bluuebunny/crossref_metadata_2025 huggingface dataset:
Stock Repurchases and Excess Returns: An Empirical Examination
Authors: Pugh William , Jahera John S.
Published: March 2005

The excess returns associated with repurchase announcements are viewed largely as a reaction to management's statement that the firm's shares are underpriced; management's signal provides new information that enhances the firm's market value. Although earlier studies have found the excess return to be closely related to the premium set by managment, other factors play a part in determining both the market reaction and the premium level set by management. Among these factors ar relative market capitalization, holdings by institutions, immediate alternative uses for cash, level of insider control, recent stock price performance, relative size of the tender offer, and the resultant change in the firm's capital structure.
Learning Portfolio Management by Experience: University Student Investment Funds
Authors: Lawrence Edward C.
Published: March 2005

In this age of greater cooperation between academia and industry, it is surprising to find a general lack of awareness by both parties as to the progress being made to closely integrate financial theory with practice. This paper is intended to bring colleagues in universities and business up to date in an area where considerable success has been achieved, namely, investments and portfolio management. Through a survey of universities across the country, a comprehensive list of programs that allow students to manage portfolios of real dollars has been compiled. It is hoped that sharing the results of this survey will encourage further cooperation in establishing new innovative programs in all areas of business.
A Comprehensive Test of Futures Market Disequilibrium
Authors: Lukac Louis P. , Brorsen B. Wade
Published: March 2005

Whether or not trading with technical analysis is profitable is a controversial topic. This study seeks to add to our knowledge about this controversy by providing a comprehensive test of the profitability of technical trading systems. Trading is simulated for 23 trading systems on 30 futures markets for 11 years. All but two trading systems had significant gross returns. Thus, the results strongly reject the random walk model and suggest that disequilibrium models more appropriately describe daily futures prices. Although returns were less than expected by many users of these systems, several systems did generate returns significantly above transaction costs. The result for net returns are not conclusive, but they suggest there may be causes of disequilibrium beyond transaction costs. No conclusion is made about market efficiency since possible causes of disequilibrium beyond transaction costs exist.
The Valuation of Semiannual Bonds between Interest Payment Dates: A Correction
Authors: Tse K. S. Maurice , White Mark A.
Published: March 2005

This note provides a correction to Taylor's 1988 work on the valuation of semiannual coupon bonds between interest payment dates. It shows that the discrepancy in values between Taylor's model and the standard Wall Street pricing formula is much smaller than indicated by Taylor and is unlikely to generate opportunities for arbitrage profits.
The Opportunity Cost of a Mean‐Variance Efficient Choice
Authors: Tew Bernard V. , Reid Donald W. , Witt Craig A.
Published: March 2005

The mean‐variance criterion is one of the most frequently used methods for selecting investment portfolios. Yet, because it is an approximation of an investor's maximum expected utility choice, some theoreticians and practitioners have criticized the approach. This paper examines the investment loss that different investors experience by accepting a mean‐variance efficient portfolio. Simulated security returns with extreme distributional characteristics are used to determine the extent of an investor's loss. The results indicate that even under very unreasonable investment distributional assumptions, an investor's loss by accepting a mean‐variance efficient choice rarely exceeds a small fraction of one percent per invested dollar.
Bond Yields, Ratings, and Financial Information: Evidence from Public Utility Issues
Authors: Reiter Sara A. , Ziebart David A.
Published: March 2005

This study investigates the relative roles of bond ratings and financial information in the setting of bond yields. Structural equation modeling techniques are used to learn whether ratings determine yields or whether both ratings and yields are determined by a concurrent set of economic and financial factors. Tests of alternative structural model configurations provide evidence regarding the associations between bond ratings, financial information, and bond yields. Both ratings and financial information are found to play an important role in determining bond yields. In addition, yields are consistent with the higher rating in cases of split ratings.
Valuation Effects of New Securities Issuance by Bank Holding Companies: New Evidence
Authors: Horvitz Paul M. , Lee Insup , Robertson Kerry L.
Published: March 2005

This study examines the announcement impact of bank holding company (BHC) security offerings on shareholder wealth. The results from this study regarding the effects of preferred stock, convertible debt, and straight debt issuances are largely consistent with previous studies. However, in contrast to previous studies pertaining to both BHCs and nonfinancial firms, this study does not find statistically significant negative announcement effects of common stock issues. This particular finding is consistent with the argument that an increase in the capital ratio may have a positive impact on common stock prices of BHCs under certain circumstances.
A Brief Review of Catastrophe Theory and a Test in a Corporate Failure Context
Authors: Gregory‐Allen Russell B. , Henderson Glenn V.
Published: March 2005

