Fundamental Investment Analysis

In an environment where trading volume affects security prices and where prices are uncertain when trades are submitted, quasi-arbitrage is the availability of a series of trades that generate infinite expected profits with an infinite Sharpe ratio. We show that when the price impact of trades is permanent and time-independent, only linear price-impact functions rule out quasi-arbitrage and thus support viable market prices. When trades have also a temporary price impact, only the permanent price impact must be linear while the temporary one can be of a more general form.

We model the trade-off between low-asset risk and low leverage to satisfy preferences for low-risk deposits and apply it to interwar New York City banks. During the 1920s, profitable lending and low costs of raising capital produced increased bank asset risk and increased capital, with no deposit risk change. Differences in the costs of raising equity explain differences in asset risk and capital ratios. In the 1930s, rising deposit default risk led to deposit withdrawals. In response, banks increased riskless assets and cut dividends.

We propose that consumers' investment decisions involve processes of promotion and prevention self-regulation that are managed across separate mental accounts, with different financial products seen as representative of promotion versus prevention.

This paper surveys the literature on option pricing, from its origins to the present. An extensive review of valuation methods for European- and American-style claims is provided. Applications to complex securities and numerical methods are surveyed. Emphasis is placed on recent trends and developments in methodology and modeling.

We investigate whether the accruals anomaly is a manifestation of the glamour stock phenomenon documented in the finance literature. Value (glamour) stocks, characterized by low (high) past sales growth, high (low) book-to-market (B/M), high (low) earnings-to-price (E/P), and high (low) cash flow-to-price (C/P), are known to earn positive (negative) future abnormal returns. Note that "C" or cash flow is operationalized in the finance literature as earnings adjusted for depreciation.

We assemble bank-level and other data for Fed member banks to model determinants of bank failure. Fundamentals explain bank failure risk well. The first two Friedman-Schwartz crises are not associated with positive unexplained residual failure risk, or increased importance of bank illiquidity for forecasting failure. The third Friedman-Schwartz crisis is more ambiguous, but increased residual failure risk is small in the aggregate. The final crisis (early 1933) saw a large unexplained increase in bank failure risk.

This study investigates whether banks manage the disclosed fair value of their major asset, the loan portfolio. Using two cross-section samples, I find evidence that suggests banks manage the fair value of loans. The estimated extent of overstatement of loans' fair value is negatively related to regulatory capital, asset growth, liquidity and the gross book value of loans, and positively related to the change in the rate of credit losses.

This article provides the first comprehensive econometric analysis of the causes of bank distress during the Depression. We assemble bank-level data for virtually all Fed member banks, and combine those data with county-level, state-level, and national-level economic characteristics to capture cross-sectional and inter-temporal variation in the determinants of bank failure.

We investigate the ability of several international asset pricing models to price the returns on 36 FTSE global industry portfolios. The models are the international capital asset pricing model (ICAPM) the ICAPM with exchange risks, and global two-factor and three-factor Fama-French (1996, 1998) models. We apply the methodology of Hansen and Jagannathan (1997).