Abstract
This survey of some of the developments in finance since the mid-1980s begins with advances in the application of arbitrage pricing, and then expands into areas of general asset pricing under the title ‘risk and return’. Limitations in our current understanding of risk as well as more data explorations have led to the ‘discovery’ of anomalies, which challenge classic notions of market efficiency. We examine recent attempts to expand the neoclassical framework to incorporate market imperfections in asset pricing, which, in their more general forms, take centre stage in advances in corporate finance.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Bibliography
Abel, A.B.. 1990. Asset prices under habit formation and catching up with the Joneses. American Economic Review 80: 38–42.
Acharya, V., and L. Pedersen. 2005. Asset pricing with liquidity risk. Journal of Financial Economics 77: 385–410.
Admati, A.R. 1985. A noisy rational expectations equilibrium for multiple asset securities markets. Econometrica 53: 629–657.
Admati, A.R., and P. Pfleiderer. 1988. A theory of intraday patterns: Volume and price variability. Review of Financial Studies 1: 3–40.
Adrian, T., and J. V. Rosenberg. 2006. Stock returns and volatility: Pricing the short-run and long-run components of market risk. Staff Report No. 254. Federal Reserve Bank of New York.
Aghion, P., and P. Bolton. 1992. An incomplete contracts approach to financial contracting. Review of Economic Studies 59: 473–494.
Aghion, P., and J. Tirole. 1997. Formal and real authority in organizations. Journal of Political Economy 105: 1–29.
Ahn, D.H., R.F. Dittmar, and A.R. Gallant. 2002. Quadratic term structure models: Theory and evidence. Review of Financial Studies 16: 243–288.
Ait-Sahalia, Y. 1996. Nonparametric pricing of interest rate derivative securities. Econometrica 64: 527–560.
Allais, M. 1953. Le comportement de l’homme rationnel devant le risque: Critique des postulats et axiomes de l’École américaine. Econometrica 21: 503–546.
Allen, F., and D. Gale. 1988. Optimal security design. Review of Financial Studies 1: 229–263.
Allen, F., and D. Gale. 1994. Limited market participation and volatility of asset prices. American Economic Review 84: 933–955.
Allen, F., and D. Gale. 2004. Financial intermediaries and markets. Econometrica 72: 1023–1061.
Allen, F., S. Morris, and H.S. Shin. 2006. Beauty contests and iterated expectations in asset markets. Review of Financial Studies 19: 719–752.
Almeida, H., and T. Philippon. 2006. The risk-adjusted cost of financial distress. Working paper. New York University.
Amihud, Y., and H. Mendelson. 1980. Dealership market: Market making with inventory. Journal of Financial Economics 8: 31–53.
Amihud, Y., and H. Mendelson. 1986. Asset pricing and the bid–ask spread. Journal of Financial Economics 17: 223–249.
Amihud, Y., and H. Mendelson. 1991. Volatility, efficiency, and trading: Evidence from the Japanese stock market. Journal of Finance 46: 1765–1789.
Amin, K.I. 1993. Jump diffusion option valuation in discrete time. Journal of Finance 48: 1833–1863.
Anderson, R.W., and S. Sundaresan. 1996. Design and valuation of debt contracts. Review of Financial Studies 9: 37–68.
Andrade, G., and S.N. Kaplan. 1998. How costly is financial (not economic) distress? Evidence from highly leveraged transactions that become distressed. Journal of Finance 53: 1443–1493.
Ang, A., R.J. Hodrick, Y. **ng, and X. Zhang. 2006. The cross-section of volatility and expected returns. Journal of Finance 51: 259–299.
Asquith, P., and D.W. Mullins. 1986. Equity issues and offering dilution. Journal of Financial Economics 15: 61–89.
Asquith, P., and T.A. Wizman. 1990. Event risk, covenants, and bondholder returns in leveraged buyouts. Journal of Financial Economics 27: 195–213.
Atkeson, A., and H. Harold. 2005. A dynamic theory of optimal capital structure and executive compensation. Working Paper No. 11083. Cambridge, MA: NBER.
Auerbach, A.S. 1985. Real determinants of corporate leverage. In Corporate capital structure in the United States, ed. B.M. Friedman. Chicago: University of Chicago Press.
Bai, Y., E. C. Chang, and J. Wang. 2006. Asset prices and short-sale constraints. Working Paper. Massachusetts Institute of Technology.
Bakshi, G., C. Cao, and Z. Chen. 1997. Empirical performance of alternative option pricing models. Journal of Finance 52: 2003–2049.
Ball, R., and P. Brown. 1968. An empirical evaluation of accounting income numbers. Journal of Accounting Research 6: 159–178.
Bansal, R., R.F. Dittmar, and C.T. Lundblad. 2005. Consumption, dividend, and the cross section of equity returns. Journal of Finance 60: 1639–1672.
Bansal, R., and A. Yaron. 2004. Risks for the long run: A potential resolution of asset pricing puzzles. Journal of Finance 59: 1481–1510.
Banz, R.W. 1981. The relationship between return and market value of common stocks. Journal of Financial Economics 9: 3–18.
Barber, B.M., and T. Odean. 2000. Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance 55: 773–806.
Barberis, N., M. Huang, and T. Santos. 2001. Prospect theory and asset prices. Quarterly Journal of Economics 116: 1–53.
Barberis, N., A. Shleifer, and R. Vishny. 1998. A model of investor sentiment. Journal of Financial Economics 49: 307–343.
Barclay, M.J., W.G. Christie, J.H. Harris, E. Kandel, et al. 1999. The effects of market reform on the trading costs and depths of Nasdaq stocks. Journal of Finance 54: 1–34.