Catastrophe theory (CT) is a mathematical theory that attempts to describe a system exhibiting discontinuous behavior under continuous stimuli. Although CT has been used to describe corporate bankruptcy, this is an application that has not been tested. This paper reviews CT and provides such a test. We construct a time series of stock returns on companies that have filed for Chapter 11. Under certain, frequently occurring conditions, CT would predict a structural shift in firm stock returns as the data of filing is approached. Results confirm that such a shift does occur and in a way consistent with the CT prediction. Our findings both support the use of CT to describe corporate bankruptcy and raise questions about some techniques frequently used to study bankruptcies.
Optimal Asset Abandonment and Replacement: Tax and Inflation Considerations
Authors: Chen Son‐Nan
Published: March 2005

The tax and inflation effects on the abandonment and replacement policies are examined for capital assets. The tax effect is shown to defer abandonment for some classes of assets while the asset duration is shortened for others depending on the characteristic of the marginal rates of return of extending asset life. Moreover, inflation may increase or decrease the asset duration depending on the rates of inflation growth of asset nominal cash flows and abandonment value and depending on the relative benefit of asset abandonment. In addition, the Fisher hypothesis of constant real returns relative to anticipated inflation is also examined in the case of asset abandonment and replacement. The results derived for a single cycle of replacement carry over to the replacement policy in an infinite cycle of replacement.
Cross‐Hedging: Basis Risk and Choice of the Optimal Hedging Vehicle
Authors: Castelino Mark G. , Francis Jack C. , Wolf Avner
Published: March 2005

The basis between a futures contract and its underlying instrument is an important measure of the cost of using the futures contract to hedge. In a cross‐hedge, the relative size of the basis of alternative hedging vehicles often plays a decisive role in the selection of the optimal hedging vehicle. After adjusting hedge ratios for basis risk, a genuine risk‐cost trade‐off is seen in hedging 90‐day certificates of deposit with either the Treasury bill contract or the Eurodollar contract. The Eurodollar contract was not uniformly superior as generally believed.
The Impact of Bid‐Ask Prices on Market Anomalies
Authors: Branch Ben , Echevarria David P.
Published: March 2005

A substantial body of literature on security market anomalies has evolved since the articulation of the efficient markets hypothesis. These anomalies include the size, January, and weekend effects. The evidence of such anomalies has been based upon returns computed from closing prices. Although readily available, analysis of closing prices may not reflect returns obtainable by public traders utilizing market orders to execute trades. We have demonstrated elsewhere that returns computed from closing prices are biased upward compared with returns that would have resulted from using market orders. This study reexamines the evidence on two market anomalies using returns generated in a manner more consistent with the actual returns available to actual market participants.
The Differential Impact of Federal Reserve Margin Requirements on Stock Return Volatility
Authors: Kumar Raman , Ferris Stephen P. , Chance Don M.
Published: March 2005

This study examines the effect of changes in margin requirements on stock price volatility. We examine the possibility that the impact of margin requirements varies with a stock's degree of speculative interest. Using four alternative measures of speculative interest, we divide our sample into ten portfolios. We find no consistent evidence of a relationship between margin requirements and changes in volatility for any portfolio. The inconsistent and often contradictory results produced by these changes question its usefulness by Federal Reserve decision makers.
Optimal Refunding Strategies, Transaction Costs, and the Market Value of Corporate Debt
Authors: Ling David C.
Published: March 2005

The primary purpose of this paper is to consider both qualitatively and quantitatively the effects of refunding transaction costs and interest rate uncertainty on optimal refunding strategies and the market value of corporate debt. A dynamic model of corporate bond refunding with transaction costs is developed that simultaneously solves for the optimal refunding strategy, the value of the refunding call option, the value of the bond liability to the firm, and the market (investor) value of the fixed‐rate contract. We provide examples in which the price of the callable bond does exceed the call price, and we examine whether or not typical levels of refunding costs are sufficient to explain the magnitude and duration of frequently observed premiums on callable corporate bonds.
Partially Anticipated Convertible Calls
Authors: Lin Ji‐Chai , Chen K. C.
Published: March 2005

This paper derives estimators that measure the impact of foregoing an opportunity to call convertible debt and the call announcement effect on the value of the firm. The results indicate that positive abnormal returns are associated with foregoing a call, and returns are negative upon the announcement of the call. These results are consistent with Harris and Raviv's hypothesis that managers with favorable information delay their calls and will call the debt if and only if their information is unfavorable.
The Impact of Value Line Special Situations Recommendations on Stock Prices: Evidence From the Over‐the‐Counter Market
Authors: Pawlukiewicz James E. , Preece Dianna C.
Published: March 2005

The value to investors of the information provided by the Value Line Investment Service has been the subject of discussion for many years. This paper examines the information content of the recommendations made by the Value Line Special Situations Service to buy (sell) specific stock issues. The advice given by Value Line generates significant abnormal returns to shareholders near its release date. However, when the price response over longer periods is considered, the effect of the recommendations appears to be transitory. Further, there appears to be no difference in the overall price response between listed and over‐the‐counter securities.
The Asset Price Theory of Shareholder Revaluations: Tests with the Tax Reforms of the 1980s
Authors: Downs Thomas W. , Demirgures Cuneyt
Published: March 2005

