning Zhu, 2003, Systematic Noise, Working Paper, UC Berkley.
(s) Wurgler, Jeffrey and Malcolm Baker, 2003, “Investor sentiment and the cross-section of stock returns,” Journal of Finance 61, 1645-1680.
(s) Hong, Harrison, Jeffrey Kubik, and Jeremy Stein, 2004 “Social Interaction and Stock Market Participation,” Journal of Finance 59, 137-163.
(r) Barberis, Nicholas, Andrei Shleifer, and Jeffery Wurgler, 2005, Comovement, Journal of Financial Economics.
(s) Frazzini, Andrea, 2006, “The Disposition Effect and Under-Reaction to News,” Journal of Finance 61, 2017-2046.
(s) Odean, Terrance, Brad Barber and Ning Zhu, 2006, Do Noise Traders Move Markets?, Working paper, UC Berkley.
(s) Barber, Brad M., and Terrance Odean, 2008, “All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors”, Review Financial Studies 21, 785-818.
(s) Kumar, Alok, 2008, Dynamic Style Preferences of Individual Investors and Stock Returns, Forthcoming, Journal of Financial and Quantitative Analysis.
(r) Ron Kaniel, Gideon Saar Sheridan Titman, 2008, “Individual investor trading and stock returns”, The Journal of Finance 63, 273-310.
(r) Kumar, Alok, 2009, Who Gambles in the Stock Market?, Forthcoming, Journal of Finance.
B.1. Bubble Theory
(s) Friedman, Milton, 1953, “The Case for Flexible Exchange Rates,” in M. Friedman (ed.), Essays in Positive Economics, University of Chicago Press, Chicago, IL.
(s) Fama, Eugene F., 1965, “The Behavior of Stock-Market Prices,” Journal of Business, 38, 34-105.
(s)Garber, Peter M., 1989, “Tulipmania,” Journal of Political Economy, 97, 535-560.
(s) DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann, 1990a, “Noise Trader Risk in Financial Markets,” Journal of Political Economy, 98, 703-738.
(s) DeLong, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert Waldmann, 1990b, “Positive Feedback Investment Strategies and Destabilizing Rational Speculation,” Journal of Finance, 45, 379-395.
(s) Santos, Manuel, and Michael Woodford, 1997, “Rational Asset Pricing Bubbles,” Econometrica, 65, 19-57.
(s) Shiller, Robert J., 2000a, Irrational Exuberance (1st ed.), Princeton University Press, Princeton, NJ.
(s) Brunnermeier, Marcus K., 2001, “Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis and Herding,” Oxford University Press, Oxford.
(s) Abreu, Dilip, and Marcus K. Brunnermeier, 2002, “Synchronization Risk and Delayed Arbitrage,” Journal of Financial Economics, 66, 341-360.
(s) Abreu, Dilip, and Marcus K. Brunnermeier, 2003, “Bubbles and Crashes,” Econometrica, 71, 173-204.
(s) De Bondt, Werner, 2003, “Bubble Psychology,” in W.C. Hunter, G.G. Kaufman and M. Pomerleano (eds.), Asset Price Bubbles, MIT Press, Cambridge, MA.
(s) LeRoy, Stephen, 2004, “Rational Exuberance,” Journal of Economic Literature, 42, 783-804.
(s) Harrison Hong, Jos Scheinkman Wei Xiong, 2006, “Asset float and speculative bubbles”, The Journal of Finance 61, 1073-1117.
B.2. Bubble Empirical
(s) Ofek, Eli, and Matthew Richardson, 2002, “The Valuation and Market Rationality of Internet Stock Prices,” Oxford Review of Economic Policy, 18, 265-287.
(s) Ofek, Eli, and Matthew Richardson, 2003, “DotCom Mania: The Rise and Fall of Internet Stock Prices,” Journal of Finance, 58, 1113-1137.
(s) Brunnermeier, M. K., and S. Nagel, 2004, “Hedge Funds and the Technology Bubble,” Journal of Finance 59, 2013-2040.
(s) Battalio, Robert H., and Paul H. Schultz, 2005, “Options and the Bubble,” AFA 2005 Philadelphia Meetings; EFA 2004 Maastricht Meeting Paper No. 3081.
(s) Pastor, Lubos, and Pietro Veronesi, 2006, “Was there a Nasdaq bubble in the late 1990s?”, Journal of Financial Economics 81, 61-100.
(s) Goetzmann, William N. and Ravi Dhar, 2006, “Bubble Investors: What Were They Thinking?” Working Paper, Yale University.
(r) Griffin, John M., Jeffrey H. Harris, and Selim Topaloglu, 2006 “Who Drove and Burst the Tech Bubble?” Working Paper, University of Texas at Austin.
B.3. Seasonal Effects
(s) Kamstra, Mark, Lisa Kramer and Maurice Levi, 2003, Winter Blues: A SAD Stock Market Cycle, American Economic Review 93(1), 324-343.
(s) Kelly, Patrick J. and J. Felix Meschke, 2003, “Sentiment and Stock Returns: The Sad Anomaly Revisited,” Working Paper, University of South Florida.
VIII. International Finance
International Asset Pricing
(s) Stulz, R., 1981, “A Model of International Asset Pricing,” Journal of Financial Economics 9, 383-406.
(s) Adler, M. and B. Dumas, 1983, “International portfolio selection and corporation finance: A synthesis,” Journal of Finance 38, 925-984.
(s) Harvey, C., 1991, “World Price of Covariance Risk,” Journal of Finance 46, 111-57.
(s) Jorion, P., 1991, “The pricing of exchange rate risk in the stock market,” Journal of Financial and Quantitative Analysis 26, 363-76.
(s) Bekaert, G., and R. Hodrick, 1992, “Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets,” Journal of Finance 47, 467-509.
(s) Chan, K.C., G. A. Karolyi and R. Stulz, 1992, “Global Financial Markets and the Risk Premium on U.S. Equity,” Journal of Financial Economics 32, 137-167.
(s) Ferson, W. and C. Harvey, 1993, “The Risk and Predictability of International Equity Returns,” Review of Financial Studies 6, 527-565.
(s) Bekaert, G. and C. Harvey, 1995, “Time-varying World Market Integration,” Journal of Finance 50, 403-443.
(s) Dumas, A. and B. Solnik, 1995, “The World Price of Exchange Rate Risk,” Journal of Finance 50, 445-479.
(s) Stulz, R., 1995, “International Portfolio Choice and Asset Pricing: An Integrative Survey,” in Jarrow, R., V. Maksimovic, W. Ziemba, eds., Finance (Volume 9, Handbooks in Operations Research and Management Science), Elsevier Science, Amsterdam.
(s) Bekaert, G. and M. Urias, 1996, “Diversification, Integration and Emerging Market Closed End Funds” Journal of Finance 51, 835-869.
(s) Solnik, B., 1996, International Investments, 3rd Edition. New York: Addison- Wesley.
(s) Bekaert, G. and C. Harvey, 1997, “Emerging Equity Market Volatility” Journal of Financial Economics 43, 29-77.
(s) DeSantis, G. and B. Gerard, 1997 “International Asset Pricing and Portfolio Diversification with Time-varying Risk,” Journal of Finance 52, 1881-1912.
(s) DeSantis, G. and B. Gerard, 1998, “How Big is the Premium for Currency Risk?” Journal of Financial Economics 49, 375-411.
(s) Fama, E. F., and K. R. French, 1998, “Value versus growth: The international evidence,” Journal of Finance, 53, 1975-1999.
(s) Errunza, V., K. Hogan and M. Hung, 1999, “Can the gains for International Diversification be Achieved Without Trading Abroad?” Journal of Finance 54, 2075-2107.
(s) Griffin, John, 2002, “Are the Fama and French Factors Global or Country-Specific?” The Review of Financial Studies 15, 783-803.
(s) Karolyi, G. Andrew, and Rene M. Stulz, 2003, Are financial assets priced locally or globally? In: George M. Constantinides, Milton Harris and Rene Stulz (eds.) Handbook of the Economics of Finance, Chapter 16. (also NBER Working Paper No. 8994.)