Basak, S. 1995. A general equilibrium model of portfolio insurance. Review of Financial Studies 8: 1059–1090.
Basu, S. 1983. The relationship between earnings’ yield, market value and return for NYSE common stocks: Further evidence. Journal of Financial Economics 12: 129–156.
Bates, D.S. 1996. Jumps and stochastic volatility: Exchange rate processes implicit in Deutsche mark options. Review of Financial Studies 9: 69–107.
Bates, D.S. 2000. Post-‘87 crash fears in the S&P 500 futures option market. Journal of Econometrics 94: 181–238.
Bessembinder, H. 2003. Trade execution costs and market quality after decimalization. Journal of Financial and Quantitative Analysis 38: 747–777.
Benartzi, S., and R.H. Thaler. 2001. Naive diversification strategies in defined contribution savings plans. American Economic Review 91: 79–98.
Berk, J.B., R.C. Green, and V. Naik. 1999. Optimal investment, growth options and security returns. Journal of Finance 54: 1553–1607.
Bernard, V.L., and J.K. Thomas. 1989. Post-earningsannouncement drift: Delayed price response or risk premium? Journal of Accounting Research 27: 1–36.
Bertrand, M., and S. Mullainathan. 2003. Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy 111: 1043–1075.
Biais, B., P. Hillion, and C. Spatt. 1995. An empirical analysis of the limit order book and order flow in the Paris bourse. Journal of Finance 50: 1655–1689.
Bikhchandani, S., D. Hirshleifer, and I. Welch. 1992. A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy 100: 992–1026.
Black, F., and J.C. Cox. 1976. Valuing corporate securities: Some effects of bond indenture provisions. Journal of Finance 31: 351–367.
Black, F., M.C. Jensen, and M. Scholes. 1972. The capital asset pricing model: Some empirical tests. In Studies in the theory of capital markets, ed. M.C. Jensen. New York: Praeger.
Black, F., and M. Scholes. 1973. The pricing of options and corporate liabilities. Journal of Political Economy 81: 637–654.
Blanchard, O.J., F. Lopez-de-Silanes, and A. Shleifer. 1994. What do firms do with cash windfalls? Journal of Financial Economics 36: 337–360.
Boehmer, E., G. Saar, and L. Yu. 2005. Lifting the veil: An analysis of pre-trade transparency at the NYSE. Journal of Finance 60: 783–815.
Brav, A., G.M. Constantinides, and C.C. Geczy. 2002. Asset pricing with heterogeneous consumers and limited participation: Empirical evidence. Journal of Political Economy 110: 793–842.
Breeden, D.T. 1979. An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 7: 265–296.
Breeden, D.T. 1980. Consumption risk in futures markets. Journal of Finance 35: 503–520.
Brennan, M.J., and E.S. Schwartz. 1979. A continuous time approach to the pricing of bonds. Journal of Banking and Finance 3: 133–155.
Brennan, M.J., and A. Subrahmanyam. 1996. Market microstructure and asset pricing: On the compensation for illiquidity in stock returns. Journal of Financial Economics 41: 341–364.
Brown, D.P., and R.H. Jennings. 1989. On technical analysis. Review of Financial Studies 2: 527–551.
Brown, R.H., and S. M. Schaefer. 1994. The term structure of real interest rates and the Cox Ingersoll and Ross model. Journal of Financial Economics 35: 3–42. Online available at http://econpapers.repec.org/article/eeejfinec/
Brown, S.J., and P.H. Dybvig. 1986. The empirical implications of the Cox, Ingersoll Ross theory of the term structure of interest rates. Journal of Finance 41: 617–630.
Campbell, J.Y., and J. Cochrane. 1999. By force of habit: A consumption-based explanation of aggregate stock market behavior. Journal of Political Economy 107: 205–251.
Campbell, J.Y., S.J. Grossman, and J. Wang. 1993. Trading volume and serial correlation in stock returns. Quarterly Journal of Economics 108: 905–939.
Campbell, J.Y., and R.J. Shiller. 1988. The dividend–price ratio and expectations of future dividends and discount factors. Review of Financial Studies 1: 195–228.
Chan, K.C., G.A. Karolyi, F.A. Longstaff, and A.B. Sanders. 1992. An empirical comparison of alternative models of the short-term interest rate. Journal of Finance 47: 1209–1227.
Chan, L.K., and J. Lakonishok. 1995. The behavior of stock prices around institutional trades. Journal of Finance 50: 1147–1174.
Chan, Y.L., and L. Kogan. 2002. Catching up with the Joneses: Heterogeneous preferences and the dynamics of asset prices. Journal of Political Economy 110: 1255–1285.
Chen, J., H. Hong, and J. Stein. 2002. Breadth of ownership and stock returns. Journal of Financial Economics 66: 171–205.
Chen, N., R. Roll, and S.A. Ross. 1986. Economic forces and the stock market. Journal of Business 59: 383–404.
Chen, R., and L. Scott. 1992. Pricing interest rate options in a two-factor Cox–Ingersoll–Ross model of the term structure. Review of Financial Studies 5: 613–636.
Chevalier, J.A. 1995. Capital structure and product market competition: Empirical evidence from the supermarket industry. American Economic Review 85: 415–435.
Chordia, T., R. Roll, and A. Subrahmanyam. 2000. Commonality in liquidity. Journal of Financial Economics 56: 3–28.
Christie, W.G., and P.H. Schultz. 1994. Why do Nasdaq market makers avoid odd-eighth quotes? Journal of Finance 49: 1813–1840.
