bluuebunny/crossref_metadata_2025_split huggingface dataset:
Stability of the U.S. Short‐Run Money Demand Function, 1959–81
Authors: LIN KUAN‐PIN , OH JOHN S. 
Published: April 2012

ABSTRACTStability tests are performed for the conventional U.S. money demand equation using switch regression techniques. This methodology provides for the identification of the shift point and the type of shift (abrupt or drift), and is conducive to hypothesis testing to determine the sources of the shift for the regression equation. Our findings do not support the contention that the 1974 change in money demand equation is a downward shift in the constant term, as suggested by many recent empirical money demand studies.
New Evidence That Taxes Affect the Valuation of Dividends
Authors: POTERBA JAMES M. , SUMMERS LAWRENCE H. 
Published: April 2012

ABSTRACTThis paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last 30 years. Studying the relationship between dividends and stock price movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes affect the equilibrium relationship between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium and deepen the puzzle of why firms pay dividends.
Portfolio Analysis Using Single Index, Multi‐Index, and Constant Correlation Models: A Unified Treatment
Authors: KWAN CLARENCE C. Y. 
Published: April 2012

ABSTRACTIn this study a simple common algorithm which is applicable to seven models is proposed for optimal portfolio selection disallowing short sales of risky securities. The models considered in the analysis consist of a single index model, four multi‐index models, and two constant correlation models. Unlike the previous approach, the proposed algorithm does not require explicit ranking of securities. Therefore, it is particularly useful for two multi‐index models with orthogonal indices which do not provide any ranking criterion. Also, because of its algorithmic efficiency as demonstrated in a simulation study on models with multiple groups, the approach here can enhance their usefulness in portfolio analysis.
On Testing the Arbitrage Pricing Theory: Inter‐Battery Factor Analysis
Authors: CHO D. CHINHYUNG 
Published: April 2012

ABSTRACTThis paper tests the Arbitrage Pricing Theory (APT) by estimating the factor loadings that are consistent between two industry groups of securities. One of the pitfalls in the study by Roll and Ross is that the factors estimated in one group may not be the same with the factors estimated in another group. This raises some concerns on the acceptability of their conclusions. For our study, we employ inter‐battery factor analysis which enables us to estimate factor loadings by constraining the factors to be the same between two different groups. Our results show that there seem to be five or six inter‐group common factors that generate daily returns for two industry groups of securities, and these inter‐group common factors do not seem to depend on the size of groups. Also, based on our cross‐sectional tests on the risk premia, we conclude that the APT should not be rejected.
Dividend Policy under Asymmetric Information
Authors: MILLER MERTON H. , ROCK KEVIN 
Published: April 2012

ABSTRACTWe extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the firm's managers to know more than outside investors about the true state of the firm's current earnings. The extension endogenizes the dividend (and financing) announcement effects amply documented in recent research. But once trading of shares is admitted to the model along with asymmetric information, the familiar Fisherian criterion for optimal investment becomes time inconsistent: the market's belief that the firm is following the Fisher rule creates incentives to violate the rule.We show that an informationally consistent signalling equilibrium exists under asymmetric information and the trading of shares that restores the time consistency of investment policy, but leads in general to lower levels of investment than the optimum achievable under full information and/or no trading. Contractual provisions that change the information asymmetry or the possibility of profiting from it could eliminate both the time inconsistency and the inefficiency in investment policies, but these contractual provisions too are likely to involve dead‐weight costs. Establishing which route or combination of routes serves in practice to maintain consistency remains for future research.
Dividends, Dilution, and Taxes: A Signalling Equilibrium
Authors: JOHN KOSE , WILLIAMS JOSEPH 
Published: April 2012

ABSTRACTA signalling equilibrium with taxable dividends is identified. In this equilibrium, corporate insiders with more valuable private information optimally distribute larger dividends and receive higher prices for their stock whenever the demand for cash by both their firm and its current stockholders exceeds its internal supply of cash. In equilibrium, many firms distribute dividends and simultaneously issue new stock, while other firms pay no dividends. Because dividends reveal all private information not conveyed by corporate audits, current stockholders capture in equilibrium all economic rents net of dissipative signalling costs. Both the announcement effect and the relationship between dividends and cum‐dividend market values are derived explicitly.
The Structure and Incentive Effects of Corporate Tax Liabilities
Authors: GREEN RICHARD C. , TALMOR ELI 
Published: April 2012

ABSTRACTThis paper describes situations in which tax liabilities assume the form of a negative position in a call option. This structure motivates an examination of the investment decisions of taxed corporations in the presence of risk. It is shown that the structure of the tax liability creates an incentive to underinvest in more risky projects and an incentive for conglomerate merger. These effects are then evaluated in the presence of conflicts of interest between stockholders and bondholders, and under alternative assumptions about the tax code, and about the timing of investment and financing decisions.
Asset Returns, Discount Rate Changes, and Market Efficiency
Authors: SMIRLOCK MICHAEL , YAWITZ JESS 
Published: April 2012