(s) Bekaert, Geert, Campbell R. Harvey, Christian T. Lundblad, and Stephen Siegel, 2007, “Stock Market Valuation and Globalization”, Working Paper, Columbia University.
(s) Bekaert, Geert, Chris Lundblad, and Stephan Siegel, 2007, “Growth Opportunities and Market Integration,” Journal of Finance 62, 1081-1138.
Exchange Rate Exposure
(s) Adler, M. and B. Dumas, 1984, “Exposure to currency risk: Definition and measurement,” Financial Management 13, 41-50.
(s) Jorion, P., 1990, “The exchange rate exposure of U.S. multinationals, Journal of Business 63, 331-345.
(s) Bodnar, G., and Gentry, W., 1993, Exchange rate exposure and industry characteristics: Evidence from Canada, Japan, and the U.S., Journal of International Money and Finance 12, 29-45.
(s) Bartov E., and G. Bodnar, 1994, “Firm valuation, earnings expectations and the exchange-rate effect, Journal of Finance 49, 1755-1785.
(s) Allayannis, G., 1996a, “Exchange rate exposure revisited,” New York University working paper.
(s) Allayannis, G., 1996b, “Time variation of exchange rate exposure: An industry analysis,” New York University working paper.
(s) Chow, E., W. Lee, and M. Solt, 1997, “The Exchange-Rate Risk Exposure of Asset Returns,” Journal of Business 70, 107-123.
(s) Simkins, B. J. and P. Laux, 1998, “Derivatives use and the exchange rate risk of large US corporations,” Proceeding of the Chicago Risk Management Conference.
(s) He, J. and L. Ng, 1998, “Foreign Exchange Exposure, Risk, and the Japanese Stock Market” Journal of Finance, 53, 733-753.
(s) Williamson, R., 2000, Exchange rate exposure and competition: Evidence from the automotive industry, Journal of Financial Economics, forthcoming.
(s) Doidge, Craig, John M. Griffin, Rohan Williamson, 2006, “Measuring the Economic Importance of Exchange Rate Exposure”, Journal of Empirical Finance 13, 550-576.
(s) Griffin, John M., Rene M. Stulz, 2001, “International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns”, The Review of Financial Studies 14, 215-241.
Other International Finance Issues– Linkages, Correlations, etc.
(s) Jorion, P. and E. Schwartz, 1986, “Integration vs Segmentation in the Canadian Stock Market,” Journal of Finance 41, 603-614.
(s) Hamao Y., R. Masulis and V. Ng, 1990, “Correlations in Price Changes and Volatility across International Stock Markets,” Review of Financial Studies 3, 281-307. (s) Heston, S. and G. Rouwenhorst, 1994, “Does Industrial Structure Explain the Benefits of International Diversification?” Journal of Financial Economics 36, 3-27.
(s) Roll, R., 1992, “Industrial Structure and the Comparative Behavior of International Stock Market Indexes,” Journal of Finance 47, 3-42.
(s) King, M., E. Sentana and S. Wadhwani, 1994, “Volatility and links between national stock markets,” Econometrica 78, 901-934.
(s) Longin, F. and B. Solnik, 1995, “Is the correlation in international equity returns constant: 1960-1990?” Journal of International Money and Finance 14, 3-26.
(s) Karolyi, G. A. and R. Stulz, 1996, “Why do Markets Move Together? An Investigation of the U.S.-Japanese Stock Return Comovements” Journal of Finance 51, 951-986.
(s) Karoli, G. Andrew, 1998 “Another look at the Role of the Industrial Structure of Markets for International Diversification Strategies”, Journal of Financial Economics 50, 351-373.
(s) Choe, Hyuk, Bong-Chan Kho, and Rene M. Stulz, 1999, “Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997,” Journal of Financial Economics, 54, 227-264.
Capital Flows and Contagion
(s) Bohn, Henning, and Linda Tesar, 1996, U.S. equity investment in foreign markets: Portfolio rebalancing or return chasing?, American Economic Review 86, 77-81.
(s) Brennan, M. J., and Cao, H. H., 1997, International portfolio investment flows, Journal of Finance 52, 1851-1880.
(s) Bailey, Warren, Kalok Chan, and Y. Peter Chung, 1998, “Depository receipts, country funds, and the Peso crash: The intraday evidence,” Journal of Finance 55, 2693-2717.
(s) Bekaert, Geert, and Campbell R. Harvey, 1999, Capital flows and the behavior of emerging market equity returns, Unpublished working paper, Duke University.
(s) Choe, Hyuk, Bong-Chan Kho, and Rene M. Stulz, 1999, Do foreign investors destabilize stock markets? The Korean experience in 1997, Journal of Financial Economics 54, 227-264.
(s) Karolyi, G. Andrew, 1999, “Did the Asian financial crisis scare foreign investors out of Japan?”, Pacific-Basin Finance Journal 10, 411-442.
(r) Stulz, Rene M., 1999, “International portfolio flows and security markets,” Unpublished working paper, Dice Center for Financial Economics, The Ohio State University, Columbus, OH.
(s) Bekaert, Geert, and Campbell R. Harvey, 2000, “Foreign speculators and emerging equity markets,” Journal of Finance 55, 565-613. (s) Seasholes, Mark S., 2000, “Smart foreign traders in emerging markets,” Unpublished Working paper, Harvard University.
(s) Choe, Hyuk, Bong-Chan Kho, and Rene M. Stulz, 2001, “Do domestic investors have more valuable information about individual stocks than foreign investors?” Working paper, Ohio State University.
(s) Froot, Kenneth A., and Tarun Ramadorai, 2001, “The information content of international portfolio flows,” Working paper, Harvard University.
(s) Froot, Kenneth A., Paul G. J. O’Connell, and Mark S. Seasholes, 2001, The portfolio flows of international investors, Journal of Financial Economics 59, 151-193.
(s) Froot, Kenneth A., and Tarun Ramadorai, 2002, Currency Returns, Institutional Investor Flows, and Exchange Rate Fundamentals, NBER Working paper 9101.
(s) Griffin, John M., Federico Nardari, and Rene M. Stulz, 2004, “Daily Cross-border Equity Flows: Pushed or Pulled?” forthcoming, Review of Economics and Statistics.
Other
(s) Roll, R., 1988, R-squared, Journal of Finance 43, 541-566.
(s) Levine, Ross, 1997, Financial development and economic growth: Views and agenda, Journal of Economic Literature 35, 688-726.
(r) Morck, Randall, Bernard Yeung and Wayne Yu. 2000. The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements? Journal of Financial Economics 58(1) Oct. 215-260.
(s) Doidge, Craig, G. Andrew Karolyi, and Rene Stulz, 2004, “Why Are Foreign Firms that List in the U.S. Worth More?” Journal of Financial Economics, forthcoming.
(r) Mian, Artif and Asim Ijaz Khwaja, 2005 “Unchecked Intermediaries: Price Manipulation in an Emerging Stock Market,” forthcoming in the Journal of Financial Economics.
(s) Beck, Thorsten, Asli Demirguc-Kunt, and Vojislav Maksimovic, 2005, “Financial and legal constraints to growth: Does firm size matter?”, The Journal of Finance 60, 137-177.
(s) Beck, Thorsten, 2008, “The Econometrics of Finance and Growth”, Palgrave Handbook of Econometrics, Vol. 2, Forthcoming.
(s) Pukthuanthong-Le, K., and R. Roll, 2008, “Global Market Integration: An Alternative Measure and its Application”, Forthcoming, Journal of Financial Economics.
(s) Thorsten Beck, Asli Demirguc-Kunt, and Luc Laeven, Ross Levine, 2008, “Finance, Firm Size, and Growth”, Forthcoming, Journal of Money, Credit and Banking.
(r) Bekaert, Geert, Campbell Harvey, and Chris Lundblad, 2008, “What Segments Equity Markets?”, Working Paper, Columbia University.
(s) Griffin, John M., Nicholas H. Hirschey, and Patrick J. Kelly, 2008, “Why does the reaction to news announcements vary across countries?”, Working Paper, Univesity of Texas at Austin.
Investors and Mutual Funds
Institutional Investors
(s) Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny, 1992, “The impact of institutional trading on stock prices,” Journal of Financial Economics 32, 23-43.