Clementi, G.L., and H.A. Hopenhayn. 2006. A theory of financing constraints and firm dynamics. Quarterly Journal of Economics 121: 229–265.
Coase, R.H. 1937. The nature of the firm. Economica 4: 386–405.
Connor, G., and R.A. Korajczyk. 1988. Risk and return in an equilibrium APT: Application of a new test methodology. Journal of Financial Economics 21: 255–290.
Constantinides, G.M. 1986. Capital market equilibrium with transaction costs. Journal of Political Economy 94: 842–862.
Constantinides, G.M. 1990. Habit formation: A resolution of the equity premium puzzle. Journal of Political Economy 98: 519–543.
Constantinides, G.M. 1992. A theory of the nominal term structure of interest rates. Review of Financial Studies 5: 531–552.
Constantinides, G.M., J.B. Donaldson, and R. Mehra. 2002. Junior can’t borrow: A new perspective on the equity premium puzzle. Quarterly Journal of Economics 117: 269–296.
Constantinides, G.M., and D. Duffie. 1996. Asset pricing with heterogeneous consumers. Journal of Political Economy 104: 219–240.
Copeland, T.E., and D. Galai. 1983. Information effects and the bid–ask spread. Journal of Finance 38: 1457–1469.
Courtadon, G. 1982. The pricing of options on default-free bonds. Journal of Financial and Quantitative Analysis 17: 75–100.
Coval, J., and E. Stafford. 2007. Asset fire sales (and purchases) in equity markets. Journal of Financial Economics 86: 479–512.
Cox, J.C., J.E. Ingersoll, and S.A. Ross. 1980. An analysis of variable rate loan contracts. Journal of Finance 35: 389–403.
Cox, J.C., J.E. Ingersoll, and S.A. Ross. 1985a. An intertemporal general equilibrium model of asset prices. Econometrica 53: 363–384.
Cox, J.C., J.E. Ingersoll, and S.A. Ross. 1985b. A theory of the term structure of interest rates. Econometrica 53: 385–407.
Cox, J.C., and S.A. Ross. 1976a. A survey of some new results in financial option pricing theory. Journal of Finance 31: 383–402.
Cox, J.C., and S.A. Ross. 1976b. The valuation of options for alternative stochastic processes. Journal of Financial Economics 3: 145–166.
Cox, J.C., S.A. Ross, and M. Rubinstein. 1979. Option pricing: A simplified approach. Journal of Financial Economics 7: 229–263.
Dai, Q., and K.J. Singleton. 2000. Specification analysis of affine term structure models. Journal of Finance 55: 1943–1978.
Daniel, K.D., D. Hirshleifer, and A. Subrahmanyam. 1998. Investor psychology and security market under- and over-reactions. Journal of Finance 53: 1839–1886.
Daniel, K.D., D. Hirshleifer, and A. Subrahmanyam. 2001. Overconfidence, arbitrage, and equilibrium asset pricing. Journal of Finance 56: 921–965.
De Long, J.B., A. Shleifer, L.H. Summers, and R.J. Waldman. 1990. Noise trader risk in financial markets. Journal of Political Economy 98: 703–738.
DeBondt, W.F.M., and R. Thaler. 1985. Does the stock market overreact? Journal of Finance 40: 793–805.
DeMarzo, P.M., and M.J. Fishman. 2007. Agency and optimal investment dynamics. Review of Financial Studies 20: 151–188.
Diamond, D.W., and R.E. Verrecchia. 1981. Information aggregation in a noisy expectations economy. Journal of Financial Economics 9: 221–235.
Diether, K.B., C.J. Malloy, and A. Scherbina. 2002. Differences in opinion and the cross section of stock returns. Journal of Finance 57: 2113–2141.
Duffie, D. 1996. Special repo rates. Journal of Finance 51: 493–526.
Duffie, D., N. Garleanu, and L.H. Pedersen. 2002. Securities lending, shorting, and pricing. Journal of Financial Economics 66: 307–339.
Duffie, D., N. Garleanu, and L.H. Pedersen. 2005. Over-the-counter markets. Econometrica 73: 1815–1847.
Duffie, D., and R. Kan. 1996. A yield-factor model of interest rates. Mathematical Finance 6: 379–406.
Duffie, D., and R. Rahi. 1995. Financial market innovation and security design: An introduction. Journal of Economic Theory 65: 1–42.
Duffie, D., and K.J. Singleton. 1999. Modeling term structures of defaultable bonds. Review of Financial Studies 12: 687–720.
Dumas, B. 1989. Two-person dynamic equilibrium in the capital market. Review of Financial Studies 2: 157–188.
Dybvig, P.H., and S.A. Ross. 1985. Yes, the APT is testable. Journal of Finance 40: 1173–1188.
Dybvig, P.H., and J.F. Zender. 1991. Capital structure and dividend irrelevance with asymmetric information. Review of Financial Studies 4: 201–219.
Eckbo, E.B. 1986. Mergers and the market for corporate control: The Canadian evidence. Canadian Journal of Economics 19: 236–260.
Ellis, K., R. Michaely, and M. O’Hara. 2002. The making of a dealer market: From entry to equilibrium in the trading of Nasdaq stocks. Journal of Finance 57: 2289–2316.
Ellsberg, D. 1961. Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics 75: 643–669.
Epstein, L.G., and S.E. Zin. 1991. Substitution, risk aversion, and temporal behavior of consumption and asset returns: An empirical analysis. Journal of Political Economy 99: 263–286.
Evans, M.D.D., and R.K. Lyons. 2002. Order flow and exchange rate dynamics. Journal of Political Economy 110: 170–180.