ABSTRACTThe primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets. The crux of this reconciliation is the distinction between “technical” discount rate changes that are endogenous and “nontechnical” changes which contain some informative policy implications. In essence, we attempt to separate expected discount rate changes from unexpected changes, or equivalently, the expected component of discount rate changes from the unexpected component. If markets are efficient, the former should have no announcement effects while the latter may be associated with an announcement effect. Accordingly, the focus of the empirical analysis is on the interaction between discount rate exogeneity, the specific monetary policy regime, and accouncement effects. In addition, we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency.
On Option Pricing Bounds
Authors: RITCHKEN PETER H. 
Published: April 2012

ABSTRACTThe purpose of this article is to compare the Perrakis and Ryan bounds of option prices in a single‐period model with option bounds derived using linear programming. It is shown that the upper bounds are identical but that the lower bounds are different. A comparison of these bounds, together with Merton's bounds and the Black‐Scholes prices in a lognormal securities market, is presented.
Managerial Incentives for Short‐term Results
Authors: NARAYANAN M. P. 
Published: April 2012

ABSTRACTOf late, concern has been expressed that American managers tend to make decisions that yield short‐term gains at the expense of the long‐term interests of the shareholders. In this paper, we have attempted to investigate managerial incentives for such decisions. We find that, when the manager has private information regarding his or her decisions, there exist situations wherein the manager has incentives to make decisions which yield short‐term profits but are not in the stockholders best interests. This incentive for suboptimal decisions arises because the manager, by taking decisions yielding short‐term profits, hopes to enhance his reputation earlier, thus boosting his wages. We also find that this incentive is inversely related to her experience, the duration of her contract, and the risk of the firm.
On the Feasibility of Automated Market Making by a Programmed Specialist
Authors: HAKANSSON NILS H. , BEJA AVRAHAM , KALE JIVENDRA 
Published: April 2012

ABSTRACTSecurities trading is accomplished through the execution of orders. Admissible orders (e.g., market orders, limit orders) give rise to discontinuous aggregate demand functions, composed of many “steps.” Demand smoothing, or the balancing of excesses due to such discontinuities via intervention, is one of the most basic functions that could be assigned to a “specialist.” When the specialist's “affirmative obligation” is fully specified, his or her activity can in principle be automated. This paper is an attempt to assess, via simulation, some of the ramifications of using a “programmed specialist,” whose automated market making is limited to demand smoothing. A number of alternative rules of operation are simulated. Several of the rules performed well, especially the extremely simple rule that calls for the (computerized) specialist to minimize new absolute share holdings in each security at each trading point via “total” (as opposed to “local”) demand smoothing. Our results indicate that the underlying costs of demand smoothing are on the order of a fraction of a penny per share traded even in relatively thin markets.
Capital Asset Pricing Compatible with Observed Market Value Weights
Authors: BEST MICHAEL J. , GRAUER ROBERT R. 
Published: April 2012

ABSTRACTWe show that the set of expected return vectors, for which an observed portfolio is mean variance (MV) efficient, is a two‐parameter family. We identify ten ways to specify the time series behavior of the two parameters; the result highlights a number of inconsistencies involved in MV modelling. For each of the cases, it permits the inference of the time series of expected return vectors, as well as all the other Capital Asset Pricing Model (CAPM) variables, compatible with a known covariance matrix and the observed time series of market value weights. The empirical work shows that there are substantial case‐to‐case differences in the time series of mean vectors and many of them are quite different from the constant mean vector envisioned in tests of the CAPM.
International Asset Pricing under Mild Segmentation: Theory and Test
Authors: ERRUNZA VIHANG , LOSQ ETIENNE 
Published: April 2012

ABSTRACTThis paper conducts a theoretical and empirical investigation of the pricing (and portfolio) implications of investment barriers in the context of international capital markets. The postulated market structure—labelled “mildly segmented”—leads to the existence of “super” risk premiums for a subset of securities and to a breakdown of the standard separation result. The empirical study uses an extended data base including LDC markets and provides tentative support for the mild segmentation hypothesis.
An Investigation of Commodity Futures Prices Using the Consumption‐Based Intertemporal Capital Asset Pricing Model
Authors: JAGANNATHAN RAVI 
Published: April 2012

ABSTRACTIn this paper we extend the multigood futures pricing model of Grauer and Litzenberger [9] to a dynamic discrete time setting. We then test the model using data on futures prices for corn, wheat, and soybeans. The parameter estimates we obtain are similar to those obtained by other researchers using stock return data. The model itself is rejected and we offer some suggestions as to which assumption may be violated. We also give an interpretation to the Hansen‐Singleton nonlinear instrumental variables estimation technique used in our empirical work.
Returns to Speculators and the Theory of Normal Backwardation
Authors: CHANG ERIC C. 
Published: April 2012

