Gerald Gay

Gerald Gay
Georgia State University | GSU · Department of Finance

About

67
Publications
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2,129
Citations
Introduction
Skills and Expertise

Publications

Publications (67)
Article
We examine key developments in trade‐related activity on global derivatives markets during the Covid‐19 pandemic. We first document significant increases in volumes and open interest. Drawing upon techniques from network theory, we next find greater market interconnectedness and notable changes in market centrality. For US exchanges, we examine the...
Article
We conduct a clinical analysis of the CBOT full membership that provides holders with rights to trade any of the exchange's contracts using a unique database of seat information from the period 1897–2020. We examine microstructure and asset pricing properties of seats including during periods before and following the CBOT's transition from trading...
Article
We conduct firm and industry‐level examinations of key market risk exposures deemed material by managers over the period 2002–2016. We find that risk exposures have expanded in line with firms’ growth and globalization and that managers strategically select disclosure formats in recognition of firms’ demand for capital market access and need to pro...
Article
We study futures commission merchants, or “FCMs,” who are the important intermediaries through which institutional, corporate and retail customers conduct trading in interest rate, currency and commodity futures. We construct and examine a data base of FCM financial information including holdings of customer segregated and secured funds intended to...
Article
Full-text available
We provide a rationale for window dressing wherein investors respond to conflicting signals of managerial ability inferred from a fund's performance and disclosed portfolio holdings. We contend that window dressers make a risky bet on their performance during a reporting delay period, which affects investors' interpretation of the conflicting signa...
Article
We study performance inconsistency between realized fund returns and those imputed from disclosed portfolio holdings. Such inconsistency may result from portfolio rebalancing as a part of a manager’s stock selection strategy (e.g., momentum trading) intended to increase fund value. Alternatively, such inconsistency can arise from a manager distorti...
Article
Introduction Framework for Pricing and Valuation Steps for Swap Pricing Other Swaps Endnotes About the Authors
Article
This paper introduces two measures to investigate potential window-dressing behavior among mutual fund managers. We show that unskilled managers that perform poorly are more likely to window dress by strategically purchasing winner stocks and selling loser stocks near quarter ends. Further, funds with higher expense ratios and greater portfolio tur...
Article
We investigate the relation between derivatives use and corporations' cost of equity capital. Using a large sample of non-financial firms, we compute and analyze (i) the relative cost of equity of firms that use derivatives and those that do not; and (ii) the change in cost of equity experienced by firms initiating derivatives programs. We find tha...
Article
We investigate analyst forecasts in a unique setting, the natural gas storage market, and study the contribution of analysts in facilitating price discovery in futures markets. Using a high-frequency database of analyst storage forecasts, we show that the market appears to condition expectations regarding a weekly storage release on the analyst for...
Article
The study examined analyst forecasts of 26 macroeconomic statistics for August 1998 through March 2007. The four research questions were, (1) Does forecast accuracy persist? (2) What are the determinants of such persistence? (3) Do analysts who exhibit these characteristics make more accurate forecasts than the simple consensus? (4) Is a smart cons...
Article
We examine analyst forecasts of 26 macroeconomic statistics based on surveys conducted by Bloomberg over the August 1998 to March 2007 time period. We address four research questions: (1) Does forecast accuracy persist?; (2) What are the determinants of such persistence?; (3) Do analysts who exhibit these characteristics make more accurate forecast...
Article
We investigate analyst forecasts in a unique setting, the natural gas storage market, and study the contributions of analysts in facilitating price discovery in futures markets. Using a high frequency database of analyst storage forecasts, we show that the market appears to strongly condition expectations regarding a weekly storage release on the a...
Article
For over a decade, the SEC has required corporations to disclose in their 10-K filings the nature and extent of their risk exposures using one or more of the following three methods: (1) sensitivity analysis; (2) the so-called “tabular” format; and (3) value-at-risk (VaR). After discussing the significant differences in the type and level of inform...
Article
We investigate the forecast performance of natural gas analysts who make weekly forecasts of gas in storage and analyze the corresponding impact this activity has on futures prices. Our research is one of few papers that examine individual analyst behavior in a setting not involving an asset security. Over the period 1997-2004, we find that gas ana...
Article
We examine how corporations should choose their optimal mix of linear and nonlinear derivatives. We present a model in which a firm facing both quantity (output) and price (market) risk maximizes its expected profits when subjected to financial distress costs. The optimal hedging position generally is comprised of linear contracts, but as the level...
Article
We provide a descriptive examination of the trading activities of one of the most important intermediaries in global financial markets—the OTC derivatives dealer. These dealers play a central role in the provision of derivative products and in the intermediation of market risks faced by financial and nonfinancial firms alike. Utilizing a unique dat...
Article
We investigate the relationship between derivatives use and the extent of asymmetric information faced by the firm. Using alternative analyst forecast proxies for asymmetric information, we find evidence that both the use of derivatives and the extent of derivatives usage is associated with lower asymmetric information. Specifically, for firms usin...
Article
