bluuebunny/crossref_metadata_2025_split huggingface dataset:
Order Arrival, Quote Behavior, and the Return‐Generating Process
Authors: HASBROUCK JOEL , HO THOMAS S. Y. 
Published: April 2012

ABSTRACTThis paper establishes three empirical results. We find positive autocorrelation in actual intra‐day stock returns, in intra‐day returns computed from quote midpoints, and in the arrival of buy and sell orders. We present a model of return generation that incorporates these features via lagged adjustment of the limit‐order price and positive dependence in bid and ask transactions. The return model is observationally equivalent to an ARMA process, which is consistent with the observed return behavior.
Arbitrage, Continuous Trading, and Margin Requirements
Authors: HEATH DAVID C. , JARROW ROBERT A. 
Published: April 2012

ABSTRACTThis paper studies the impact that margin requirements have on both the existence of arbitrage opportunities and the valuation of call options. In the context of the Black‐Scholes economy, margin restrictions are shown to exclude continuous‐trading arbitrage opportunities and, with two additional hypotheses, still to allow the Black‐Scholes call model to apply. The Black‐Scholes economy consists of a continuously traded stock with a price process that follows a geometric Brownian motion and a continuously traded bond with a price process that is deterministic.
Efficient Financing under Asymmetric Information
Authors: BRENNAN MICHAEL , KRAUS ALAN 
Published: April 2012

ABSTRACTThis paper characterizes the conditions under which the adverse‐selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first‐degree‐stochastic‐dominance or a mean‐preserving‐spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues.
Debt Management under Corporate and Personal Taxation
Authors: MAUER DAVID C. , LEWELLEN WILBUR G. 
Published: April 2012

ABSTRACTThe presence of long‐term debt in a corporation's capital structure is shown to give rise to a valuable tax‐timing option that can be exercised by the firm on behalf of its shareholders. This option, which is not available if the firm is fully equity financed, implies that leverage will have a positive tax effect on total firm value even if there is no such effect associated with the tax deductibility of the coupon interest payments on debt. The more volatile interest rates and bond prices are, the more valuable the tax‐timing option and the larger the favorable impact of debt on shareholder wealth.
Further Evidence On Investor Overreaction and Stock Market Seasonality
Authors: De BONDT WERNER F. M. , THALER RICHARD H. 
Published: April 2012

ABSTRACTIn a previous paper, we found systematic price reversals for stocks that experience extreme long‐term gains or losses: Past losers significantly outperform past winners. We interpreted this finding as consistent with the behavioral hypothesis of investor overreaction. In this follow‐up paper, additional evidence is reported that supports the overreaction hypothesis and that is inconsistent with two alternative hypotheses based on firm size and differences in risk, as measured by CAPM‐betas. The seasonal pattern of returns is also examined. Excess returns in January are related to both short‐term and long‐term past performance, as well as to the previous year market return.
Credit Granting: A Comparative Analysis of Classification Procedures
Authors: SRINIVASAN VENKAT , KIM YONG H. 
Published: April 2012

ABSTRACTFinancial classification issues, and particularly the financial distress problem, continue to be subject to vigorous investigation. The corporate credit granting process has not received as much attention in the literature. This paper examines the relative effectiveness of parametric, nonparametric and judgemental classification procedures on a sample of corporate credit data. The judgemental model is based on the Analytic Hierarchy Process. Evidence indicates that (nonparametric) recursive partitioning methods provide greater information than simultaneous partitioning procedures. The judgemental model is found to perform as well as statistical models. A complementary relationship is proposed between the statistical and the judgemental models as an effective paradigm for granting credit.
Gains from International Diversification: 1968–85 Returns on Portfolios of Stocks and Bonds
Authors: GRAUER ROBERT R. , HAKANSSON NILS H. 
Published: April 2012

ABSTRACTThis paper applies the multi‐period investment model to a universe of international securities on the basis of the simple probability assessment approach. Our principal findings are: 1) the gains from including non‐U.S. asset categories in the universe were remarkably large (in some cases statistically significant), especially for the highly risk‐averse strategies, 2) the gains from removing the no leverage constraint were more substantial than they were in the absence of non‐U.S. securities, and 3) there is strong evidence of market segmentation in that the optimal levels of investment in U.S. securities were mostly zero in the presence of the non‐U.S. asset categories.
The Determinants of Capital Structure Choice
Authors: TITMAN SHERIDAN , WESSELS ROBERTO 
Published: April 2012