ABSTRACTA nonparametric statistical procedure is employed to examine the returns to speculators in wheat, corn, and soybeans futures markets. We find that the theory of normal backwardation is supported. Moreover, the presence of the risk premiums to speculators tends to be more prominent in recent years than in earlier years. We also find that large wheat speculators as a whole possessed some superior forecasting ability. The evidence is inconsistent with the hypothesis that commodity futures prices are unbiased estimates of the corresponding future spot prices.
The Effect of Voluntary Sell‐off Announcements on Shareholder Wealth
Authors: JAIN PREM C. 
Published: April 2012

ABSTRACTSell‐off activities arise when a firm sells part of its assets (e.g., a segment, a division, etc.) but continues to exist in essentially the same form. This study investigates the effect of voluntary sell‐offs on stock returns. From a sample of over 1000 sell‐off events (first public announcements), the evidence shows that both sellers and buyers earn significant positive excess returns from these transactions. The excess returns earned by buyers are smaller than those earned by sellers. There is also evidence that sell‐off announcements are preceded by a period of significant negative returns for the sellers which suggests that the sellers, on average, performed poorly prior to their sell‐off activities.
Bank Funding Risks, Risk Aversion, and the Choice of Futures Hedging Instrument
Authors: KOPPENHAVER G. D. 
Published: April 2012

ABSTRACTCurrently, theories of financial futures hedging are based on either a portfolio‐choice approach or a duration approach. This article presents an alternative: a firm‐theoretic model of bank behavior with financial futures. Assuming the bank is uncertain about cash CD interest rates and the quantity of CDs it needs in the future, expressions for the optimal futures hedge are derived under constant absolute risk aversion and constant relative risk aversion. The performance of these two strategies is estimated from 1981–1983 using either the recently developed CD futures contract or the T‐Bill futures contract. These results are also compared with the performance of a portfolio‐choice strategy and a routine hedging strategy. The analysis indicates that the CD futures market can serve a hedging purpose that is not served by the previously established T‐Bill futures market.
Marginal Tax Rates: Evidence from Nontaxable Corporate Bonds: A Note
Authors: ANG JAMES , PETERSON DAVID , PETERSON PAMELA 
Published: April 2012

ABSTRACTThis study offers an alternative method of calculating marginal personal tax rates through the pairing of nontaxable (industrial development and pollution control) and taxable corporate bonds. This procedure is shown to produce matched bond pairs that are comparable. Two hundred pairs of bonds are examined from the second quarter of 1973 through the second quarter of 1983. Testing of the marginal tax rate relationships indicates that the marginal personal tax rate is less than the corporate statutory tax rate.
Personal Income Taxes and the January Effect: Small Firm Stock Returns Before the War Revenue Act of 1917: A Note
Authors: SCHULTZ PAUL 
Published: April 2012

ABSTRACTThis paper tests the tax explanation of the January effect by examining small firm stock returns before the War Revenue Act of 1917. No evidence of a turn‐of‐the‐year effect is found. This paper also extends previous authors' work on the subject to 1918–29. A January effect is found during that period.
The Week‐End Effect in Common Stock Returns: The International Evidence
Authors: JAFFE JEFFREY , WESTERFIELD RANDOLPH 
Published: April 2012

ABSTRACTThis paper examines the daily stock market returns for four foreign countries. We find a so‐called “week‐end effect” in each country. In addition, the lowest mean returns for the Japanese and Australian stock markets occur on Tuesday.The remainder of the paper answers four questions. Are seasonal patterns in foreign stock markets independent of those previously reported in the U.S.? Do Japan and Australia exhibit a seasonal one day out of phase due to different time zones? Do settlement procedures across countries bias week‐end effects? Does the seasonal pattern in foreign exchange offset the week‐end effect in stocks for Americans investing overseas?
Nonparametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 through August 31, 1978
Authors: RUBINSTEIN MARK 
Published: April 2012

ABSTRACTThe tests reported here differ in several ways from those of most other papers testing option pricing models: an extremely large sample of observations of both trades and bid‐ask quotes is examined, careful consideration is given to discarding misleading records, nonparametric rather than parametric statistical tests are used, reported results are not sensitive to measurement of stock volatility, special care is taken to incorporate the effects of dividends and early exercise, a simple method is developed to test several option pricing formulas simultaneously, and the statistical significance and consistency across subsamples of the most important reported results are unusually high. The three key results are: (1) short‐maturity out‐of‐the‐money calls are priced significantly higher relative to other calls than the Black‐Scholes model would predict, (2) striking price biases relative to the Black‐Scholes model are also statistically significant but have reversed themselves after long periods of time, and (3) no single option pricing model currently developed seems likely to explain this reversal.
On the Interaction of Real and Financial Decisions of the Firm Under Uncertainty
Authors: DOTAN AMIHUD , RAVID S. ABRAHAM 
Published: April 2012