A tax reform providing incentives for fixed investment may increase shareholder wealth because after‐tax cash flows on planned investment increase. Alternatively, shareholder wealth may decline because existing assets receive disadvantageous tax treatment relative to new ones and equities are largely claims on existing assets. This study tests the alternative hypothesis by predicting in a simulation model the revaluation of existing assets resulting from the 1981 and 1986 tax acts and then by comparing the predictions to stock returns data. The results reject the hypothesis that cumulative excess returns accruing because of tax reform equal the revaluation on existing assets.
An Empirical Test of Investment Restrictions and Efficiency in the High‐Yield Debt Market
Authors: Hawley Delvin D. , Walker M. Mark
Published: March 2005

The results of this study indicate that bondholders earn significant abnormal returns following upgrades from speculative to investment grade. In contrast, major downgrades and upgrades from investment grade to highquality have no effect on bondholder wealth. These results support the conclusion that investment constraints for institutional investors inhibit the price of speculativegrade bonds from rising to reflect decreases in default risk until the rating change actually occurs.
An Empirical Analysis of Stock Prices in Major Asian Markets and the United States
Authors: Chan Kam C. , Gup Benton E. , Pan Ming‐Shiun
Published: March 2005

This study uses unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States. All the stock prices are analyzed both individually and collectively to test for international market efficiency. Unit roots in stock prices are found. Pairwise and higher‐order cointegration tests indicate that there is no evidence of cointegration among the stock prices. The findings suggest that the stock prices in major Asian markets and the United States are weak‐form efficient individually and collectively in the long run. It also implies that international diversification among the markets is effective.
An Empirical Comparison of Alternative Methods for the Estimation of the Degree of Operating Leverage
Authors: Dugan Michael T. , Shriver Keith A.
Published: March 2005

Much diversity exists in the approaches used to estimate the degree of operating leverage in empirical financial research. This study analyzes and compares two techniques for the estimation of the degree of operating leverage coefficients for a sample of 245 firms in seven different industries over two alternative estimation periods. The results indicate that the O'Brien and Vanderheiden estimation technique differs significantly from the Mandelker and Rhee estimation technique. Furthermore, the O'Brien and Vanderheiden estimates appear to be more consistent with the classical ex ante model of degree of operating leverage coefficients. These results may facilitate future research on the estimation of the degree of operating leverage and on the relationship between operating leverage and systematic risk.
Agency Theory and Entry Barriers in Banking
Authors: Rose Peter S.
Published: March 2005

Agency theory suggests that, in imperfect labor and capital markets, managers will seek to maximize their own utility at the expense of corporate shareholders. Indicators of such managerial behavior may include expense preferencing in which some factor costs are elevated above optimal levels needed for efficient production or avoidance of optimal risk positions that maximize wealth opportunities for stockholders. This study of more than 6400 banks finds that recent reductions in legal entry barriers have generated results generally consistent with agency theory with a lowering of noninterest operating expenses, increased employee productivity, increased acceptance of portfolio risk, and greater dividend rates to shareholders.
An Empirical Examination of Investment Banking Reputation Measures
Authors: Carter Richard B. , Dark Frederick H.
Published: March 2005

This paper empirically examines the explanatory power of investment banking reputation measures. One of these measures, a nineteen‐tier indicator of underwriter reputation, is determined by the relative position of the underwriter's name within the tombstone announcements of security offerings. An alternative measure assigns four ranks according to the investment banking bracket of the underwriter. This “bracket” measure is considerably easier to create than the “tombstone” measure. We employ both measures in identical initial public offering empirical models and assess their relative performance. In all of the models tested, the tombstone measure appears to be superior. Moreover, we find that, unlike the bracket measure, the tombstone reputation indicator significantly explains the initial returns to initial public offerings even when a measure of ex post uncertainty is included in the model.
Management Resistance to Takeover Bids and Shareholder Response
Authors: Sinha Sidharth
Published: March 2005

This paper presents a model of management resistance to takeover bids in which there is both a managershareholder conflict of interest due to perquisite consumption and information asymmetry. The optimal response of shareholders to such resistance is then analysed. The paper highlights the role of information asymmetry and perquisite consumption in explaining the empirical evidence on takeovers and the institutional features of golden parachutes and greenmail.
The Choice Among Long‐Term Financing Instruments for Public Utilities
Authors: Chen Chao , Fanara Philip
Published: March 2005