(s) Barclay, Michael J., and Jerold B. Warner, 1993, “Stealth trading and volatility: Which trades move prices?”, Journal of Financial Economics 34, 281-305.
(s) Chan, Louis K.C., and Josef Lakonishok, 1995, “The behavior of stock prices around institutional trades,” Journal of Finance 50, 1147-1174.
(s) Sias, Richard W., and Laura T. Starks, 1997, “Return autocorrelation and institutional investors,” Journal of Financial Economics 46, 103 – 131.
Flows
(s) Warther, Vincent A., 1995, “Aggregate Mutual Fund Flows and Stock Returns,” Journal of Financial Economics, 39, 209-235.
(s) Falkenstein, E. G., 1996, “Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings,” Journal of Finance 51, 111-135.
(s) Edelen, Roger M., 1999, Investor flows and the assessed performance of open-end mutual funds, Journal of Financial Economics 53, 439-466.
(s) Edelen, Roger M., and Jerold B. Warner, 2001, “Aggregate price effects of institutional trading: A study of mutual fund flow and market returns,” Journal of Financial Economics 59, 195-220.
(s) Gompers, Paul A. and Andrew Metrick, 2001, “Institutional Investors and Equity Prices,” The Quarterly Journal of Economics February, 229-259.
(s) Greene, Jason T., and Charles W. Hodges, 2002, “The Dilution Impact of Daily Fund Flows on Open-end Mutual Funds,” Journal of Financial Economics, 65, 131-158.
(s) Bennett, J. A., R. W. Sias, and L T. Starks, 2003, “Greener Pastures and the Impact of Dynamic Institutional Preferences,” Review of Financial Studies 16, 1203-1238.
(s) Goetzmann, William N., and Massimo Massa , 2003, Daily Momentum And Contrarian Behavior Of Index Fund Investors, Working paper, Yale International Center for Finance.
(s) Goetzmann, William N., and Massimo Massa , 2003, “Disposition Matters: Volume, Volatility and Price Impact of a Behavioral Bias,” Working paper, Yale International Center for Finance.
(s) Goetzmann, William N. , Massimo Massa, and K. Geert Rouwenhorst , 2003, Behavioral Factors in Mutual Fund Flows, Working paper, Yale International Center for Finance.
(s) Goetzmann, William N., and Massimo Massa , 2003, “Index Funds and Stock Market Growth,” Journal of Business 76, 1-28.
(s) Griffin, John, Jeffrey Harris and Selim Topaloglu, 2003, The Dynamics of Institutional and Individual Trading, Journal of Finance 58, 2285-2320.
(s) Frazzini, Andrea and Owen Lamont, 2006, “Dumb Money: Mutual Fund Flows and Return Predictability”, Working Paper, Yale University.
(s) Coval, Joshua, and Erik Stafford, 2007, “Asset fire sales (and purchases) in equity markets”, Journal of Financial Economics 86, 479-512.
Performance Evaluation and Mutual funds
(s) Treynor, J., 1965, “How to Rate Management of Investment Funds,” Harvard Business Review 43, 63-75.
(s) Sharpe, W., 1966, “Mutual Fund Performance,” Journal of Business 39, 119-138.
(s) Treynor, J. and F. Mazuy, 1966, “Can Mutual Funds Outguess the Market?” Harvard Business Review 44, 131-136.
(s) Roll, R., 1978, “Ambiguity When Performance is Measured by the Securities Market Line,” Journal of Finance 33, 1051-1069.
(s) Mayers, D. and E. Rice, 1979, “Measuring Portfolio Performance and the Empirical Content of Asset Pricing Models,” Journal of Financial Economics, 7, 3-29.
(s) Roll, R., 1979, “Reply to Mayers and Rice,” Journal of Financial Economics 7, 391-400.
(s) Henriksson, R. and R. Merton, 1981, “On Market Timing and Investment Performance II: Statistical Procedures for Evaluating Forecasting Skills,” Journal of Business 54, 513-533.
(s) Jobson, J. and R. Korkie, 1981, “Performance Hypothesis Testing with the Sharpe and Treynor Measures,” Journal of Finance 36, 889-908.
(s) Merton, R., 1981, “On Market Timing and Investment Performance I: An Equilibrium Theory of Value for Market Forecasts,” Journal of Business 54, 363-406.
(s) Admati, A. and S. Ross, 1985, “Measuring Investment Performance in a Rational Expectations Equilibrium Model,” Journal of Business 58, 1-26.
(s) Dybvig, P. and S. Ross, 1985, “Differential Information and Performance Measurement Using a Security Market Line,” Journal of Finance 40, 383-399.
(s) Admati, A., Bhattacharya, S., Pfleiderer, P. and S. Ross, 1986, “On Timing and Selectivity,” Journal of Finance 41, 715-730.
(s) Connor, G. and R. Korajczyk, 1986, “Performance Measurement with the Arbitrage Pricing Theory: A New Framework for Analysis,” Journal of Financial Economics 15, 373-394.
(s) Cumby, R. and D. Modest, 1987, “Testing for Market Timing Ability: A Framework for Forecast Evaluation,” Journal of Financial Economics 19, 169-190.
(s) Grinblatt, M. and S. Titman, 1989, “Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings,” Journal of Business 62, 393-416.
(s) Grinblatt, M. and S. Titman, 1989, “Portfolio Performance Evaluation: Old Issues and New Insights,” Review of Financial Studies 2, 393-422.
(s) Brown, S., Goetzmann, W., Ibbotson, R. and S. Ross, 1992, “Survivorship Bias in Performance Studies,” Review of Financial Studies 5, 553-580.
(s) Grinblatt, M. and S. Titman, 1993, “Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns,” Journal of Business 66, 47-68.
(s) Hendricks, D., J. Patel and R. Zeckhauser, 1993, “Hot Hands in Mutual Funds: Short-run Persistence of Relative Performance, 1974-1988” Journal of Finance 48, 93-130.
(s) Ferson, W. and R. Schadt, 1995, “Measuring Fund Strategy and Performance in Changing Economic Conditions,” Journal of Finance 51, 425-461.
(s) Grinblatt, Mark, Sheridan Titman, and Russ Wermers, 1995, Momentum investment strategies, portfolio performance, and herding: A study of mutual fund behavior, American Economic Review 85, 1088-1105.
(s) Elton, E., M. Gruber and C. Blake, 1996, “Survivorship Bias and Mutual Fund Performance” Review of Financial Studies 9, 1097-1120.
(r) Daniel, Kent, Mark Grinblatt, Sheridan Titman, and Russ Wermers, 1997, “Measuring Mutual Fund Performance with Characteristic-Based Benchmarks”, Journal of Finance 52, 1035-1058.
(s) Christopherson, J., W. Ferson and D. Glassman, 1998, “Conditioning Manager Alphas on Economic Information: Another Look at the Persistence of Performance” Review of Financial Studies 11, 111-142.
(s) Chen, Hsiu-Lang, Narasimhan Jegadeesh, and Russ Wermers, 2000, The value of active mutual fund management: An examination of the stockholdings and trades of fund managers, Journal of Finance and Quantitative Analysis 35, 343-368.
(s) Grinblatt, Mark, and Matti Keloharju, 2000, The investment behavior and performance of various investor types: A study of Finland’s unique data set, Journal of Financial Economics 55, 43-67.
(s) Wermers, Russ, 2000, “Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transaction Costs, and Expenses,” Journal of Finance, 55, 1655 – 1696.
(s) Chen, J., H. Hong, and J. Stein, 2002, “Breadth of Ownership and Stock Returns,” Journal of Financial Economics 66, 171-205.
(s) Pastor, Lubos, and Robert F. Stambaugh, 2002, Mutual fund performance and seemingly unrelated assets, Journal of Financial Economics 63, 315–349.
(s) Pastor, Lubos, and Robert F. Stambaugh, Investing in equity mutual funds, 2002, Journal of Financial Economics 63, 351-380.
(s) Geczy, Christopher C., Robert F. Stambaugh, and David Levin, 2003, Investing in Socially Responsible Mutual Funds, Working paper, Wharton School.