Fama, E.F. 1970. Efficient capital markets: A review of theory and empirical work. Journal of Finance 25: 383–417.
Fama, E.F., and K.R. French. 1988. Permanent and temporary components of stock prices. Journal of Political Economy 96: 246–273.
Fama, E.F., and K.R. French. 1992. The cross-section of expected stock returns. Journal of Finance 47: 427–465.
Fama, E.F., and K.R. French. 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33: 5–56.
Fama, E.F., and K.R. French. 1998. Value versus growth: The international evidence. Journal of Finance 53: 1975–1979.
Fama, E.F., and K.R. French. 2002. Testing trade-off and pecking order predictions about dividends and debt. Review of Financial Studies 15: 1–33.
Fama, E.F., and J.D. MacBeth. 1973. Risk, return and equilibrium: Empirical tests. Journal of Political Economy 81: 607–636.
Fazzari, S.M., R.G. Hubbard, and B.C. Petersen. 1988. Financing constraints and corporate investment. Brookings Papers on Economic Activity 1: 141–195.
Fischhoff, B., P. Slovic, and S. Lichtenstein. 1977. Knowing with certainty: The appropriateness of extreme confidence. Journal of Experimental Psychology 3: 552–564.
Fluck, Z. 1998. Optimal financial contracting: Debt versus outside equity. Review of Financial Studies 11: 383–418.
Foster, F.D., and S. Viswanathan. 1990. A theory of the intraday variations in volume, variance, and trading costs in securities markets. Review of Financial Studies 3: 593–624.
Foucault, T. 1999. Order flow composition and trading costs in a dynamic limit order market. Journal of Financial Markets 2: 99–134.
French, K.R., and J.M. Poterba. 1991. Investor diversification and international equity markets. American Economic Review 81: 222–226.
French, K.R., and R. Roll. 1986. Stock return variances: The arrival of information and reaction of traders. Journal of Financial Economics 17: 5–26.
Gale, D., and M. Hellwig. 1985. Incentive-compatible debt contracts: The one-period problem. Review of Economic Studies 52: 647–663.
Garman, M.B. 1976. Market microstructure. Journal of Financial Economics 3: 257–275.
Gennotte, G., and H. Leland. 1990. Market liquidity, hedging and crashes. American Economic Review 80: 999–1021.
Gertler, M. 1992. Financial capacity and output fluctuations in an economy with multi-period financial relationships. Review of Economic Studies 59: 455–472.
Gervais, S., R. Kaniel, and D.H. Mingelgrin. 2001. The high-volume return premium. Journal of Finance 56: 877–919.
Gibbons, M., and K. Ramaswamy. 1993. A test of the Cox, Ingersoll and Ross model of the term structure. Review of Financial Studies 6: 619–658.
Gilchrist, S., and C.P. Himmelberg. 1995. Evidence on the role of cash flow for investment. Journal of Monetary Economics 36: 531–572.
Glosten, L.R. 1989. Insider trading, liquidity, and the role of the monopolist specialist. Journal of Business 62: 211–235.
Glosten, L.R. 1994. Is the electronic open limit order book inevitable? Journal of Finance 49: 1127–1161.
Glosten, L.R., and L.E. Harris. 1988. Estimating the components of the bid–ask spread. Journal of Financial Economics 21: 123–142.
Glosten, L.R., and P.R. Milgrom. 1985. Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics 14: 71–100.
Goettler, R.L., C.A. Parlour, and U. Rajan. 2005. Equilibrium in a dynamic limit order market. Journal of Finance 60: 2149–2192.
Goldstein, M.A., and K.A. Kavajecz. 2000. Eighths, sixteenths and market depth: Changes in tick size and liquidity provision on the NYSE. Journal of Financial Economics 56: 125–149.
Goldstein, R.S. 2000. The term structure of interest rates as a random field. Review of Financial Studies 13: 365–384.
Gomes, J.F., L. Kogan, and L. Zhang. 2003. Equilibrium cross section of returns. Journal of Political Economy 111: 693–732.
Gompers, P.A. 1995. Optimal investment, monitoring, and the staging of venture capital. Journal of Finance 50: 1461–1489.
Graham, J.R. 2000. How big are the tax benefits of debt? Journal of Finance 55: 1901–1941.
Gray, S.F. 1996. Modeling the conditional distribution of interest rates as a regime-switching process. Journal of Financial Economics 42: 27–62.
Grinblatt, M., and M. 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.
Grinblatt, M., and M. Keloharju. 2001. What makes investors trade? Journal of Finance 56: 589–616.
Grossman, S.J. 1976. On the efficiency of competitive stock markets where traders have diverse information. Journal of Finance 31: 573–585.
Grossman, S.J. 1988. An analysis of the implications for stock and futures price volatility of program trading and dynamic hedging strategies. Journal of Business 61: 275–298.
Grossman, S.J. 1992. The informational role of upstairs and downstairs trading. Journal of Business 65: 509–528.
Grossman, S.J., and O.D. Hart. 1980. Takeover bids, the free-rider problem, and the theory of the corporation. Bell Journal of Economics 11: 42–64.
Grossman, S.J., and O.D. Hart. 1986. The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy 94: 691–719.
Grossman, S.J., and O.D. Hart. 1988. One share-one vote and the market for corporate control. Journal of Financial Economics 20: 175–202.
Grossman, S.J., and M.H. Miller. 1988. Liquidity and market structure. Journal of Finance 43: 617–637.
Grossman, S.J., and R.J. Shiller. 1981. The determinants of the variability of stock market prices. American Economic Review 71: 222–227.