This study examines the decision of regulated utilities to raise new financing via common stock, debt, or preferred stock offerings. We develop several logit models to test how a set of relevant variables affects the issuing choice. These variables include the level of insider ownership, regulatory climates, measures of aggregate market conditions, bankruptcy risk, deviations from the long‐and short‐term target ratios, asset composition, etc. In addition, this paper tests whether the cross‐sectional level of debt ratio is related to some of these same factors. Our findings indicate that U.S. electric utilities are not influenced by market timing when making a choice among long‐term financing instruments. However, our results do show that ownership structure variables, such as the number of directors and officers, seem to have a significant negative influence upon the choice of common stock, thus lending support to Friend and Lang's finding. In addition, capital structure seems to matter for utilities.
Risk‐Adjusted Day‐of‐the‐Week, Day‐of‐the‐Month, and Month‐of‐the‐Year Effects on Stock Indexes and Stock Index Futures
Authors: Khaksari Shahriar , Bubnys Edward L.
Published: March 2005

This study uses risk‐adjusted returns based on the Sharpe Performance Measure to evaluate the presence of three anomalies in two stock index futures, the futures of a smaller firm synthetic index, and their respective underlying spot indexes. The three anomalies are the day‐of‐the‐week, the month‐of‐the‐year, and the day‐of‐the‐month effects. Using the nonparametric Kruskal‐Wallis test, we find more evidence of day‐of‐the‐week and day‐of‐the‐month effects in futures index price behavior than in their underlying spot indexes. The January effect is found to be more pronounced for spot indexes than for stock index futures contracts. It is also more pronounced in the smaller firm synthetic index. Our results tend to disagree with efficient market proponents.
Do More Risk‐Averse Investors Have Lower Net Worth and Income?
Authors: McInish Thomas H. , Ramaswami Sridhar N. , Srivastava Rajendra K.
Published: March 2005

This study examines the relationship between attitude toward risk and both net worth and income. The data are obtained from a financial diary kept by a national, scientifically selected sample of more than 3000 households. Results show that both net worth and income are negatively related to risk aversion.
Dividend Signalling Equilibria: Quantitative Evidence From The Brussels Stock Exchange
Authors: Beer Francisca M.
Published: March 2005

The objective of this research is to document the market reaction to dividend changes on the Brussels Stock Exchange and to relate it to information releases by the firms. The results show important differences between Belgian investors' behavior and U.S. investors' behavior. On the Brussels Stock Exchange, when companies use dividends as the usual way to remunerate stockholders, the market reaction to unexpected dividend changes is weak and statistically insignificant. The market reaction to dividend initiations is also quite insignificant. However, when companies both release information regarding their activities (commercial, financial, or social information) and initiate dividends, the market reaction is comparable to what has been documented in previous U.S. studies.
Do Gold Market Returns Have Long Memory?
Authors: Cheung Yin‐Wong , Lai Kon S.
Published: March 2005

This study examines the long memory behavior in gold returns during the post‐Bretton Woods period using a new rescaled range technique. Unlike the conventional rescaled range analysis, the new rescaled range analysis is robust to short‐term dependence and conditional heteroscedasticity found in the gold data. Statistical results suggest that the long memory behavior in gold returns is rather unstable. When only few observations corresponding to major political events in the Middle East, together with the Hunts event, in late 1979 are omitted, little evidence of long memory can be found.
The Behavior of Option Implied Standard Deviations Around Merger and Acquisition Announcements
Authors: Levy Haim , Yoder James A.
Published: March 2005

This paper examines the behavior of option implied standard deviations around merger and acquisition announcements. The implied standard deviations of target firms increase significantly three days prior to the announcement. The bidding firm implied standard deviations are not affected. The analysis is extended to the equity market to determine which market reacts first to the merger or acquisition announcement. Target firm equity abnormal returns and residual variances increase significantly one and two days, respectively, prior to the announcement.
A Further Comment on the N‐Stage Discount Model and Required Return
Authors: Horvath Philip A.
Published: March 2005

This comment demonstrates that the difference between the market discount rate and the rate year required rate of return by Bower is the result of a misspecification of growth rates.
The Wealth Effects of Private Stock Placements under Regulation D
Authors: Alli Kasim L. , Thompson Donald J.
Published: March 2005

This paper examines the wealth effects associated with unregistered private common stock placements under the Regulation D exemption by a sample of exchange listed and over the counter firms. Unlike the negative abnormal returns associated with public equity offerings, private placements of common stocks under Regulation D are initially associated with significantly positive abnormal returns. However, these firms experience significant negative price effects in the two years following the private placements.
The Effect of Managerial Ownership on Stock Split‐Induced Abnormal Returns
Authors: Szewczyk Samuel H. , Tsetsekos George P.
Published: March 2005