ABSTRACTThis paper analyzes the explanatory power of some of the recent theories of optimal capital structure. The study extends empirical work on capital structure theory in three ways. First, it examines a much broader set of capital structure theories, many of which have not previously been analyzed empirically. Second, since the theories have different empirical implications in regard to different types of debt instruments, the authors analyze measures of short‐term, long‐term, and convertible debt rather than an aggregate measure of total debt. Third, the study uses a factor‐analytic technique that mitigates the measurement problems encountered when working with proxy variables.
A Simple Algorithm for the Portfolio Selection Problem
Authors: LEWIS ALAN L. 
Published: April 2012

ABSTRACTThe author presents a rapidly convergent algorithm to solve the general portfolio problem of maximizing concave utility functions subject to linear constraints. The algorithm is based on an iterative use of the Markowitz critical line method for solving quadratic programs. A simple example, taken from the theory of state‐contingent claims, is worked out in detail. For technical convergence results, the reader is referred to the appropriate mathematical programming literature.
On the Optimal Hedge of a Nontraded Cash Position
Authors: ADLER MICHAEL , DETEMPLE JÉRÔME B. 
Published: April 2012

ABSTRACTIn this paper, we focus on the optimal demand for futures contracts by an investor with a logarithmic utility function who attempts to hedge a nontraded cash position. When the analysis is conducted in the “cash‐commodity‐price” space, we show that the value function associated with the Bernoulli investor program is not additively separable, thus suggesting that this investor hedges against shifts in the opportunity set as represented by the commodity price. By establishing the equivalence between the cash formulation of the problem and the wealth formulation, we are able to analyze the problem in the “wealth‐commodity‐price” space. In this space, we show the additive separability of the value function when the futures settlement price process is perfectly locally correlated with the commodity price process. The demand for futures in this instance is composed of (a) a mean‐variance term and (b) a minimum‐variance component that is a classic feature of models with nontraded assets. Since the first‐best (nonmyopic) optimum is attained, however, the deviation from a mean‐variance demand should not be interpreted as the expression of a nonmyopic behavior but rather as an attempt to restore a first‐best optimum. On the other hand, when the correlation between the futures price and the underlying commodity price is imperfect, in general, the value function does not separate additively, the first‐best solution cannot be attained, and the optimal futures trading strategy involves a hedging term against shifts in the opportunity set.
Anatomy of Initial Public Offerings of Common Stock
Authors: TINIÇ SEHA M. 
Published: April 2012

ABSTRACTInitial public offerings of common stocks (IPOs) are typically underpriced. In this paper, the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers. The empirical results based on samples of IPOs that were brought to the market before and after the Securities Act of 1933 provide considerable support for the implicit insurance hypothesis. Specifically, gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post‐1933 era.
The Implications of Nonmarketable Income for Consumption‐Based Models of Asset Pricing
Authors: BROWN DAVID P. 
Published: April 2012

ABSTRACTA new representation of nonmarketable (NM) income is introduced in this essay. Using this representation and continuous trading, there exists a set of individuals who do not participate in the asset market and who consume at the rate of nonmarketable income derived from human capital. Because these individuals remain nonparticipants for a range of stochastic processes governing the NM income, consumption betas are not generally unique in value and the consumption‐based CAPM (CCAPM) does not obtain. However, the intertemporal CAPM (ICAPM) of Merton remains valid.
Was It Real? The Exchange Rate‐Interest Differential Relation over the Modern Floating‐Rate Period
Authors: MEESE RICHARD , ROGOFP KENNETH 
Published: April 2012

ABSTRACTIn this paper, we explore the relationship between real exchange rates and real interest rate differentials in the United States, Germany, Japan, and the United Kingdom. Contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant, we find little evidence of a stable relationship between real interest rates and real exchange rates. We consider both in‐sample and out‐of‐sample tests. One hypothesis that is consistent with our findings is that real disturbances (such as productivity shocks) may be a major source of exchange rate volatility.
Firm Characteristics, Unanticipated Inflation, and Stock Returns
Authors: PEARCE DOUGLAS K. , ROLEY V. VANCE 
Published: April 2012

ABSTRACTThis paper re‐examines the effects of nominal contracts on the relationship between unanticipated inflation and an individual stock's rate of return. This study differs in three main ways from previous research. First, announced inflation data are used to examine the effects of unanticipated inflation. Second, a different specification is used to obtain more efficient estimates. Third, additional nominal contracts are considered. The empirical results indicate that time‐varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock's rate of return. A firm's debt‐equity ratio appears to be particularly important in determining the response.
An Empirical Test of the Impact of Managerial Self‐Interest on Corporate Capital Structure
Authors: FRIEND IRWIN , LANG LARRY H. P. 
Published: April 2012