Grossman, S.J., and J.E. Stiglitz. 1980. On the impossibility of informationally efficient markets. American Economic Review 70: 393–408.
Grossman, S.J., and J.L. Vila. 1992. Optimal dynamic trading with leverage constraints. Journal of Financial and Quantitative Analysis 27: 151–168.
Grossman, S.J., and Z. Zhou. 1996. Equilibrium analysis of portfolio insurance. Journal of Finance 51: 1379–1403.
Grundy, B., and M. McNichols. 1989. Trade and revelation of information through prices and direct disclosure. Review of Financial Studies 2: 495–526.
Hamilton, J.D. 1988. Rational-expectations econometric analysis of changes in regime: An investigation of the term structure of interest rates. Journal of Economic Dynamics and Control 12: 385–423.
Hansen, L.P., and R. Jagannathan. 1991. Implications of security market data for models of dynamic economies. Journal of Political Economy 99: 225–262.
Hansen, L.P., and K.J. Singleton. 1983. Stochastic consumption, risk aversion and the temporal behavior of asset returns. Journal of Political Economy 91: 249–268.
Harris, M., and A. Raviv. 1988. Corporate control contests and capital structure. Journal of Financial Economics 20: 55–86.
Harris, M., and A. Raviv. 1993. Differences of opinion make a horse race. Review of Financial Studies 6: 473–506.
Harrison, J.M., and D. Kreps. 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20: 381–408.
Hart, O., and J. Moore. 1998. Default and renegotiation: A dynamic model of debt. Quarterly Journal of Economics 113: 1–41.
Harvey, C.R. 1989. Time-varying conditional covariances in tests of asset pricing models. Journal of Financial Economics 24: 289–317.
Hasbrouck, J. 1991. Measuring the information content of stock trades. Journal of Finance 46: 179–207.
He, H., and D.M. Modest. 1995. Market frictions and consumption-based capital asset pricing. Journal of Political Economy 103: 94–117.
He, H., and J. Wang. 1995. Differential information and dynamic behavior of stock trading volume. Review of Financial Studies 8: 919–972.
Heaton, J., and D. Lucas. 1996. Evaluating the effects of incomplete markets on risk sharing and asset pricing. Journal of Political Economy 104: 443–487.
Hellwig, M. 1980. On the aggregation of information in competitive markets. Journal of Economic Theory 22: 477–498.
Hennessy, C.A. 2004. Tobin’s Q, debt overhang, and investment. Journal of Finance 59: 1717–1742.
Heston, S.L. 1993. A close form solution for options with stochastic volatility. Review of Financial Studies 6: 327–343.
Holmstrom, B. 1999. Managerial incentive problems: A dynamic perspective. Review of Economic Studies 66: 169–182.
Hong, H., and J.C. Stein. 1999. A unified theory of underreaction, momentum trading and overreaction in asset markets. Journal of Finance 54: 2143–2184.
Hong, H., and J. Wang. 2000. Trading and returns under periodic market closures. Journal of Finance 55: 297–354.
Hoshi, T., A. Kashyap, and D. Scharfstein. 1991. Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. Quarterly Journal of Economics 106: 33–60.
Hovakimian, A., T. Opler, and S. Titman. 2001. The debt–equity choice. Journal of Financial and Quantitative Analysis 36: 1–24.
Huang, J., and J. Wang. 1997. Market structure, security prices and informational efficiency. Macroeconomic Dynamics 1: 169–205.
Huang, J., and J. Wang. 2006a. Liquidity, asset prices and welfare under costly participation. Working paper. Massachusetts Institute of Technology.
Huang, J., and J. Wang. 2006b. Liquidity and market crashes. Working paper. Massachusetts Institute of Technology.
Hull, J., and A. White. 1987. The pricing of options on assets with stochastic volatility. Journal of Finance 42: 281–300.
Hull, J., and A. White. 1994. Numerical procedures for implementing term structure models II: Two-factor models. Journal of Derivatives 2: 37–48.
Ikenberry, D., J. Lakonishok, and T. Vermaelen. 1995. Market underreaction to open market share repurchases. Journal of Financial Economics 39: 181–208.
Jagannathan, R., and Z. Wang. 1996. The conditional CAPM and the cross-section of expected returns. Journal of Finance 51: 3–53.
Jarrow, R.A., and S.M. Turnbull. 1995. Pricing derivatives on financial securities subject to credit risk. Journal of Finance 50: 53–85.
Jegadeesh, N., and S. Titman. 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance 48: 65–91.
Jensen, M.C. 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review 76: 323–339.
Jensen, M.C., and W.H. Meckling. 1976. Theory of firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3: 305–360.
Johannes, M. 2004. The statistical and economic role of jumps in continuous-time interest rate models. Journal of Finance 59: 227–260.
Jones, C.M., and O.A. Lamont. 2002. Short sale constraints and stock returns. Journal of Financial Economics 66: 207–239.
Jones, C.P., and R.H. Litzenberger. 1970. Quarterly earnings reports and intermediate stockprice trends. Journal of Finance 25: 143–148.
Jung, K., Y. Kim, and R.M. Stulz. 1996. Timing, investment opportunities, managerial discretion, and the security issue decision. Journal of Financial Economics 42: 159–186.
Kahneman, D., and A. Tversky. 1974. Judgment under uncertainty: Heuristics and biases. Science 185: 1124–1131.
Kaplan, S.N., and P. Stromberg. 2001. Financial contracting theory meets the real world: An empirical analysis of venture capital contracts. Review of Economic Studies 70: 281–315.