We examine how corporations should choose their optimal mix of linear and non-linear derivatives. We present a model in which a firm facing both quantity (output) and price (market) risk maximizes its expected profits when subject to financial distress costs. The optimal hedging position generally is comprised of linear contracts, but as the levels...
Article
This paper provides guidance on how corporations should choose the optimal mix of “linear” and “non-linear” derivatives. Linear derivatives are products such as futures, forwards, and swaps, whose payoffs vary in linear fashion with changes in the un-derlying asset price or reference rate. Non-linear derivatives are contracts with option-like payof...
Article
Persistent underpricing in the Korean stock index futures market is documented and alternative explanations are examined. No-arbitrage pricing bands are computed using alternative sets of transaction costs and short sale restrictions faced by different investor groups. We find that a substantial portion of the mispricing can be explained by these f...
Article
We analyze the underinvestment problem as a determinant of corporate hedging policy. We find evidence of a positive relation between a firm's derivatives use and its growth opportunities, as proxied by several alternative measures. For firms with enhanced investment opportunities, derivatives use is greater when they also have relatively low cash s...
Article
Optimal shareholder bidding strategies in a dutch auction share repurchase are derived when shareholder heterogeneity could be due to either differential expectations regarding the firm's future earnings or differential tax bases. Predictions of the theory are tested by analyzing the actual tender premiums paid by firms completing dutch auction sha...
Article
A pricing model for default-free bonds under differentia! taxation of coupon income and capital gains is presented which explicitly considers coupon-induced tax clienteles. Subsequent analysis provides indirect evidence in support of the existence of the coupon-induced tax clientele effect, while direct evidence is provided by analyzing differences...
Article
In this paper, the influence of three Hong Kong bank failures on stock prices of the colony's banking industry is examined. As deposit insurance is nonexistent in Hong Kong, the world's fourth-largest financial center, an interesting environment is provided for testing contagion effects of bank failure on other health financial institutions. By exa...
Article
This paper compares the dutch auction and transferable put rights (TPRs) share repurchase mechanisms to the traditional fixed-price tender offer in terms of efficiency, wealth transfers, and corporate control. Using Monte Carlo simulations, it is shown that both alternative mechanisms reduce the deadweight losses from inefficient tendering by ensur...
Article
This research analyzes the investment behavior of institutional portfolio managers within the context of their fiduciary responsibility arising from handling client capital. The perspective is unique because it incorporates the propensity of portfolio managers to protect their income potential in determining investment choices owing to this respons...
Article
In this article we attempt to determine the impact of a defendant's strategic choice of trial mode on the judicial process. In a sequential signalling game setting, we model a criminal trial using varying assumptions regarding the sophistication of the agents, while maintaining the assumption that the information processing of juries is noisier tha...
Article
We examine the rationality of investor exercise behavior by analyzing two years' tendered exercise notices for Treasury bond futures options. We conclude that exercise behavior is generally rational, but document numerous failures to exercise as well as some exercises that should not have occured, both at and prior to expiration. The most frequent...
Article
This paper investigates the effect of share repurchase through transferable put rights (TPRs) on shareholder wealth and corporate control. Transferable put rights make the put option, which is implicit in a tender offer, marketable. Shareholders who do not tender their shares increase their proportional ownership of the firm and extract some of the...
Article
Variability of local economic conditions underlie, in part, the default and prepayment risks of mortgages originated in a metropolitan area. In this study we examine the benefits of diversifying across metropolitan areas for reducing these risks. Employment data for the thirty largest metropolitan areas in the United States, divided into eight indu...
Article
Futures contract specification usually allow the short position some variation as to when, where, how much, and what is to be delivered. In this paper we derive the optimal delivery policy for the Treasury Bond futures contracts, and find that our policy produces profits that are positive and statistically significant. This indicates that future pr...
Article
This research applies an entirely new approach to examining the efficiency of futures markets for Treasury bills and avoids many shortcomings of previous studies that rely on comparing yields on spot versus futures market positions. Efficiency is examined by comparing the consistency of yields within the futures market itself since, at one time, th...
Article
The quality option implicit in futures contracts allows the short position to satisfy the contract by delivering one of a variety of specified assets. If, at the time the contract is purchased, knowledge of which of the allowed assets will be cheapest at maturity is uncertain, then the quality option will have value. The greater the value of this o...
Article
For hedging, financial and agricultural futures contracts differ in their usefulness. This paper presents a new hedging approach uniquely appropriate to financial futures that better fits the typical hedging situation confronted by those wishing to hedge interest rate risk. The superiority of this new hedging strategy is demonstrated empirically by...
Article
Several authors (Roll, Long, Merton, and Breeden) have recognized that changes in commodity prices represent a potential risk to consumer-investors. They have constructed models that allow for prices of financial securities to reflect the influence of these risks. While these models are theoretically elegant, the evidence presented in this paper su...

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