“The Value of the Wildcard Option in Cash Settled American Index Options” with Dennis Lasser. Journal of Financial Markets, 28 (2016), 116-131
Abstract: We estimate the size of the wildcard premium embedded in cash-settled American-style options. Similar to simulation results reported by Fleming and Whaley (1994), we find the wildcard premium significantly impacts the valuations of American-style put and call options. Furthermore, we find that the wildcard premium as a percentage of price is somewhat larger than the Fleming-Whaley simulation in periods of low implied volatility but not in periods of high volatility. Finally, we show a correlation between the size of the wildcard premium and overnight S&P 100 overnight returns. We believe that these results shed light on why all newly created cash-settled options have a European style exercise component.
“Government Policy and Ownership of Financial Assets” with Kristian Rydqvist and Ilya Strebulaev. Journal of Financial Economics, 111 (2014), 70-85
Abstract: Since World War II, the fraction of stocks owned directly by households has decreased by more than 50 percentage points. We argue that tax policy is the driving force. Using data from eight countries, we show that tax-favored investors have replaced households as stockholders and that the fraction of household ownership decreases with measures of the effective marginal tax rate. These findings are important for policy considerations on effective taxation and for financial economics research on the long-term effects of taxation on corporate finance and asset prices.
“The Tax Benefit of Income Smoothing” with Kristian Rydqvist and Steven Schwartz. Journal of Banking and Finance, 38 (2014), 78-88
Abstract: A worker can contribute pre-tax dollars to a private pension plan. Under a progressive income tax, this feature reduces lifetime tax liability. There is a long-held belief that the tax benefit to postponing income tax liability until retirement is large. We find that the tax benefit of income smoothing under the United States 2010 federal tax code is surprisingly small. This conclusion is of considerable importance to investment advisers, tax policymakers, and scholars engaged in financial retirement planning.
“Accounting, Finance and Adverse Selection: Illustrations and Applications” with Murali Jagannathan, Steven Schwartz, and Richard Young. Journal of Accounting Literature, 30 (2011), 69-101
Abstract: Markets are rife with inefficiencies caused by information asymmetry. We use numerical examples to illustrate one such inefficiency, adverse selection.We relate our abstract illustrations to important concepts in accounting and finance. We consider both disciplines jointly because accounting information is useful in mitigating the market inefficiencies studied in finance. The goal is to make exposition accessible to faculty, students and practitioners.
“Added Pressure to Perform? Firms added to the S&P 500 and Earnings Management” with Laurel Franzen and Julie Suh
“On the Timing of Director Departures” with Murali Jagannathan and Srinivasan Krishnamurthy
“Demand Shocks to Securities and the Pricing of Economically Linked Stocks: Evidence on S&P 500 Index Additions” with Kartik Raman.