Kennedy, D.P. 1994. The term structure of interest rates as a Gaussian random field. Mathematical Finance 4: 247–258.
Knight, F.H. 1936. The quantity of capital and the rate of interest. Journal of Political Economy 44(433–63): 612–642.
Kogan, L. 2001. An equilibrium model of irreversible investment. Journal of Financial Economics 62: 201–245.
Kogan, L., S.A. Ross, J. Wang, and M.M. Westerfield. 2006. The price impact and survival of irrational traders. Journal of Finance 61: 195–229.
Kothari, S.P., J. Shanken, and R.G. Sloan. 1995. Another look at the cross-section of expected returns. Journal of Finance 50: 185–224.
Krishnamurthy, A. 2002. The bond/old-bond spread. Journal of Financial Economics 66: 463–506.
Kyle, A.S. 1985. Continuous auctions and insider trading. Econometrica 53: 1315–1335.
Kyle, A.S., and W. **ong. 2001. Contagion as a wealth effect. Journal of Finance 56: 1401–1440.
Lando, D. 1998. On Cox processes and credit-risky securities. Review of Derivatives Research 2: 99–120.
Lang, L., E. Ofek, and R.M. Stulz. 1996. Leverage, investment, and firm growth. Journal of Financial Economics 40: 3–29.
Langetieg, T.C. 1980. A multivariate model of the term structure of interest rates. Journal of Finance 35: 71–97.
Lee, C.M.C., A. Shleifer, and R.H. Thaler. 1991. Investor sentiment and the closed-end fund puzzle. Journal of Finance 46: 75–109.
Lehmann, B.N., and D.M. Modest. 1988. The empirical foundations of the arbitrage pricing theory. Journal of Financial Economics 21: 213–254.
Leland, H.E. 1994. Risky debt, bond covenants and optimal capital structure. Journal of Finance 49: 1213–1252.
Leland, H.E., and D.H. Pyle. 1977. Informational asymmetries, financial structure, and financial intermediation. Journal of Finance 32: 371–387.
Leland, H.E., and K.B. Toft. 1996. Optimal capital structure, endogenous bankruptcy and the term structure of credit spreads. Journal of Finance 50: 789–819.
LeRoy, S.F., and R.D. Porter. 1981. The present-value relation: Tests based on implied variance bounds. Econometrica 49: 555–574.
Lesmond, D.A., M.J. Schill, and C. Zhou. 2004. The illusory nature of momentum profits. Journal of Financial Economics 71: 349–380.
Lettau, M., and S. Ludvigson. 2001. Resurrecting the (C)CAPM: A cross-sectional test when risk premia are time-varying. Journal of Political Economy 109: 1238–1287.
Lewellen, J., and S. Nagel. 2006. The conditional CAPM does not explain asset-pricing anomalies. Journal of Financial Economics 82: 289–314.
Lintner, J. 1965. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics 47: 13–37.
Litterman, R., and J. Scheinkman. 1991. Common factors affecting bond returns. The Journal of Fixed Income 1: 54–61.
Liu, J., J. Pan, and T. Wang. 2005. An equilibrium model of rare-event premia and its implication for option smirks. Review of Financial Studies 18: 131–164.
Llorente, G., R. Michaely, G. Saar, and J. Wang. 2002. Dynamic volume–return relation of individual stocks. Review of Financial Studies 15: 1005–1047.
Lo, A.W., and A.C. Mackinlay. 1988. Stock market prices do not follow random walks: Evidence from a simple specification test. Review of Financial Studies 1: 41–66.
Lo, A.W., and A.C. MacKinlay. 1990. When are contrarian profits due to stock market overreaction? Review of Financial Studies 3: 175–205.
Lo, A.W., H. Mamaysky, and J. Wang. 2004. Asset prices and trading volume under fixed transactions costs. Journal of Political Economy 112: 1054–1090.
Lo, A.W., and J. Wang. 2006. Trading volume: Implications of an intertemporal capital asset pricing model. Journal of Finance 61: 2805–2840.
Longstaff, F.A. 1989. A nonlinear general equilibrium model of the term structure of interest rates. Journal of Financial Economics 23: 195–224.
Longstaff, F.A., and E.S. Schwartz. 1992. Interest rate volatility and the term structure: A two factor general equilibrium model. Journal of Finance 47: 1259–1282.
Longstaff, F.A., and E.S. Schwartz. 1995. A simple approach to valuing risky fixed and floating rate debt. Journal of Finance 50: 789–819.
Lucas, R.E. Jr. 1978. Asset prices in an exchange economy. Econometrica 46: 1429–1445.
Luttmer, E.G.J. 1999. What level of fixed costs can reconcile consumption and stock returns? Journal of Political Economy 107: 969–997.
Lyons, R.K. 1995. Tests of microstructural hypotheses in the foreign exchange market. Journal of Financial Economics 39: 321–351.
Madhavan, A., and S. Smidt. 1993. An analysis of changes in specialist inventories and quotations. Journal of Finance 48: 1595–1628.
Maksimovic, V., and S. Titman. 1991. Financial policy and reputation for product quality. Review of Financial Studies 4: 175–200.
Malkiel, B.G. 1977. The valuation of closed-end investment company shares. Journal of Finance 32: 847–859.
Markowitz, H.M. 1952. Portfolio selection. Journal of Finance 7: 77–91.
McConnell, J.J., and C.J. Muscarella. 1985. Corporate capital expenditure decisions and the market value of the firm. Journal of Financial Economics 14: 399–422.