ABSTRACTThis paper provides a test of whether capital structure decisions are at least in part motivated by managerial self‐interest. It is shown that the debt ratio is negatively related to management's shareholding, reflecting the greater nondiversifiable risk of debt to management than to public investors for maintaining a low debt ratio. Unless there is a nonmanagerial principal stockholder, no substantial increase of debt can be realized, which may suggest that the existence of large nonmanagerial stockholders might make the interests of managers and public investors coincide.
The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage
Authors: DAMMON ROBERT M. , SENBET LEMMA W. 
Published: April 2012

ABSTRACTThis paper provides an analysis of the effect of corporate and personal taxes on the firm's optimal investment and financing decisions under uncertainty. It extends the DeAngelo and Masulis capital structure model by endogenizing the firm's investment decision. The authors' results indicate that, when investment is allowed to adjust optimally, the existing predictions about the relationship between investment‐related and debt‐related tax shields must be modified. In particular, the authors show that increases in investment‐related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level. In cross‐sectional analysis, firms with higher investment‐related tax shields (normalized by expected earnings) need not have lower debt‐related tax shields (normalized by expected earnings) unless all firms utilize the same production technology. Differences in production technologies across firms may thus explain why the empirical results of recent cross‐sectional studies have not conformed to the predictions of DeAngelo and Masulis.
Loan Sales and the Cost of Bank Capital
Authors: PENNACCHI GEORGE G. 
Published: April 2012

ABSTRACTThis paper considers a model where banks may improve the returns on loans by monitoring borrowers. Bank regulation, together with competitive deposit and equity financing, can give banks an incentive to sell loans, but the extent of their loan selling is limited by a moral‐hazard problem. A solution is given for the optimal design of the bank‐loan buyer contract that alleviates this moral‐hazard problem. An explanation is also given as to why some banks might buy loans and why loan sales volume has recently increased.
A Generalized Econometric Model and Tests of a Signalling Hypothesis with Two Discrete Signals
Authors: ACHARYA* SANKARSHAN 
Published: April 2012

ABSTRACTTo test the major prediction of a signalling hypothesis‐that the market price is monotonic in the signal‐the price response to the signal must be measured. Since a signal is an outcome of a rational decision rule of the signaller, the market can infer the true type of the signaller from the signal. This necessitates estimation of the price response to the signal, conditional on the rational decision rule. Thus, the empirical models (e.g., event studies in corporate finance) that estimate the market price responses to signals without conditioning on the rational decision rules are misspecified if viewed as tests of the prediction of a signalling hypothesis. This paper builds a generalized econometric model with two possible discrete signals, derives the rational decision rules, presents a simple estimator of the price response to a signal, and illustrates its use in testing a recently expounded hypothesis that firms signal their true value by forcing or not forcing an outstanding convertible bond.
From T‐Bills to Common Stocks: Investigating the Generality of Intra‐Week Return Seasonality
Authors: FLANNERY MARK J. , PROTOPAPADAKIS ARIS A. 
Published: April 2012

ABSTRACTThe authors investigate the extent to which intra‐week seasonality still exists and whether its pattern is uniform across three stock indices and Treasury bonds with seven different maturities. They find that intra‐week seasonality continues to be significant and that its pattern is not uniform, either between the stock indices and the Treasury bonds or even among the bonds alone. A pattern shared by stocks and bonds is that Monday returns become increasingly negative with maturity. These findings suggest that neither institutional nor general‐equilibriumex planations by themselves can explain the pattern of intra‐week seasonality in securities markets.
Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence
Authors: BHANDARI LAXMI CHAND 
Published: April 2012

ABSTRACTThe expected common stock returns are positively related to the ratio of debt (noncommon equity liabilities) to equity, controlling for the beta and firm size and including as well as excluding January, though the relation is much larger in January. This relationship is not sensitive to variations in the market proxy, estimation technique, etc. The evidence suggests that the “premium” associated with the debt/equity ratio is not likely to be just some kind of “risk premium”.
R2
Authors: ROLL RICHARD 
Published: April 2012

ABSTRACTEven with hindsight, the ability to explain stock price changes is modest. s were calculated for the returns of large stocks as explained by systematic economic influences, by the returns on other stocks in the same industry, and by public firm‐specific news events. The average adjusted is only about .35 with monthly data and .20 with daily data. There is little relation between explanatory power and either the firm's size or its industry. There is little improvement in from eliminating all dates surrounding news reports in the financial press. However, the sample kurtosis is quite different when such news events are eliminated, thereby revealing a mixture of return distributions. Non‐news dates also indicate the presence of a distributional mixture, perhaps due to traders acting on private information.
Corporate Finance and Corporate Governance
Authors: WILLIAMSON OLIVER E. 
Published: April 2012