This paper tests the proposition that split announcements are informative signals that play a greater information role for widely held firms. We present evidence for an inverse relationship between managerial ownership and the magnitude of stock split‐induced abnormal returns. After controlling for industry and firm size, we find that splitting firms have lower managerial ownership, on average, than nonsplitting firms. We also find no evidence that managers trade on inside information prior to announcing splits.
Fads and the Crash of '87
Authors: Chowdhury Mustafa , Lin Ji‐Chai
Published: March 2005

This paper examines changes in return‐generating processes before and after the crash of '87. We find that the process for daily returns of size‐sorted portfolios changed from an ARMA(1, 2) in the pre‐crash period to a MA(1) in the post‐crash period. The change is explained by a “fads” model similar to that proposed by Poterba and Summers [17]. The analysis suggests that the crash may have been related to speculative fads that prevailed prior to the crash. The fads component in stock prices then disappeared after the crash. Other possible explanations are also discussed.
Distortions in Capital Asset Acquisition and Financing under Cost‐Based Reimbursement
Authors: Trigeorgis Lenos , Brindamour Paul
Published: March 2005

The paper examines distortions in the acquisition and financing of capital assets under a cost‐based reimbursement system within an adjusted present value (APV) framework. For a not‐for‐profit (NFP) vendor the acquisition, when internally financed, is typically a negative‐NPV investment. But when financed through debt with reimbursed interest payments, the combined decision becomes worthwhile (positive APV). This can explain why NFP firms resort to substantial debt financing even though internal funds may be available and any tax benefits are absent. Policy implications and suggestions for improving unintended inequities in the system are also discussed.
Conditional Heteroskedasticity and Global Stock Return Distributions
Authors: Errunza Vihang , Hogan Kedreth , Kini Omesh , Padmanabhan Prasad
Published: March 2005

This paper investigates conditional return distribution characteristics for seven developed markets (DMs) and eight emerging markets (EMs). With the exception of Germany and Japan, the behavior of monthly returns of DM sample countries is similar to that of the U.S. In contrast, EM returns exhibit a substantially greater degree of serial correlation and a higher incidence of autoregressive conditional heteroskedasticity (ARCH) in monthly data. Aggregation of returns into two‐ and three‐month holding periods decreases the significance of the ARCH effects. However, there are cross‐sectional differences in the rate at which ARCH effects become insignificant. The findings of ARCH in monthly returns sample data is attributed to differences in the rate at which information arrives and is transmitted into prices in each market.
A Dividend Payment Effect in Stock Returns
Authors: Ogden Joseph P.
Published: March 2005

This paper presents evidence for the period 7/62‐12/89 that individual NYSE and AMEX stocks provide relatively high average excess returns on the payment dates of quarterly cash dividends and several subsequent trading days. Additional results indicate that returns during the payment period: (a) are not a manifestation of the January, monthly or dividend yield anomalies; (b) are positively related to the stock's dividend yield; and (c) are higher for firms that have dividend reinvestment plans. These findings are consistent with a tendency by stock‐holders to reinvest dividend income into the stock of the paying firm, thereby increasing demand for the stock and raising its price. Additional evidence links the returns on these days with (previously‐documented) excess returns around the ex‐dividend date.
An Empirical Examination of the Return Volatility‐Volume Relation in Related Markets: The Case of Stock and Options
Authors: Poon Percy S.
Published: March 2005

This paper empirically examines the impact of option trading on the relation between daily stock return volatility and stock trading volume. For a sample of firms for which options were newly listed on the CBOE from 1982 to 1985, the empirical evidence indicates that there is a structural shift in the relation after option trading is introduced. Also, the findings show that daily stock return volatility is significantly and positively correlated with contemporaneous option volume, but not one‐day lagged option volume. These results suggest that contemporaneous option volume may be an important variable in modelling daily stock return volatility and heteroskedasticity.
Rate Setting in the Utilities Industry: Does Size Make a Difference?
Authors: Besley Scott , Bolten Steven E.
Published: March 2005

This study provides evidence that the “size effect,”which has been investigated extensively in the literature, has not been considered by regulators in the utility rate setting process. In essence, the results indicate the rates assigned to both large and small utilities have not differed significantly in the past, statistically. However, to be consistent with the behavior observed in the competitive financial markets, the rates regulators set should be significantly higher for small utilities compared to large utilities. The fact that this was not observed might suggest inequities exist in the rate‐setting process.
The Role of the Investment Horizon in Optimal Portfolio Sequencing (An Intuitive Demonstration in Discrete Time)
Authors: Marshall John F.
Published: March 2005

This paper examines the role played by the investor's investment horizon in the choice of optimal portfolios. A complete discrete‐time, multiperiod, portfolio model is presented with a choice criterion that is consistent with the traditional utility approach but which is more amenable to a multiperiod environment. It is shown that investors should choose progressively less risky single‐period portfolios as their investment horizons grow shorter, even if they do not become more risk averse. This result holds both in the presence and in the absence of a riskless asset. The results are consistent with empirical evidence and the financial planning practice of moving investors into progressively less risky portfolios as they grow older.
Modeling International Long‐Term Interest Rates
Authors: DeGennaro Ramon P. , Kunkel Robert A. , Lee Junsoo
Published: March 2005