Mehra, R., and E.C. Prescott. 1985. The equity premium: A puzzle. Journal of Monetary Economics 15: 145–161.
Melino, A., and S.M. Turnbull. 1990. Pricing foreign currency options with stochastic volatility. Journal of Econometrics 45: 239–265.
Merton, R.C. 1973. The theory of rational option pricing. Bell Journal of Economics and Management Science 4: 141–183.
Merton, R.C. 1974. On the pricing of corporate debt: The risk structure of interest rates. Journal of Finance 29: 449–470.
Merton, R.C. 1976. Option pricing when underlying stock returns are discontinuous. Journal of Financial Economics 3: 125–144.
Merton, R.C. 1981. On market timing and investment performance part I: An equilibrium theory of value for market forecasts. Journal of Business 54: 363–406.
Merton, R.C. 1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42: 483–510.
Milgrom, P., and N. Stokey. 1982. Information, trade and common knowledge. Journal of Economic Theory 26: 17–27.
Miller, E.M. 1977a. Risk, uncertainty, and divergence of opinion. Journal of Finance 32: 1151–1168.
Miller, M.H. 1977b. Debt and taxes. Journal of Finance 32: 261–276.
Mitchell, M., L.H. Pedersen, and T. Pulvino. 2007. Slow moving capital. American Economic Review 97: 215–220.
Modigliani, F., and M.H. Miller. 1958. The cost of capital, corporate finance and the theory of investment. American Economic Review 48: 261–297.
Modigliani, F., and M.H. Miller. 1963. Corporate income taxes and the cost of capital: A correction. American Economic Review 53: 433–443.
Myers, S.C. 1977. Determinants of corporate borrowing. Journal of Financial Economics 5: 147–176.
Myers, S.C. 2000. Outside equity. Journal of Finance 55: 1005–1037.
Myers, S.C., and N.S. Majluf. 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13: 187–221.
Narayanan, M.P. 1985. Managerial incentives for short-term results. Journal of Finance 40: 1469–1484.
O’Hara, M. 2003. Presidential address: Liquidity and price discovery. Journal of Finance 58: 1335–1354.
Odean, T. 1998. Are investors reluctant to realize their losses? Journal of Finance 53: 1775–1798.
Pan, J. 2002. The jump-risk premia implicit in options: Evidence from an integrated time-series study. Journal of Financial Economics 63: 3–50.
Pastor, L., and R. Stambaugh. 2003. Liquidity risk and expected stock returns. Journal of Political Economy 113: 642–685.
Petkova, R., and L. Zhang. 2005. Is value riskier than growth? Journal of Financial Economics 78: 187–202.
Phillips, G.M. 1995. Increased debt and industry product markets: An empirical analysis. Journal of Financial Economics 37: 189–238.
Piazzesi, M. 2005. Bond yields and the Federal Reserve. Journal of Political Economy 113: 311–344.
Poterba, J., and L.J. Summers. 1988. Mean reversion in stock prices: Evidence and implications. Journal of Financial Economics 22: 27–59.
Rajan, R., and L. Zingales. 1995. What do we know about capital structure? Some evidence from international data. Journal of Finance 50: 1421–1460.
Ready, M.J. 1999. The specialist’s discretion: Stopped orders and price improvement. Review of Financial Studies 12: 1075–1112.
Rietz, T.A. 1988. The equity risk premium: A solution. Journal of Monetary Economics 21: 117–131.
Rock, K. 1990. The specialist’s order book and price anomalies. Working paper. Harvard Business School.
Roll, R. 1977. A critique of the asset pricing theory tests. Part I: On past and potential testability of the theory. Journal of Financial Economics 4: 129–176.
Roll, R. 1984a. Orange juice and weather. American Economic Review 74: 861–880.
Roll, R. 1984b. A simple implicit measure of the effective bid-ask spread in an efficient market. Journal of Finance 39: 1127–1139.
Roll, R. 1988. R2. Journal of Finance 43: 541–566.
Romer, D. 1993. Rational asset-price movements without news. American Economic Review 83: 1112–1130.
Ross, S.A. 1973. The economic theory of agency: The principals problems. American Economic Review 63: 134–139.
Ross, S.A. 1976. Options and efficiency. Quarterly Journal of Economics 90: 75–89.
Ross, S.A. 1977. The determination of financial structure: The incentive signaling approach. Bell Journal of Economics 8: 23–40.
Ross, S.A. 2002. Neoclassical finance, alternative finance, and the closed end fund puzzle. European Financial Management 8: 129–137.
Rubinstein, M. 1976. The valuation of uncertain income streams and the pricing of options. Bell Journal of Economics 7: 407–425.
Rubinstein, M. 1994. Implied binomial tress. Journal of Finance 49: 771–818.
Saa-Requejo, J., and P. Santa-Clara. 1999. Bond pricing with default risk. Working paper. UCLA.
Samuelson, P.A. 1965. Proof that properly anticipated prices fluctuate randomly. Industrial Management Review 6: 41–49.
Sandroni, A. 2000. Do markets favor agents able to make accurate predictions. Econometrica 68: 1303–1341.
Santa-Clara, P., and D. Sornette. 2001. The dynamics of the forward interest rate curve with stochastic string shocks. Review of Financial Studies 14: 149–185.
Savage, L.J. 1954. The foundations of statistics. New York: Wiley.
Schaefer, S.M., and E.S. Schwartz. 1984. A two-factor model of the term structure: An approximate analytical solution. Journal of Financial and Quantitative Analysis 19: 413–424.
Scheinkman, J.A., and W. **ong. 2003. Overconfidence and speculative bubbles. Journal of Political Economy 111: 1183–1219.