(s) Wermers, R., 2003, “Is Money Really ‘Smart’? New Evidence on the Relation Between Mutual Fund Flows, Manager Behavior, and Performance Persistence,” Unpublished paper, University of Maryland.
(s) Cohen, Randolph, Joshua Coval, and Luboš Pástor. 2005 “Judging Fund Managers by the Company They Keep.” Journal of Finance 60, 1057-1096.
(r) Cremers, K. J. Martijn, and A. Petajisto, 2006, “How Active is Your Fund Manager? A New Measure that Predicts Performance,” Forthcoming, Review of Financial Studies.
(s) Cohen, Lauren, Andrea Frazzini, and Christopher J. Malloy, 2008, “The Small World of Investing: Board Connections and Mutual Fund Returns”, Journal of Political Economy 116 , 951-979.
(r) Cremers, Martijn, Antti Petajisto, and Eric Zitzewitz, 2008, “Should Benchmark Indices Have Alpha? Revisiting Performance Evaluation”, Working Paper, Yale University.
(s) Petajisto, A., K. J. M. Cremers, and E. W. Zitzewitz, 2008, “Should benchmark indices have alpha? Revisiting performance evaluation”, Working Papers, Yale University.
and individual investors
(s) Coval, Joshua D., David Hirshleifer, and Tyler Shumway, 2005, “Can Individual Investors Beat the Market?”, Working Paper, Harvard Business School.
(D) Hedge Funds
(s) Fung, W., and D. A. Hsieh, 1997, “Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds,” Review of Financial Studies 10, 275-302.
(s) Ackermann, C., R. McEnally, and D. Ravenscraft, 1999, “The Performance of Hedge Funds: Risk, Return, and Incentives,” Journal of Finance 54, 833-874.
(s) Brown, S. J., W. N. Goetzmann, and R. G. Ibbotson, 1999, “Offshore Hedge Funds: Survival and Performance, 1989-95,” Journal of Business 72, 91-117.
(s) Agarwal, V., and N. Y. Naik, 2000, “Multi-Period Performance Persistence Analysis of Hedge Funds,” Journal of Financial and Quantitative Analysis 35, 327-342
(s) Fung, W., and D. A. Hsieh, 2000, “Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases,” Journal of Financial and Quantitative Analysis 35, 291-307.
(s) Liang, B., 2000, “Hedge Funds: The Living and the Dead,” Journal of Financial and Quantitative Analysis 35, 309-326.
(s) Asness, C., R. Krail, J. Liew, 2001, “Do Hedge Funds Hedge: Be cautious in analyzing monthly returns,” Journal of Portfolio Management 28, 6-19.
(s) Fung, W., and D. A. Hsieh, 2001, “The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers,” Review of Financial Studies 14, 313-341.
(s) Brown, Stephen J. and William N. Goetzmann, 2002, Hedge Funds With Style
(s) Goetzmann, William N. , Roger G. Ibbotson and Stephen J. Brown, 2002, Offshore Hedge Funds: Survival & Performance 1989-1995
(s) Goetzmann William N., Stephen J. Brown and James M. Park , 2002, Hedge Funds and the Asian Currency Crisis of 1997

(s) Weisman, A. B., 2002, “Informationless Investing and Hedge Fund Performance Measurement Bias,” Journal of Portfolio Management 28, 80-91.
(s) Liang, B., 2003, “The Accuracy of Hedge Fund Returns: Auditing Makes a Real Difference,” Journal of Portfolio Management 29, 111-122.
(s) Amin, G. S., and H. M. Kat, 2003, “Hedge Fund Performance 1990-2000: Do the ‘Money Machines’ Really Add Value?” Journal of Financial and Quantitative Analysis 38, 251-274.
(s) Agarwal, V., and N. Y. Naik, 2004, “Risks and Portfolio Decisions Involving Hedge Funds,” Review of Financial Studies 17, 63-98.
(s) Fung, W., and D. A. Hsieh, 2004, “Hedge Fund Benchmarks: A Risk-Based Approach,” Financial Analysts Journal 60, 65,80.
(s) Getmansky, M., A. W. Lo, and I. Makarov, 2004, “An Econometric Model of Serial Correlation and Illiquidity in Hedge Fund Returns,” Journal of Financial Economics 74, 529-609.
(s) Brown, S. J., D.R. Gallagher, O. W. Steenbeek, and P. L. Swan, 2005, “Double or Nothing: Patterns of Equity Fund Holdings and Transactions,” unpublished paper, NYU.
(s) Agarwal, V., N. M. Boyson, and N. Y. Naik, 2006, “Poor Man’s Hedge Funds? Performance and Risk-taking of Hedged Mutual Funds,” unpublished paper, Northeastern University.
(s) Agarwal, V., N. D. Daniel, and N. Y. Naik, 2006, “Why is Santa so Kind to Hedge Funds? The December Return Puzzle!” unpublished paper, Georgia State University.
(s) Amin, G.S., and H. M. Kat, 2006, “Superstars or Average Joes? A Replication-based Performance Evaluation of 1917 Individual Hedge Funds,” unpublished paper, City University London.
(s) Bollen, N., and V. Krepley, 2006, “A Screen for Fraudulent Return Smoothing in the Hedge Fund Industry,” unpublished paper, Vanderbilt University.
(s) Chen, Y., and B. Liang, 2006, “Do Market Timing Hedge Funds Time the Market?” unpublished paper, UMass Amherst.
(s) Fung, W., D. A. Hsieh, N. Y. Naik, and T. Ramadorai, 2006, “Hedge Funds: Performance, Risk, and Capital Formation,” unpublished paper, University of Oxford.
(s) Kosowski, R., N. Y. Naik, and M. Teo, 2006, “Do Hedge Funds Deliver Alpha? A Bayesian and Bootstrap Analysis,” forthcoming in Journal of Financial Economics.
(s) Tiu, C. I., 2006, “Systematic Risk in Hedge Funds,” unpublished dissertation, University of Texas.
(s) Chen, Joseph, Samuel Hanson, Harrison G. Hong, and Jeremy C. Stein, 2007, “Do Hedge Fund Profit from Mutual Fund Distress”, Working Paper, University of California – Davis.
(r) Griffin, John M., and Jin Xu, 2008, “How Smart are the Smart Guys? A Unique View from Hedge Fund Stock Holdings”, Forthcoming, The Review of Financial Studies.
(r) Khandani, Amir, and Andrew W. Lo, “What Happened to the Quants in August 2007?: Evidence from Factors and Transactions Data”, Working Paper, MIT.
(E) Short-term behavior and Herding
(s) Grinblatt, M., S. Titman, and R. Wermers, 1995, “Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior,” American Economic Review 85, 1088‑1105.
(s) Nofsinger, John R., and Richard W. Sias, 1999, “Herding and Feedback Trading by Institutional and Individual Investors,” Journal of Finance, 54, 2263‑2295.
(r) Wermers, R., 1999, “Mutual Fund Herding and the Impact on Stock Prices,” Journal of Finance 54, 581-622.
(s) Griffin, John M., Jeffrey Harris, and Selim Topaloglu, 2003, The Dynamics of Institutional and Individual Trading, Journal of Finance 58, 2285-2320.
Market Microstructure.
(r) Campbell, J., A. Lo and C. MacKinlay, “Chapter 3: Market Microstructure” in The Econometrics of Financial Markets.
Classics (s) Demsetz, H. 1968 “The Cost of Transacting”, Quarterly Journal of Economics, 82, 33-53.
(s) Ho, T., and H. Stoll, 1980 “On Dealer Markets Under Competition” The Journal of Finance, Vol. 35, 259-267.
(s) Glosten, L. and P. Milgrom, 1985, “Bid, Ask, and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders”, Journal of Financial Economics, 14, 71-100.
Institutional Aspects of Market Structure
(s) Wood, R., McInish, T. and K. Ord, 1985, “An Investigation of Transactions Data for NYSE Stocks,” Journal of Finance 40, 723-738.
(s) Cohen, K., Maier, S., Schwartz, R. and D. Whitcomb, 1986, The Microstructure of Securities Markets. New Jersey: Prentice-Hall.
(s) Amihud, Y. and H. Mendelson, 1987, “Trading Mechanisms and Stock Returns: An Empirical Investigation,” Journal of Finance 42, 533-553.