This study investigates the relationship among interest rates on the long‐term government bonds of five industrialized countries. Both standard and new unit root tests are applied, all of which confirm the presence of exactly one unit root. New cointegration tests are also applied to these data. In contrast to previous research on short‐term bonds, stock prices, and exchange rates, these results find little evidence of cointegration among the five long‐term interest rate series. Thus, when modeling or forecasting these central government long‐term bond yields, one may assume separate sets of fundamentals and difference the data to achieve stationarity. An error correction model may not be appropriate.
Stock Market Efficiency and the Federal Budget Deficit: Another Anomaly?
Authors: Darrat Ali F. , Brocato Joe
Published: March 2005

This paper investigates the efficiency of the U.S. stock market as it pertains to a number of major macrofinance variables that theory and empirical evidence suggest are important in rational stock pricing decisions. A multivariate vector autoregressive analysis is used to draw efficiency inferences. The estimated factor pricings are consistent with theory and previous empirical research. In addition, these results indicate that the stock market may be inefficient with respect to the federal budget deficit variable. Similar apparent inefficiency evidence is obtained for the term structure and risk premium variables. The authors cannot reject the efficiency hypothesis for industrial production, inflation, and base money. Using indirect causality tests, the authors find plausible intermediate information linkages connecting variables in the system. The term structure and risk premia variables consistently appear important as intermediate conduits through which information about other factors impact stock returns.
Risk‐Taking in the Texas S&L Industry: Charter and Ownership Effects
Authors: Barth James R. , Hudson Carl D. , Jahera John S.
Published: March 2005

This paper attempts to identify some of the factors that help explain the losses experienced by S&Ls during the 1980s. Texas institutions are the focus of this study because they account for over half of the total failure costs incurred for the entire industry during the 1980s. Differences in risk‐taking behavior by S&Ls according to both charter type and ownership type are examined. The empirical results suggest that deregulation was not the fundamental cause of the industry losses. Instead, the results indicate that the basic behavioral determinants are ownership structure and owner‐contributed equity capital.
Empirical Tests of the Pricing of Nikkei Put Warrants
Authors: Wei Jason Z.
Published: March 2005

The purpose of this study is to empirically examine the pricing of Nikkei put warrants, which are long‐term put options written on the Nikkei 225 index. Using warrants traded on the Toronto Stock Exchange, this study performs various tests on the pricing models proposed by Dravid, Richardson, and Sun [11], Reiner [24], and Wei [31]. It is found that the models tend to overprice the warrants. The overpricing, possibly caused by the omission of the credit risk and the Extraordinary Event Clause, is found to be positively related to the degree to which the warrants are in the money, the volatility level, and the trading volume.
The Impact of Investment Constraints on Portfolio Performance Measurement: The Power Utility Function Case
Authors: Gibson Rajna , Tuchschmid Nils S.
Published: March 2005

This paper examines the effect of investment constraints on performance measurement of institutionally managed funds. Assuming that these funds have a power utility function and using an optimal portfolio choice model, one can show that the Security Market Line remains a valid benchmark for these constrained funds under the perfect market assumption. Relaxing the perfect market assumption, one can prove that a non‐stationary constrained investment policy will bias traditional measures of timing ability differently across managers types. Finally, the magnitude of this bias is illustrated with a numerical example.
An Investigation of the Dynamic Relationship between Agency Theory and Dividend Policy
Authors: Moh'd Mahmoud A. , Perry Larry G. , Rimbey James N.
Published: March 2005

Agency theory posits that the dividend mechanism provides an incentive for managers to reduce the costs associated with the principal/agent relationship. Distributing resources in the form of cash dividends forces managers to seek outside capital, thus causing them to reduce agency costs as they subject themselves to the scrutiny of the capital marketplace. Under this scenario the optimum level of dividend payout is that which minimizes the agency cost structure relative to the cost of raising needed funds. A test of this theory employing time‐series cross‐sectional analysis and more direct measures of the agency cost structure shows that these tenets of agency theory may be valid. Managers do appear to adjust the dividend payout in response to the agency cost/transaction cost structure, both through time as well as across firms.
Identifying Factors Consistently Related to Value Line Earnings Predictability
Authors: Luttman Suzanne M. , Silhan Peter A.
Published: March 2005