Scott, L.O. 1997. Pricing stock options in a jump-diffusion model with stochastic volatility and interest rates: Applications of Fourier inversion methods. Mathematical Finance 7: 413–426.
Seppi, D.J. 1997. Liquidity provision with limit orders and a strategic specialist. Review of Financial Studies 10: 103–150.
Shanken, J. 1982. The arbitrage pricing theory? It is testable. Journal of Finance 37: 1129–1140.
Shanken, J. 1987. Multivariate proxies and asset pricing relations: Living with the Roll critique. Journal of Financial Economics 18: 91–110.
Shanken, J. 1990. Intertemporal asset pricing: An empirical investigation. Journal of Econometrics 45: 99–120.
Sharpe, W.F. 1964. Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance 19: 425–442.
Shiller, R.J. 1981. Do stock prices move too much to be justified by subsequent changes in dividends? American Economic Review 71: 421–436.
Shleifer, A., and R.W. Vishny. 1997. The limits of arbitrage. Journal of Finance 52: 35–55.
Stambaugh, R.F. 1982. On the exclusion of assets from tests of the two parameter model. Journal of Financial Economics 10: 235–268.
Stanton, R. 1997. A nonparametric model of term structure dynamics and the market price of interest rate risk. Journal of Finance 52: 1973–2002.
Stein, E.M., and C.J. Stein. 1991. Stock price distributions with stochastic volatility: An analytic approach. Review of Financial Studies 4: 727–752.
Stoll, H.R. 1979. Regulation of securities markets: An examination of the effects of increased competition. New York: Graduate School of Business/New York University.
Stulz, R. 1990. Managerial discretion and optimal financing policies. Journal of Financial Economics 26: 3–27.
Sundaresan, S.M. 1989. Intertemporally dependent preferences and the volatility of consumption and wealth. Review of Financial Studies 2: 73–88.
Taggart, R.A. 1977. A model of corporate financing decision. Journal of Finance 32: 1467–1484.
Titman, S., and R. Wessels. 1988. The determinants of capital structure choice. Journal of Finance 43: 1–19.
Tobin, J. 1958. Liquidity preference as behavior towards risk. Review of Economic Studies 25: 65–86.
Townsend, R.M. 1978. Optimal contracts and competitive markets with costly state verification. Journal of Economic Theory 21: 265–293.
Tuckman, B., and J.L. Vila. 1992. Arbitrage with holding costs: A utility based approach. Journal of Finance 47: 1283–1302.
Vasicek, O. 1977. An equilibrium characterization of the term structure. Journal of Financial Economics 5: 177–188.
Vayanos, D. 1998. Transaction costs and asset prices: A dynamic equilibrium model. Review of Financial Studies 11: 1–58.
Vayanos, D. 1999. Strategic trading and welfare in a dynamic market. Review of Economic Studies 66: 219–254.
Vayanos, D., and P. O. Weill. 2006. A search-based theory of the on-the-run phenomenon. Working Paper No. 12670. Washington, DC: NBER.
von Neumann, J., and O. Morgenstern. 1944. Theory of games and economic behavior. New York: Wiley.
Wahal, S. 1997. Entry, exit, market makers and the bid-ask spread. Review of Financial Studies 10: 871–901.
Wald, J. 1999. Capital structure with dividend restrictions. Journal of Corporate Finance 5: 193–208.
Wang, J. 1993. A model of intertemporal asset prices under asymmetric information. Review of Economic Studies 60: 249–282.
Wang, J. 1994. A model of competitive stock trading volume. Journal of Political Economy 102: 127–168.
Wang, J. 1996. The term structure of interest rates in a pure exchange economy with heterogeneous investors. Journal of Financial Economics 41: 75–110.
Wang, K.Q. 2003. Asset pricing with conditioning information: A new test. Journal of Finance 58: 161–196.
Weil, P. 1989. The equity premium puzzle and the risk-free rate puzzle. Journal of Monetary Economics 24: 401–421.
Weinstein, N.D. 1980. Unrealistic optimism about future life events. Journal of Personality and Social Psychology 39: 806–820.
Weiss, L.A., and K.H. Wruck. 1998. Information problems, conflicts of interest and asset strip**: Chapter 11’s failure in the case of eastern airlines. Journal of Financial Economics 48: 55–97.
Williamson, O.E. 1964. The economics of discretionary behavior: Managerial objectives in a theory of the firm. Englewood Cliffs: Prentice-Hall.
Williamson, O.E. 1975. Markets and hierarchies: Analysis and antitrust implications. New York: Free Press.
Wilson, R. 1968. On the theory of syndicates. Econometrica 36: 119–132.
Yuan, K. 2005. Asymmetric price movements and borrowing constraints: A rational expectations equilibrium model of crises, contagion, and confusion. Journal of Finance 60: 379–411.
Zhang, L. 2006. Anomalies. Working Paper No. 11322. Cambridge, MA: NBER.
Zingales, L. 1998. Survival of the fittest or the fattest? Exit and financing in the trucking industry. Journal of Finance 53: 905–938.
Zwiebel, J. 1996. Dynamic capital structure under managerial entrenchment. American Economic Review 86: 1197–1215.
Author information
Authors and Affiliations
Editor information
Copyright information
© 2018 Macmillan Publishers Ltd.
About this entry
Cite this entry
Wang, J. (2018). Finance (New Developments). In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2012
Download citation
DOI: https://doi.org/10.1057/978-1-349-95189-5_2012
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-95188-8
Online ISBN: 978-1-349-95189-5
eBook Packages: Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences