Tag Archive corporate

A Financing-Based Misvaluation Factor and the Cross-Section of Expected Returns

Several recent behavioral models predict commonality in the misvaluation of firms. In the style investing approach of Barberis and Shleifer (2003), commonality in misvaluation arises when irrational investor enthusiasm for stock characteristics shifts, inducing positive comovement among stocks with similar characteristics and negative comovement in stocks with dissimilar characteristics.

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The Global Financial System and Liquidity


Global Financial System and Liquidity

Liquidity is the elephant in the dark room that is the global financial system. Everybody knows that liquidity is important, yet few would brave defining what it is, or how to gauge it accurately. One of the disturbing aspects of ‘liquidity’ is that its meanings and functions as a financial cate-gory vary according to the context and level of economic activity, as well as to the phase of the business cycle (Nesvetailova 2008). Liquidity of the market or a portfolio of assets during ‘good’ times is not the same as liquidity during an economic downturn or a financial crisis. Assets that are easy to sell when economic agents share a sense of optimism about their profitability, liquidity and safety, often turn out to be unwanted and expensive bundles of ‘illiquid’ debt when the sense of optimism evaporates. Hence ‘liquidity’ can evaporate literally overnight.

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