ABSTRACT Commodity trade mispricing, especially the undervaluation of commodity exports, disproportionately harms low-income countries that depend on exports for most their export earnings. Such should (re)consider adopting rule-based pricing methods as a prescriptive alternative to transaction-based valuation systems. This article firmly grounds in market parameters. It calls hybrid form marke...

We analyze hedge fund performance using the stochastic discount factor (SDF) approach and imposing the arbitrage-free requirement to correctly value the derivatives and dynamic trading strategies used by hedge funds. Using SDFs of many asset-pricing models, we evaluate hedge fund portfolios based on style and characteristics. Without the arbitrage-free requirement, pricing errors are relatively...

Recently, stock exchanges have altered their trading fees to subsidize liquidity by offering “make” rebates for providing liquidity through limit orders and charging “take” fees for consuming liquidity via marketable orders, leading to debate regarding the impact of these fees on market quality. Using an exogenous experiment performed by NASDAQ in 2015, I employ difference-in-differences analys...

We examine institutional investor demand for stocks that are categorized as mispriced according to twelve well-known pricing anomalies. We find that institutional demand prior to anomaly portfolio formation is typically on the wrong side of the anomalies’ implied mispricing. That is, we find increases in institutional ownership for overvalued stocks and decreases in institutional ownership for ...

This paper develops a theory of efficient short-termism—the shareholders prefer shorttermism in project choice. Unlike previous theories, managers themselves prefer long-horizon projects, whereas short-termism maximizes firm value in the second-best case with optimal output-contingent wage contracts. Short-termism benefits the firm because it limits the managerial rent extraction that occurs wi...

A deep-ingrained doctrine in asset pricing says that if an empirical characteristic-return relation is consistent with investor ‘‘rationality,’’ the relation must be ‘‘explained’’ by a risk (factor) model. The investment approach questions the doctrine. Factors formed on characteristics are not necessarily risk factors; characteristics-based factor models are linear approximations of firm-level...

Abnormally high net insider selling is commonly observed after repurchase tender offer (RTO) announcements although, on average, firms experience positive abnormal returns in the years after the repurchases. We explore two potential explanations: liquidity trade timing and informed trading. Consistent with the notion that fixed price RTOs are more likely than Dutch-auction RTOs to signal underv...

I present evidence of inefficient information processing in equity markets by documenting that negative information withheld by securities analysts is incorporated in stock prices with a significant delay. I estimate the extent of the withheld negative information based on the proportion of analysts who stop revising their annual earnings forecasts. This measure predicts negative earnings surpr...

Many say the market for the shares of smaller companies—so called small-cap and mid-cap stocks—offers greater opportunity for active management to add value than does the large-cap market. The underlying notion is that the market for small and medium caps is less efficient than the large-cap market, and, therefore, security mispricing is more prevalent there. It is true that fewer securities an...

Researchers have reported mispricing in index options markets. This study further examines the efficiency of the S&P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor’s Depository Receipts (SPDRs), on the link between index and options markets is also examined. Pricing efficiency withi...