(s) Hasbrouck, J. and T. Ho, 1987, “Order Arrival, Quote Behavior, and the Return-Generating Process,” Journal of Finance 42, 1035-1048.
(s) Hasbrouck, J., 1988, “Trades, Quotes, Inventories and Information,” Journal of Financial Economics 22, 229-252.
(s) Hasbrouck, J., 1991, “Measuring the Information Content of Stock Trades,” Journal of Finance 46, 176-208.
(s) Lee, C. and M. Ready, 1991, “Inferring Trade Direction from Intraday Data,” Journal of Finance 46, 733-746.
(s) Madhavan, A. and S. Smidt, 1991, “A Bayesian Model of Intraday Specialist Pricing,” Journal of Financial Economics 30, 99-134.
(s) Foster, D. and S. Viswanathan, 1993, “Variations in Trading Volume, Return Volatility and Trading Costs,” Journal of Finance 48, 187-211.
(s) Christie, W. and P. Schultz, 1994, “Why do NASDAQ Market-makers Avoid Odd-Eighth Quotes?” Journal of Finance 49, 1813-1840.
(s) Journal of Financial Economics Symposium on Dealer Markets, July 1997.
(s) Madhavan, A., M. Richardson and M. Roomans, 1997, “Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks” Review of Financial Studies 10, 1035-1064.
(s) Harris, Jeffrey H., and Paul H. Schultz, 1998, “The Trading Profits of SOES Bandits,” Journal of Financial Economics, 50, 39-62.
Non-Synchronous Trading and Measurement Biases
(s) Fisher, L., 1966, “Some New Stock Market Indexes,” Journal of Business 39, 191-225.
(s) Scholes, M. and J. Williams, 1977, “Estimating Beta From Non-Synchronous Data,” Journal of Financial Economics 5, 309-327.
(s) Dimson, E., 1979, “Risk Measurement when Shares are Subject to Infrequent Trading,” Journal of Financial Economics 7, 197-226.
(s) Blume, M. and R. Stambaugh, 1983, “Biases in Computed Returns: An Application to the Size Effect,” Journal of Financial Economics 12, 387-404.
(s) Fowler, D. and C. Rorke, 1983, “Risk Measurement when Shares are Subject to Infrequent Trading: Comment,” Journal of Financial Economics 12, 279-283.
(s) Roll, R., 1983, “On Computing Mean Returns and the Small Firm Premium,” Journal of Financial Economics 12, 371-387.
(s) Ball, C., 1988, “Estimation Bias Induced by Discrete Security Prices,” Journal of Finance 43, 841-865.
(s) Lo, A. and C. MacKinlay, 1990, “An Econometric Analysis of Non-Synchronous Trading,” Journal of Econometrics 45, 181-212.
Bid-Ask Spreads and Price Discreteness
(s) Roll, R., 1984, “A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market,” Journal of Finance 39, 1127-1139.
(s) Glosten, L. and L. Harris, 1988, “Estimating the Components of the Bid/Ask Spread,” Journal of Financial Economics 21, 123-142.
(s) Harris, L., 1991, “Stock Price Clustering and Discreteness,” Review of Financial Studies 5, 389-415.
(s) Hausman, J., Lo, A. and C. MacKinlay, 1991, “An Ordered Probit Analysis of Transaction Stock Prices,” Journal of Financial Economics 31, 319-379.
(s) George, T., G. Kaul and M. Nimalendran, 1991, “Estimation of the Bid-Ask Spread and its Components: A New Approach,” Review of Financial Studies 4, 623-656.
(s) Huang, R. and H. Stoll, 1997 “The Components of the Bid-Ask Spread: A General Approach”, Review of Financial Studies, 4, 995-1034.
(s) Bollen, N., T. Smith, and R. Whaley, 2004, “Modeling the Bid-Ask Spread: Measuring the Inventory-Holding Premium”, Journal of Financial Economics 72 97-141.
Price Discovery (s) Hasbrouck, J. “One Security, Many Markets: Determining the Contributions to Price Discovery”, Journal of Finance, 1995.
(s) Chakravarty, S., H. Gulen, and S. Mayhew, 2003, “Informed Trading in Stock and Options Markets” Journal of Finance, forthcoming (June 2004).
(s) Hasbrouck, J., 2003 “Intraday Price Formation in U.S. Equity Index Markets”, Journal of Finance 58, 2375-2400.

Market Design

(s) Barclay, M., W. Christie, J. Harris, E. Kandel and P. Schultz, 1999, “Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks”, Journal of Finance 54, 1-34.
(s) Venkataraman, K., 2001, “Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges” Journal of Finance, July 2001.

(s) Huang, R., 2002, “The Quality of ECN and Nasdaq Market Maker Quotes”, Journal of Finance.
Microstructure with parts of Finance
(s) Easley, David, Soeren Hvidkjaer, and Maureen O’hara, 2002, “Is Information Risk a Determinant of Asset Returns?” Journal of Finance 57, 2185-2221.
(s) Lyons, R. and M. Evans, 2002 “Order Flow and Exchange Rate Dynamics” Journal of Political Economy 110, 170-180.
(s) Brockman, P., and D. Chung, 2003, “Investor Protection and Firm Liquidity”, Journal of Finance 58, 921-938.
(s) O’hara, Maureen, 2003, Presidential Address: Liquidity and Price Discovery, Journal of Finance 58, 1335-1354.
(s) Easley, David, and Maureen O’hara, 2004, Information and Cost of Capital, Journal of Finance, forthcoming.
(s) Market Frictions, Price Delay, and the Cross-Section of Expected Returns” (with Kewei Hou), 2004, forthcoming Review of Financial Studies.
Short-sales
(s) Diether, K. B., K. Lee, and I. M. Werner, 2005, “Short-Sale Strategies and Return Predictability,” Review of Financial Studies 22, 575-607.
(s) Boehmer, E., C. M. Jones, and X. Zhang, 2008, “Which Shorts are Informed,” Journal of Finance 63, 491-527.
Analyst Forecast
(s) De Bondt Werner, and Richard H. Thaler, 1990, “Do Security Analysts Overreact?” American Economic Review Papers and Proceedings 80(2), 52-57.
(s) Hong, Harrison, and Jeffrey D. Kubik, 2003, “Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts”, Journal of Finance 58, 313-351.
XII. Volume/Volatility
(s) Gallant, A. Ronald, Peter E. Rossi, and George Tauchen, 1992, Stock Prices and Volume, RFS 5, 199-242.
(s) Brailsford, Timothy J., 1994, The empirical relationship between trading volume, returns and volatility, Working paper, University of Melbourne.
(s) Schwert, G. William, 1998, “Stock Market Volatility: Ten Years After the Crash,” Brookings-Wharton Papers on Financial Services I, 65-114.
(s) Lo, Andrew W., and Jiang Wang, 2000, “Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory,” Review of Financial Studies 13, 257-300.
(s) Campbell, Lettau, Malkiel, and Xu, 2001, “Have individual stocks become more volatile?” Journal of Finance 56, 233-264.
(s) Llorente, Guillermo, Roni Michaely, Gideon Saar, and Jiang Wang, 2002, “Dynamic Volume-Return Relation of Individual Stocks,” Review of Financial Studies 15, 1005-1047.
(s) Schwert, G. William, 2002, “Stock Volatility in the New Millennium: How Wacky is Nasdaq?” Journal of Monetary Economics 49, 3-26.
(s) Lo, Andrew W., Harry Mamaysky, and Jiang Wang, 2004, “Asset prices and trading volume under fixed transaction costs,” Journal of Political Economy 112, 1054-1090.

XIII. Consumption and Production Based Asset Pricing Models
(s) Campbell, J., A. Lo and C. MacKinlay, 1993, “Chapter 8: Intertemporal Equilibrium Models” in The Econometrics of Financial Markets.
Consumption Based Models
(s) Hansen, L. and K. Singleton, 1982, “Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models,” Econometrica 50, 1269-1286.
(s) Hansen, L. and K. Singleton, 1983, “Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns,” Journal of Political Economy 91, 249-265.
(s) Brown, D. and M. Gibbons, 1985, “A Simple Econometric Approach for Utility-Based Asset Pricing Models,” Journal of Finance 40, 359-381.
(s) Grossman, S., A. Melino and R. Shiller, 1987, “Estimating the Continuous Time Consumption Based Asset Pricing Model,” Journal of Business and Economic Statistics 5, 315-327.
(s) Breeden, D., Gibbons, M. and R. Litzenberger, 1989, “Empirical Tests of the Consumption Oriented CAPM”, Journal of Finance 44, 231-262.
(s) Hansen, L. and R. Jagannathan, 1991, “Implications of Security Market Data for Models of Dynamic Economies,” Journal of Political Economy 99, 225-262.
(s) Ferson, W. and C. Harvey, 1992, “Seasonality and Consumption-based Asset Pricing,” Journal of Finance 47, 511-552.
(s) Hansen, L. and R. Jagannathan, 1992, “Assessing Specification Errors in Stochastic Discount Factor Models,” Journal of Finance 52, 557-590.
(s) Cecchetti, S., P.S. Lam and N. Mark, 1994, “Testing Volatility Restrictions on Intertemporal Marginal Rates of Substitution Implied by Euler Equations and Asset Returns,” Journal of Finance 49, 123-152.
(s) Lettau, Martin and Sydney Ludvigson, 2001, “Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia are Time-Varying,” Journal of Political Economy 109, 1238-1287.
(s) Piazzesi, Monica, Martin Schneider, and Selale Tuzel, 2005, “Housing, Consumption, and Asset Pricing,” Unpublished Working Paper, University of Chicago.
(s) Santos, Tano and Pietro Veronesi, 2006, “Labor Income and Predictable Stock Returns,” The Review of Financial Studies 19, 1-44.
State Nonseparable Preferences
(s) Epstein, L. and S. Zin, 1989, “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework,” Econometrica 57, 937-969.
(s) Epstein, L. and S. Zin, 1991, “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis,” Journal of Political Economy 99, 263-286.
Habit Formation Models
(s) Mehra, R. and E. Prescott, 1985, “The Equity Premium Puzzle,” Journal of Monetary Economics 15, 145-161.
(s) Ferson, W. and G. Constantinides, 1991, “Habit Persistence and Durability in Aggregate Consumption: Empirical Tests,” Journal of Financial Economics 29, 199-240.
(s) Heaton, J., 1994, “An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications,” Econometrica 62, 801-817 .
Production Based Models
(s) Cochrane, J., 1991, “Production-based Asset Pricing and the Link between Stock Returns and Economic Fluctuations,” Journal of Finance 46, 207-234.
XIV. Bayesian Studies in Finance
Methodology
(r) Ch. 7 of Introduction to the Theory and Practice of Econometrics, 2nd Edition, George G. Judge, R. Carter Hill, William E. Griffiths, Helmut Lütkepohl, Tsoung-Chao Lee .
(r) Casella, G. and E. I. George, 1992, Explaining the Gibbs Sampler, The American Statistician 46, 167-174.
Implementation
B.1. Predictability
(s) Cremers, Martijn, 2002, “Stock Return Predictability: A Bayesian Model Selection Perspective,” Review of Financial Studies, Vol. 15, No. 4, 1223-1249.
(s) Pastor, Lubos and Robert F. Stambaugh, 2006, Predictive systems: Living with imperfect predictors.
(r) Santa-Clara, Pedro, 2008, “Forecasting Stock Market Returns: The Sum of the Parts is More Than the Whole”, Working Paper, UCLA.
B.2 Factor Models
(s) Pastor, Lubos and Robert F. Stambaugh, 1999, Costs of equity capital and model mispricing, Journal of Finance 54, 67–121.
(s) Daniel, Kent and Sheridan Titman, 2005, “Testing Factor-Model Explanations of Market Anomalies,” Unpublished Working Paper, Northwestern University.
(s) Nardari, Federico and John Scruggs, 2006, Bayesian Analysis of Linear Factor Models with Latent Factors, Multivariate Stochastic Volatility, and APT Pricing Restrictions, Journal of Financial and Quantitative Analysis 42, 857-891.
(s) Lewellen, Jonathan, Stefan Nagel and Jay Shanken, 2006, “A Skeptical Appraisal of Asset-Pricing Tests,” Unpublished Working Paper, Dartmouth.
B.3 Stochastic Volatility
(s) Nardari, Federico, 2006, Comparing Stochastic Volatility Models of the Short Term Interest Rate: A Bayesian Approach, working paper.
B.4 Mutual Funds
(s) Pastor, Lubos and Robert F. Stambaugh, 2002, Mutual fund performance and seemingly unrelated assets, Journal of Financial Economics 63, 315–349.
(r) Christopher S. Jones and Jay Shanken, 2005, Mutual fund performance with learning across funds, Journal of Financial Economics 78, 507-552.
B.5 Hedge Funds
(r) Kosowski, Robert, Narayan Y. Naik, and Melvyn Teo, 2007, Do Hedge Funds Deliver Alpha? A Bayesian and Bootstrap Analysis, Journal of Financial Economics 84, 229-264.
Event Study Methodology
(r) Campbell, J., A. Lo and C. MacKinlay, “Chapter 4: Event Study Analysis” in The Econometrics of Financial Markets.
Traditional Event Study Methodology
(s) Fama, E., Fisher, L., Jensen, M. and R. Roll, 1969, “The Adjustment of Stock Prices to New Information,” International Economic Review 10, 1-21.
(s) Fama, E., 1976, Foundations of Finance. New York: Basic Books. Chapters 3 and 4.
(s) Binder, J., 1985, “On the Use of the Multivariate Regression Model in Event Studies,” Journal of Accounting Research 23, 370-383.
(s) Brown, S. and J. Warner, 1985, “Using Daily Stock Returns: The Case of Event Studies,” Journal of Financial Economics 14, 3-31.
(s) Thompson, R., 1985, “Conditioning the Return-Generating Process on Firm Specific Events: A Discussion of Event Study Methods,” Journal of Financial and Quantitative Analysis 20, 151-168.
(s) Malatesta, P., 1986, “Measuring Abnormal Performance: The Event Parameter Approach Using Joint Generalized Least Squares,” Journal of Financial and Quantitative Analysis 21, 27-38.
(s) Sefcik, S. and R. Thompson, 1986, “An Approach to Statistical Inference in Cross-sectional Models with Security Abnormal Returns as Dependent Variable,” Journal of Accounting Research 24, 316-334.
(s) Ball, C. and W. Torous, 1988, “Investigating Security Price Performance in the Presence of Event Date Uncertainty,” Journal of Financial Economics 22, 123-154.
(s) Boehmer, E., Musumeci, J. and A. Poulsen, 1991, “Event-Study Methodology Under Conditions of Event-Induced Variance,” Journal of Financial Economics 30, 253-272.
(s) Prabhala, N., 1997, “Conditional Methods in Event Studies and an Equilibrium Justification for Standard Even-Study Procedures” Review of Financial Studies 10, 1-38.
Long-run Performance Measurement
(s) Ritter, J., 1991, “The Long-term Performance of Initial Public Offerings” Journal of Finance 46, 3-27.
(s) Speiss, K., and J. Affleck-Graves, 1995, “Underperformance in Long-run Stock Returns Following Seasoned Equity Offerings” Journal of Financial Economics 38, 243-267.
(r) Barber, B. and J. Lyon, 1997, “Detecting Long-Horizon Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics” Journal of Financial Economics 43, 341-368.
(r) Lyon, J., B. Barber and C. Tsai, 1997, “Improved Methods for Tests of Long-Run Abnormal Returns” Journal of Finance 54, 165-201.
(s) Fama, E., 1998, “Market Efficiency, Long-run Returns and Behavioral Finance” Journal of Financial Economics 49, 283-306.
(s) Brav, Alon, 2000 “Inference in Long-Horizon Event Studies: A Rev-evaluation of the Evidence” Journal of Finance 55, 1979-2016.
XVI. Fixed Income Securities
(s) Campbell, J., A. Lo and C. MacKinlay, “Chapter 10: Fixed-Income Securities” and “Chapter 11: Term-Structure Models” in The Econometrics of Financial Markets.