Earnings predictability can affect investment decisions and stock prices. An important source of earnings forecasts for a wide variety of empirical studies has been the Value Line Investment Survey. The purpose of this study is to identify factors that consistently account for cross‐sectional differences in Value Line earnings predict‐ability. A multivariate model consisting of four company variables and a set of industry indicator variables is used to evaluate the intertemporal consistency of factors related to earnings predictability. Quarterly and annual forecasts are used to measure earnings forecast accuracy. The results by year indicate that one factor, earnings variability, is consistently related to earnings predict‐ability.
The Binomial Model and Risk Neutrality: Some Important Details
Authors: Nawalkha Sanjay K. , Chambers Donald R.
Published: March 2005

This paper reexamines the relationship between investors' preferences and the binomial option pricing model of Cox, Ross, and Rubinstein (CRR). It is shown that the independence of the binomial option pricing model from investors' preferences is a result of a special choice of binomial parameters made by CRR. For a more general choice of binomial parameters, risk neutrality cannot be obtained in discrete time. This analysis reveals the essential difference between the “risk neutral” valuation approach of Cox and Ross and the equivalent martingale approach of Harrison and Kreps in a discrete time framework.
Heterogeneous Expectations, Short Sales Regulation, and the Risk‐Return Relationship
Authors: L'Her Jean‐François , Suret Jean‐Marc
Published: March 2005

This paper examines, in a Canadian context, the effect of short sales regulation on the risk‐return relationship. It shows that, theoretically, the opportunity cost induced by short sales regulation is positively related to the dispersion of agents' beliefs and negatively related to the security's liquidity level. The model is tested over the sixty‐month period from January 1985 through December 1989. All the 13,079 observations are pooled into a time series cross‐sectional model. The results corroborate that a negative linear relationship links expected risky asset returns and the divergence of agents' beliefs. This negative relationship is consistent with the presence of opportunity costs resulting from short sales regulation when return beliefs are heterogeneous. However, the negative relationship between security returns and dispersion of beliefs is essentially confined to illiquid securities, that is, those monitored by a small number of analysts.
After‐Tax Bond Yields When Tax and Coupon Payments Are Not Simultaneous
Authors: Becker Michael W.
Published: March 2005

Typical after‐tax bond yield‐to‐maturity calculations do not accurately reflect the timing of tax payments for the cash basis tax payer. The best of the methods gives reasonable yield estimates when the first coupon payment date is around May 15. As payment dates vary from May 15, bond values are affected by tax deferrals relating solely to the non‐simultaneity of coupon interest and tax payments. These valuation effects, which are not measured by conventional bond models, can be significant, as demonstrated by model simulation and empirical tests which show that the bond market does price the coupon timing tax deferrals predicted by the model.
Hedging Strategies of Financial Intermediaries: Pricing Options with a Bid‐Ask Spread
Authors: Hauser Shmuel , Levy Azriel , Yaari Uzi
Published: March 2005

This paper uses a model similar to the Boyle‐Vorst and Ritchken‐Kuo arbitrage‐free models for the valuation of options with transactions costs to determine the maximum price to be charged by the financial intermediary writing an option in a non‐auction market. Earlier models are extended by recognizing that, in the presence of transactions costs, the price‐taking intermediary devising a hedging portfolio faces a tradeoff: to choose a short trading interval with small hedging errors and high transactions costs, or a long trading interval with large hedging errors and low transactions costs. The model presented here also recognizes that when transactions costs induce less frequent portfolio adjustments, investors are faced with a multinomial distribution of asset returns rather than a binomial one. The price upper bound is determined by selecting the trading frequency that will equalize the marginal gain from decreasing hedging errors and the marginal cost of transactions.
A Test for Price Pressure Effects in Tender Offer Stock Repurchases
Authors: Davidson Wallace N. , Chhachhi Indudeep , Glascock John L.
Published: March 2005

The evidence in this paper supports the hypothesis that the previously documented stock price reversal following a tender offer announcement is consistent with a price pressure caused by a temporary shift in the security's demand curve. The authors came to this conclusion by redocumenting the price reversal, by finding an increase in trading volume around the tender offer announcement and expiration, by showing the increase in volume to be larger than expected from only an information effect, and by showing that short selling activity increases after the announcement and before the expiration of the tender offer.
The Impact of Illegal Business Practice on Shareholder Returns
Authors: Reichert Alan K. , Lockett Michael , Rao Ramesh P.
Published: March 2005

Data regarding illegal firm behavior were obtained for the period 1980–1990. Using the single index market model, the study finds that public announcements of indictments for major corporate crimes have a significant and long‐term negative impact upon shareholder wealth, particularly for firms found guilty of the indictment. The results indicate that indictments of larger firms have a proportionally smaller impact on excess returns. Furthermore, indictments handed down since the Levine/Boesky scandal appear to have had a more adverse impact.
Acquisitions and the Information Environment of Firms
Authors: Bhushan Ravi , Cho Jang Y.
Published: March 2005