ABSTRACTA combined treatment of corporate finance and corporate governance is herein proposed. Debt and equity are treated not mainly as alternative financial instruments, but rather as alternative governance structures. Debt governance works mainly out of rules, while equity governance allows much greater discretion. A project‐financing approach is adopted. I argue that whether a project should be financed by debt or by equity depends principally on the characteristics of the assets. Transaction‐cost reasoning supports the use of debt (rules) to finance redeployable assets, while non‐redeployable assets are financed by equity (discretion). Experiences with leasing and leveraged buyouts are used to illustrate the argument. The article also compares and contrasts the transaction‐cost approach with the agency approach to the study of economic organization.
Liquidity and Market Structure
Authors: GROSSMAN SANFORD J. , MILLER MERTON H. 
Published: April 2012

ABSTRACTMarket liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determines the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.
Information and Volatility: The No‐Arbitrage Martingale Approach to Timing and Resolution Irrelevancy
Authors: ROSS STEPHEN A. 
Published: April 2012

ABSTRACTThe no‐arbitrage martingale analysis is used to study the effect on asset prices of changes in the rate of information flow. The analysis is first used to develop some simple tools for asset pricing in a continuous‐time setting. These tools are then applied to determine the effect of information on prices and price volatility, to extend Samuelson's theorem on prices fluctuating randomly, and to study the impact on prices of the resolution of uncertainty. The conditions under which uncertainty resolution is irrelevant for asset pricing are shown to be similar to those which support the MM irrelevance theorems.
Preemptive Bidding and the Role of the Medium of Exchange in Acquisitions
Authors: FISHMAN MICHAEL J. 
Published: April 2012

ABSTRACTThe medium of exchange in acquisitions is studied in a model where (i) bidders' offers bring forth potential competition and (ii) targets and bidders are asymmetrically informed. In equilibrium, both securities and cash offers are observed. Securities have the advantage of inducing target management to make an efficient accept/reject decision. Cash has the advantage of serving, in equilibrium, to “preempt” competition by signaling a high valuation for the target. Implications concerning the medium of exchange of an offer, the probability of acceptance, the probability of competing bids, expected profits, and the costs of bidders are derived.
Inferring the Components of the Bid‐Ask Spread: Theory and Empirical Tests
Authors: STOLL HANS R. 
Published: April 2012

ABSTRACTThe relation between the square of the quoted bid‐ask spread and two serial covariances—the serial covariance of transaction returns and the serial covariance of quoted returns—is modeled as a function of the probability of a price reversal, π, and the magnitude of a price change, ∂, where ∂ is stated as a fraction of the quoted spread. Different models of the spread are contrasted in terms of the parameters, π and ∂. Using data on the transaction prices and price quotations for NASDAQ/NMS stocks, π and ∂ are estimated and the relative importance of the components of the quoted spread—adverse information costs, order processing costs, and inventory holding costs—is determined.
Order Imbalances and Stock Price Movements on October 19 and 20, 1987
Authors: BLUME MARSHALL E. , MACKINLAY A. CRAIG , TERKER BRUCE 
Published: April 2012

ABSTRACTOn October 19, 1987, NYSE stocks in the S&P index declined seven percentage points more than NYSE stocks not in this index. In the first hour of trading on October 20, the S&P stocks virtually recovered to the level of the non‐S&P stocks. There is a strong relation between order imbalances and stock price movements, both in analyses of time series and cross‐sections. Thus, in addition to the breakdown in the linkage between future prices and the spot index on these two days, there were also breakdowns in the linkage among NYSE stocks.
Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets
Authors: GULTEKIN MUSTAFA N. , GULTEKIN N. BULENT , PENATI ALESSANDRO 
Published: April 2012

ABSTRACTThe paper focuses on two countries, Japan and the U.S., to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using multifactor asset pricing models, we show that the price of risk in the U.S. and Japanese stock markets was different before, but not after, the liberalization. This evidence supports the view that governments are the source of international capital market segmentation.
Insider Trading, Ownership Structure, and the Market Assessment of Corporate Sell‐Offs
Authors: HIRSCHEY MARK , ZAIMA JANIS K. 
Published: April 2012

ABSTRACTThis paper finds that the generally favorable assessment of corporate sell‐off decisions is most apparent for closely held firms where insider net‐buy activity is prevalent during the prior six‐month period. This suggests that insider trader activity and ownership structure information are used by the market in the characterization of sell‐off decisions as favorable or unfavorable for investors.