The Term Structure of Interest Rates
(s) Brennan, M. and E. Schwartz, 1977, “Savings Bonds, Retractable Bonds and Callable Bonds,” Journal of Financial Economics 5, 67-88.
(s) Cox, J., Ingersoll, J. and S. Ross, 1981, “A Re-examination of Traditional Hypotheses About the Term Structure of Interest Rates,” Journal of Finance 36, 769-799.
(s) Fama, E., 1984, “The Information in the Term Structure,” Journal of Financial Economics 13, 509-528.
(s) Brown, S. and P. Dybvig, 1986, “The Empirical Implications of the Cox, Ingersoll, Ross Theory of the Term Structure of Interest Rates,” Journal of Finance 41, 617-632.
(s) Campbell, J., 1986, “A Defense for the Traditional Hypotheses about the Term Structure of Interest Rates,” Journal of Finance 36, 769-800.
(s) Ho, T. and S. Lee, 1986, “Term Structure Movements and Pricing Interest Rate Contingent Claims,” Journal of Finance 41, 1011-1029.
(s) Fama, E. and R. Bliss, 1987, “The Information in Long-Maturity Forward Rates,” American Economic Review 77, 680-692.
(s) Stambaugh, R., 1988, “The Information in Forward Rates: Implications for Models of the Term Structure,” Journal of Financial Economics 21, 41-70.
(s) Longstaff, F., 1989, “A Nonlinear General Equilibrium Model of the Term Structure of Interest Rates,” Journal of Financial Economics 23, 195-224.
(s) McCulloch, H., 1990, “U.S. Government Term Structure Data,” Appendix to R. Shiller, “The Term Structure of Interest Rates,” in Benjamin M. Friedman and Frank H. Hahn, eds., Handbook of Monetary Economics. Amsterdam: North-Holland.
(s) Pearson, N. and T. Sun, 1991, “An Empirical Examination of the Cox, Ingersoll and Ross Model of the Term Structure of Interest Rates,” Journal of Finance 49, 1279-1297.
(s) Pennacchi, G., 1991, “Identifying the Dynamics of Real Interest Rates and Inflation: Evidence Using Survey Data,” Review of Financial Studies 4, 53-86.
(s) Chan, K.C., G.A. Karolyi, F. Longstaff and A. Sanders, 1992, “An Empirical Comparison of Alternative Models of the Short-term Interest Rate,” Journal of Finance 47, 1209-1228.
(s) Longstaff, F. and E. Schwartz, 1992, “Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model,” Journal of Finance 47, 1259-1282.
(s) Sun, T., 1992, “Real and Nominal Interest Rates: A Discrete-Time Model and Its Continuous-Time Limit,” Review of Financial Studies 5, 581-611.
(s) Campbell, J. and J. Ammer, 1993, “What Moves the Stock and Bond Markets? A Variance Decomposition for Long-term Asset Returns,” Journal of Finance 48, 3-37.
(s) Gibbons, M. and K. Ramaswamy, 1993, “The Term Structure of Interest Rates: Empirical Evidence,” Review of Financial Studies 6, 619-658.
(s) Ait-Sahalia, Y., 1996, “Testing Continuous Time Models of the Spot Interest Rate” Review of Financial Studies 9, 385-426.
(s) Stanton, R., 1997, “A Nonparametric Model of Term Structure Dynamics and the Market Price of Interest Rate Risk” Journal of Finance 52, 1973-2001.
(s) Jiang, G., 1998, “Nonparametric Modeling of US Interest Rate Term Structure Dynamics and Implications on the Prices of Derivative Securities” Journal of Financial and Quantitative Analysis 33, 465-498.
Pricing Debt with Default Risk
(s) Kaplan, R. and G. Urwitz, 1979, “Statistical Models of Bond Ratings: A Methodological Inquiry,” Journal of Business 52, 231-262.
(s) Lo, A., 1986, “Logit Versus Discriminant Analysis: A Specification Test with Applications to Corporate Bankruptcies,” Journal of Econometrics 31, 151-178.
(s) Altman, E., 1989, “Measuring Corporate Bond Mortality and Performance,” Journal of Finance 44, 909-922.
(s) Asquith, P., Mullins, D. and E. Wolff, 1989, “Original Issue High Yield Bonds: Aging Analysis of Defaults, Exchanges and Calls,” Journal of Finance 44, 923-952.
(s) Blume, M., Keim, D. and S. Patel, 1991, “Returns and Volatility of Low-Grade Bonds, 1977-1989,” Journal of Finance 46, 49-74.
(s) Longstaff, F., and E. Schwartz, 1995, “A Simple Approach to Valuing Risky Fixed and Floating Rate Debt” Journal of Finance 50, 789-820.
(s) Jarrow, R., D. Lando and S. Turnbull, 1997, “A Markov Model for the Term Structure of Credit Risk Spreads” Review of Financial Studies 10, 481-523.
XVII. Pricing Options, Futures and Other Derivative Assets
(r) Campbell, J., A. Lo and C. MacKinlay, “Chapter 9: Derivative Pricing Models” in The Econometrics of Financial Markets.
Option Pricing Models
(s) Cox, J. and S. Ross, 1976, “The Valuation of Options for Alternative Stochastics Processes,” Journal of Financial Economics 3, 145-166.
(s) Latane, H. and R. Rendleman, 1976, “Standard Deviations of Stock Price Ratios Implied in Options Prices,” Journal of Finance 31, 369-381.
(s) Merton, R., 1976, “The Impact on Option Pricing of Specification Error in the Underlying Stock Price Distribution,” Journal of Finance 31, 333-350.
(s) Merton, R., 1976, “Option Pricing When Underlying Stock Returns are Discontinuous,” Journal of Financial Economics 3, 125-144.
(s) Cox, J., Ross, S. and M. Rubinstein, 1979, “Option Pricing: A Simplified Approach,” Journal of Financial Economics 7, 229-263.
(s) Whaley, R., 1982, “Valuation of American Call Options on Dividend-Paying Stocks: Empirical Tests,” Journal of Financial Economics 10, 29-58.
(s) Cox, J. and M. Rubinstein, 1985, Options Markets, Prentice Hall. Chapter 6.
(s) Rubinstein, M., 1985, “Nonparametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 Through August 31, 1978,” Journal of Finance 40, 455-480.
(s) Lo, A., 1986, “Statistical Tests of Contingent Claims Asset-Pricing Models: A New Methodology,” Journal of Financial Economics 17, 143-173.
(s) Hull, J. and A. White, 1987, “The Pricing of Options on Assets with Stochastic Volatilities,” Journal of Finance 42, 281-300.
(s) Lo, A., 1987, “Semiparametric Upper Bounds for Option Prices and Expected Payoffs,” Journal of Financial Economics 19, 373-388.
(s) Wiggins, J., 1987, “Option Values Under Stochastic Volatility: Theory and Empirical Estimates,” Journal of Financial Economics 19, 351-372.
(s) Merton, R., 1990, Continuous-Time Finance. Cambridge: Basil Blackwell. Chapter 3.
(s) Bates, D., 1991, “The Crash of `87: Was It Expected? The Evidence from Options Markets,” Journal of Finance 46, 1009-1044.
(s) Grundy, B., 1991, “Option Prices and the Underlying Asset’s Return Distribution,” Journal of Finance 46, 1045-1070.
(s) Heston, S., 1993, “A Closed-form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options,” Review of Financial Studies 6, 327-343.
(s) Karolyi, G.A., 1993, “A Bayesian Model of Stock Return Volatility for Option Valuation,” Journal of Financial and Quantitative Analysis, 579-594.
(s) Duan, J.C., 1995, “GARCH Option Pricing Model,” Mathematical Finance 5, 13-32.
(s) Lo, A. and J. Wang, 1995, “Implementing Option Pricing Models when Asset Returns are Predictable,” Journal of Finance 50, 87-115.
(s) Bakshi, G., C. Cao and Z. Chen, 1997, “Empirical Performance of Alternative Option Pricing Models” Journal of Finance 52, 2003-2049.
(s) Poteshman, Allan, and Jun Pan, 2003, The Information in Option Volume for Stock Prices, Working paper, UIUC and MIT.
(s) Lakonishok, Josef, Inmoo Lee, and Allen M. Poteshman, 2004, Investor behavior and the option market, NBER Working Paper 10264.
Futures and Forward Prices
(s) Hansen, L. and R. Hodrick, 1980, “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis,” Journal of Political Economy 88, 829-853.
(s) MacKinlay, A. and K. Ramaswamy, 1988, “Index Futures Arbitrage and the Behavior of Stock Index Futures Prices,” Review of Financial Studies 1, 137-158.
(s) Siegel, D. and D. Siegel, 1990, Futures Markets. Chicago: Probus Publishing.
(s) Stoll, H. and R. Whaley, 1990, “The Dynamics of Stock Index and Stock Index Futures Returns,” Journal of Financial and Quantitative Analysis 25,441-468.
(s) Chan, K., K.C. Chan and G.A. Karolyi, 1991, “Intraday Volatility in the Stock Index and Stock Index Futures Markets,” Review of Financial Studies 4, 657-684.

XVIII. Non-Standard Approaches in Finance
(r) Campbell, J., A. Lo and C. MacKinlay, “Chapter 12: Nonlinearities in Financial Data” in The Econometrics of Financial Markets. Section 12.4.
Chaos and Nonlinear Dynamics in Stock Returns
(s) Kahneman, D. and A. Tversky, 1982, “The Psychology of Preferences,” Scientific American 246, 160-173.
(s) Gleick, J., 1987, Chaos: Making a New Science. New York: Viking Penguin Inc.
(s) Tversky, A. and D. Kahneman, 1987, “Rational Choice and the Framing of Decisions,” in Rational Choice: The Contrast Between Economics and Psychology, edited by R. Hogarth and M. Reder. Chicago: University of Chicago Press.
(s) White, H., 1989, “Some Asymptotic Results for Learning in Single Hidden-Layer Feedforward Network Models,” Journal of the American Statistical Association 84, 1003-1013.
(s) Hsieh, D., 1991, “Chaos and Nonlinear Dynamics: Application to Financial Markets,” Journal of Finance 46, 1839-1877.
(s) Brock, W., Scheinkman, J. and B. LeBaron, 1992, “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance 47, 1731-1763.
(s) Hutchinson, J., A. Lo and T. Poggio, 1994 “A Nonparametric Approach to Pricing and Hedging Derivative Securities via Learning Networks,” Journal of Finance 49, 851-889.
Technical Trading Rules
(s) Murphy, J., 1986, Technical Analysis of the Futures Market. New York: Prentice-Hall.
(s) Kho, B., 1996, “Time-varying Risk Premia, Volatility and Technical Trading Rule Profits: Evidence from Foreign Currency Futures Markets” Journal of Financial Economics 41, 249-289.
Supplementary Mathematics and Statistics References
Billingsley, P., 1968, Convergence of Probability Measures. New York: John Wiley.
Johnson, N. and S. Kotz, 1969, Continuous Univariate Distributions, Volumes 1-2. New York: John Wiley and Sons.
Johnson, N. and S. Kotz, 1969, Discrete Distributions. New York: John Wiley and Sons.
Abramowitz, M. and I. Stegun, 1972, Handbook of Mathematical Functions with Formulas, Graphs, and Mathematical Tables, 10th printing. Washington: U.S. Government Printing Office.
Johnson, N. and S. Kotz, 1972, Continuous Multivariate Distributions. New York: John Wiley and Sons.
Arnold, L., 1974, Stochastic Differential Equations: Theory and Applications. John Wiley.
Kendall, M. and A. Stuart, 1977, Advanced Theory of Statistics, Volumes I-III, Fourth Edition. New York: MacMillan Publishing Company.
Gradshtein, I. and I. Ryzhik, 1980, Table of Integrals, Series, and Products, 4th edition. New York: Academic Press.
Knuth, D., 1981, The Art of Computer Programming, Volume 2: Seminumerical Algorithms, Second Edition. Reading, MA: Addison-Wesley Publishing Company.
Lehmann, E., 1983, Theory of Point Estimation. New York: John Wiley and Sons.
Lehmann, E., 1986, Testing Statistical Hypotheses, Second Edition. New York: John Wiley and Sons.
Press, W., Flannery, B., Teukolsky, S. and W. Vetterling, 1986, Numerical Recipes: The Art of Scientific Computing. Cambridge, UK: Cambridge University Press.
Cormen, T., Leiserson, C. and R. Rivest, 1990, Introduction to Algorithms. Cambridge, MA: MIT Press.
James, F., 1990, “A Review of Pseudorandom Number Generators,” Computational Physics Communications 60, 329-344.
Wolfram, S., 1990, Mathematica: A System for Doing Mathematics by Computer. Redwood City, CA: Addison-Wesley Publishing Company, Advanced Book Program.
(r) Stock, James H., and Mark W. Watson, 2001, Vector Autoregressions, Journal of Economic Perspectives 15(4), 101-115.
ychology, edited by R. Hogarth and M. Reder. Chicago: University of Chicago Press.
(s) White, H., 1989, “Some Asymptotic Results for Learning in Single Hidden-Layer Feedforward Network Models,” Journal of the American Statistical Association 84, 1003-1013.
(s) Hsieh, D., 1991, “Chaos and Nonlinear Dynamics: Application to Financial Markets,” Journal of Finance 46, 1839-1877.
(s) Brock, W., Scheinkman, J. and B. LeBaron, 1992, “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance 47, 1731-1763.
(s) Hutchinson, J., A. Lo and T. Poggio, 1994 “A Nonparametric Approach to Pricing and Hedging Derivative Securities via Learning Networks,” Journal of Finance 49, 851-889.
Technical Trading Rules
(s) Murphy, J., 1986, Technical Analysis of the Futures Market. New York: Prentice-Hall.
(s) Kho, B., 1996, “Time-varying Risk Premia, Volatility and Technical Trading Rule Profits: Evidence from Foreign Currency Futures Markets” Journal of Financial Economics 41, 249-289.
Supplementary Mathematics and Statistics References
Billingsley, P., 1968, Convergence of Probability Measures. New York: John Wiley.
Johnson, N. and S. Kotz, 1969, Continuous Univariate Distributions, Volumes 1-2. New York: John Wiley and Sons.
Johnson, N. and S. Kotz, 1969, Discrete Distributions. New York: John Wiley and Sons.
Abramowitz, M. and I. Stegun, 1972, Handbook of Mathematical Functions with Formulas, Graphs, and Mathematical Tables, 10th printing. Washington: U.S. Government Printing Office.
Johnson, N. and S. Kotz, 1972, Continuous Multivariate Distributions. New York: John Wiley and Sons.
Arnold, L., 1974, Stochastic Differential Equations: Theory and Applications. John Wiley.
Kendall, M. and A. Stuart, 1977, Advanced Theory of Statistics, Volumes I-III, Fourth Edition. New York: MacMillan Publishing Company.
Gradshtein, I. and I. Ryzhik, 1980, Table of Integrals, Series, and Products, 4th edition. New York: Academic Press.
Knuth, D., 1981, The Art of Computer Programming, Volume 2: Seminumerical Algorithms, Second Edition. Reading, MA: Addison-Wesley Publishing Company.
Lehmann, E., 1983, Theory of Point Estimation. New York: John Wiley and Sons.
Lehmann, E., 1986, Testing Statistical Hypotheses, Second Edition. New York: John Wiley and Sons.
Press, W., Flannery, B., Teukolsky, S. and W. Vetterling, 1986, Numerical Recipes: The Art of Scientific Computing. Cambridge, UK: Cambridge University Press.
Cormen, T., Leiserson, C. and R. Rivest, 1990, Introduction to Algorithms. Cambridge, MA: MIT Press.
James, F., 1990, “A Review of Pseudorandom Number Generators,” Computational Physics Communications 60, 329-344.
Wolfram, S., 1990, Mathematica: A System for Doing Mathematics by Computer. Redwood City, CA: Addison-Wesley Publishing Company, Advanced Book Program.
(s) Stock, James H., and Mark W. Watson, 2001, Vector Autoregressions, Journal of Economic Perspectives 15(4), 101-115.