This paper investigates how acquisitions affect analyst following of firms. Analyst following increases as a result of a merger. However, all of that increase can be attributed to the changes in firm‐specific characteristics resulting from the merger. Changes in analyst following around mergers are positively related to changes in firm size, expenditures on R&D, and the ratio of book to the market value of equity. Finally, the relatedness of merger appears to be an important determinant of analyst following of firms engaged in acquisitions.
On Speculation, Index Futures Markets, and the Link Between Market Volatility and Investor Welfare
Authors: Subrahmanyam Avanidhar
Published: March 2005

This paper develops a trading model that incorporates informed speculators as well as investors who possess incorrect expectations about asset values. It is shown that the introduction of an index futures market, by stimulating additional misinformed speculation, increases market liquidity and adversely affects price variability and efficiency in the underlying stock markets. An analysis of the welfare of uninformed hedgers suggests that the relationship between uninformed investor welfare and two key parameters that dominate policy discussions, market liquidity and price variability, is quite tenuous.
Long‐Run Diversification Potential in Emerging Stock Markets
Authors: DeFusco Richard A. , Geppert John M. , Tsetsekos George P.
Published: March 2005

In this paper we use cointegration tests to examine the long‐run diversification potential of 13 emerging capital markets. The Johansen [18] and Johansen and Juselius [19] cointegration procedures are applied to the U.S. and 13 emerging capital markets in three geographical regions of the world. None of the three regions examined possesses cointegrated markets. The lack of cointegration indicates that the correlation between returns from each market is independent of the investment horizon Return correlations using weekly data correspond to the long‐run investment horizon correlation. Correlations among the returns from these countries are low on average and occasionally negative. The apparent independence of markets within these three emerging regions suggests that diversification across these countries is effective.
Information Pricing: The Evidence From Equity Mutual Funds
Authors: Ciccotello Conrad S. , Grant C. Terry
Published: March 2005

The theory of information pricing implies that the benefits from obtaining costly information should be offset by the costs. In the case of mutual funds, this theory suggests that trades by fund managers should take place at prices that compensate their clients for the managers' costs of becoming informed. This paper controls for risk, fund size, and age to assess the relationship of a fund's information costs to its performance. The findings show that stock funds charging the highest expenses generally earn returns insignificantly different from funds charging the lowest expenses. This lends support to the theory of information pricing. The findings are also indicative of an efficient market, given that information is costly.
The Diversification and Cost Effects of Interstate Banking
Authors: Rose Peter S.
Published: March 2005

This study examines recent interstate bank geographic diversification inside the United States. More than 80 holding companies that gradually evolved into interstate banking companies were tested for significant linkages to risk and efficiency indicators. The study finds that while geographic expansion frequently is associated with increases in risk, when banking firms were grouped by threshold levels of geographic diversification more highly diversified interstate banks appear to achieve reductions in risk exposure and operating costs. The study's results suggest the spread of interstate banking may change the industry's risk and cost profile significantly with profound implications for the future of the deposit insurance fund.
Option Delisting of Stocks That Continue Trading: An Examination of Welfare Effects
Authors: Bartunek Kenneth S.
Published: March 2005

This paper addresses the resulting effects from the delisting of options on underlying stocks that continue to trade. The evidence generally supports the argument that options in this sample are delisted as a result of financial difficulty and/or a lack of interest. An insignificant average abnormal return and a small significantly negative average standardized abnormal return are observed around the delisting date, but the average price effect is determined to be considerably less than the normal discrete trading intervals at which stocks trade on exchanges. There are no effects found on volatility measures directly attributable to option delisting.
Managerial Self‐Interest, Pension Financial Slack and Corporate Pension Funding
Authors: Datta Sudip , Iskandar‐Datta Mai E. , Zychowicz Edward J.
Published: March 2005

This paper examines the impact of managerial self‐interest on corporate pension funding decisions. It is postulated that managers with no ownership stake in the firm will have incentives to maintain financial slack in the form of excess pension funding. Pension funding slack may be viewed as a managerial perquisite that decreases the probability of necessary future debt financing. Such a strategy may increase the value of undiversified human capital to the detriment of maximizing shareholder wealth. As managerial ownership increases, the incentives to consume such a perquisite will decrease since the interests of managers and shareholders become more aligned. The results presented in this study strongly support this proposition.
Industry Structure and Ripple Effects of Bankruptcy Announcements
Authors: Cheng Louis T.W. , McDonald James E.
Published: March 2005

The market structure of an industry plays an important role in determining the stock market performance of surviving firms during intra‐industry bankruptcy announcements. On evaluating the announcement effects of a survivor sample from each of two industries with very different market structures, namely the airline industry and the railroad industry, we find that the airline sample received significant abnormal returns (positive ripple) while the railroad sample experienced significant abnormal losses (negative ripple). Furthermore, the differences of the abnormal returns from the two samples also are statistically significant. These findings demonstrate support for the market structure hypothesis (MSH), but cast doubt on the contagion effect hypothesis (CEH).