ABSTRACTThis study analyzes the interaction between the optimal level of investment and debt financing. For this purpose, a model is structured in which a firm, facing an uncertain price, has to decide on its optimal level of investment and debt. The amount of investment sets a limit on output whose optimal level is determined after price is realized. The debt involved is risky (there exists a possibility of bankruptcy).The analysis proves that investment and its optimal financing have to be simultaneously determined and that a negative relationship exists between operating and financial leverage. We also demonstrate that as the tax rate increases, optimal capacity decreases and optimal leverage increases. An analysis of the impact of changes in the expected price shows that under some conditions, an increase in expected price would lead to an increase in optimal investment (firm size) and a decrease in optimal debt.
On the Theory of Rational Insurance Purchasing: A Note
Authors: BRIYS ERIC P. , LOUBERGE HENRI 
Published: April 2012

ABSTRACTThe authors consider the optimal amount of insurance purchased by an individual who behaves according to the Hurwicz criterion of choice under uncertainty. Their results are compared with earlier results obtained in alternative frameworks (expected utility maximization and Savage's regret criterion). It is shown that a positive amount deductible is often suboptimal.
Debt and Taxes and Uncertainty
Authors: ROSS STEPHEN A. 
Published: April 2012

ABSTRACTWith a graduated personal tax schedule, Miller showed that there could be an equilibrium debt supply for the corporate sector as a whole. In the presence of uncertainty there is also a unique debt/equity ratio for each individual firm, and this ratio is related to the firm's operational risk characteristics. However, if firms merge and spin off in response to tax incentives, the identity of firms is ambiguous and only the corporate sector is a meaningful construct. These arguments are developed in both discrete and continuous models that employ extensions of the arbitrage‐free pricing theory.
An Unbiased Reexamination of Stock Market Volatility
Authors: MANKIW N. GREGORY , ROMER DAVID , SHAPIRO MATTHEW D. 
Published: April 2012

ABSTRACTRecent work demonstrates serious statistical problems with standard volatility tests. This paper proposes new tests that are unbiased in small samples and that do not require assumptions of stationarity. The new tests continue to find evidence against the model positing rational expectations and a constant required rate of return on equity.
The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence
Authors: SHEFRIN HERSH , STATMAN MEIR 
Published: April 2012

ABSTRACTOne of the most significant and unique features in Kahneman and Tversky's approach to choice under uncertainty is aversion to loss realization. This paper is concerned with two aspects of this feature. First, we place this behavior pattern into a wider theoretical framework concerning a general disposition to sell winners too early and hold losers too long. This framework includes other elements, namely mental accounting, regret aversion, self‐control, and tax considerations. Second, we discuss evidence which suggests that tax considerations alone cannot explain the observed patterns of loss and gain realization, and that the patterns are consistent with a combined effect of tax considerations and the three other elements of our framework. We also show that the concentration of loss realizations in December is not consistent with fully rational behavior, but is consistent with our theory.
Determinants of Corporate Leasing Policy
Authors: SMITH CLIFFORD W. , WAKEMAN L. MACDONALD 
Published: April 2012

ABSTRACTThe existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax‐related incentives for corporate leasing policy. Our analysis suggests that taxes are important in identifying potential lessees and lessors, but are less important in identifying the specific assets leased. We provide a unified analysis of the various incentives affecting the lease‐versus‐purchase decision. We then show how these incentives explain the use of contractual provisions such as maintenance clauses, deposits, options to purchase the asset, and metering.
The Usefulness of the Wind‐Up Measure of Pension Liabilities: A Labor Market Perspective
Authors: PESANDO JAMES E. 
Published: April 2012

ABSTRACTFinancial economists have long favored the use of a wind‐up measure of the firm's pension liabilities. Yet the pension liabilities of the firm also represent the pension wealth of its workers. It is reasonable to presume that workers and shareholders have a common view of the pension contract. If the wind‐up measure depicts the true pension liabilities of the firm, then the wage concession granted by its workers must reflect the fact that the firm may choose to terminate the plan at any time. Data on the wage‐service characteristics of the membership of a sample of final earnings plans in Canada suggest, contrary to the implications of the wind‐up measure, that workers' wages do not internalize accruing pension benefits on a year‐to‐year basis. Instead, the data suggest that pension plans may be a vehicle through which a significant portion of the total compensation of individual employees is deferred until their later work years, and that the wind‐up measure may well understate the pension liabilities of an on‐going firm.