bluuebunny/crossref_metadata_2025_split huggingface dataset:
Returns and Volatility of Low‐Grade Bonds 1977–1989
Authors: BLUME MARSHALL E. , KEIM DONALD B. , PATEL SANDEEP A. 
Published: April 2012

ABSTRACTThis paper examines the risks and returns of long‐term low‐grade bonds for the period 1977–1989. We find: (1) low‐grade bonds realized higher returns than higher‐grade bonds and lower returns than common stocks, and low‐grade bonds exhibited less volatility than higher‐grade bonds due to their call features and high coupons; (2) there is no relation between the age of low‐grade bonds and their realized returns; cyclical factors explain much of the observed relation between default rates and bond age; and (3) low‐grade bonds behave like both bonds and stocks. Despite this complexity there is no evidence that low‐grade bonds are systematically over‐ or under‐priced.
After‐Hours Stock Prices and Post‐Crash Hangovers
Authors: NEUMARK DAVID , TINSLEY P. A. , TOSINI SUZANNE 
Published: April 2012

ABSTRACTAfter‐hours pricing in foreign equity markets of multiple‐listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in after‐hours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in cross‐market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time‐varying share price volatility.
The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual‐Class British Investment Trusts
Authors: ANG JAMES S. , BLACKWELL DAVID W. , MEGGINSON WILLIAM L. 
Published: April 2012

ABSTRACTWe provide evidence that taxes affect equity valuation by studying British investment trusts having otherwise identical classes of cash‐ and stock‐dividend‐paying shares outstanding. We study 1969–1982, a period in which there were two dramatic changes in tax policy. We find that stock‐dividend shares, which are convertible into cash‐dividend shares, sell at premiums when the tax system favors capital gains and at discounts when the tax advantage of capital gains is reduced. After the 1975 elimination of the tax advantage to stock‐dividend shares, we observe that investors convert virtually all stock‐dividend shares into cash‐dividend shares.
Volatility increases Subsequent to NYSE and AMEX Stock Splits
Authors: DUBOFSKY DAVID A. 
Published: April 2012

ABSTRACTThe post‐split increase in daily returns volatility is less for AMEX stocks than for NYSE stocks. The exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered. Furthermore, when measured on a weekly basis, there is no increase in AMEX stocks' returns volatility. These results suggest that measurement errors created by bid‐ask spreads and the 1/8 effect, and also one or more of the elements that make the NYSE different from the AMEX, explain why the estimated volatility of daily stock returns increases after the ex split date.
Stock and Compensation*
Authors: SCHOLES MYRON S. 
Published: April 2012

ABSTRACTCompensation planning within firms creates important corporate financial problems. Theoretical models and empirical tests of hypotheses in this area should play a much larger role than currently in the modern theory of corporate finance. Employees fund a large proportion of their firm's activities through deferred compensation arrangements tied to the performance of their company. These arrangements are generally put in place for incentive reasons, to align the interests of employees more closely with those of shareholders. Moreover, tax rules encourage or discourage these arrangements at various times. Currently, both tax rules and incentive considerations encourage stock buyback programs to fund deferred compensation arrangements. Prior to the 1980s, however, tax rules favored funding in other than company stock, implying that employees likely held company stock for incentive and not for tax reasons during this time period.
Negotiated Block Trades and Corporate Control
Authors: BARCLAY MICHAEL J. , HOLDERNESS CLIFFORD G. 
Published: April 2012

ABSTRACTWe identify negotiated trades of large‐percentage blocks of stock as corporate control transactions. When a block trades and the firm is not fully acquired, cumulative abnormal returns average 5.6%, and 33% of the chief executives are replaced within a year. Stock‐price increases are larger when control passes to the new blockholder, when management does not resist the blockholder's effort to influence corporate policy, and when the block purchaser eventually fully acquires the firm. These findings suggest that the specific skills and expertise of blockholders, and not just the concentration of ownership, are important determinants of firm value.
The Crash of ʼ87: Was It Expected? The Evidence from Options Markets
Authors: BATES DAVID S. 
Published: April 2012

ABSTRACTTransactions prices of S&P 500 futures options over 1985‐1987 are examined for evidence of expectations prior to October 1987 of an impending stock market crash. First, it is shown that out‐of‐the‐money puts became unusually expensive during the year preceding the crash. Second, a model is derived for pricing American options on jump‐diffusion processes with systematic jump risk. The jump‐diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during October 1986 to August 1987. Both approaches indicate no strong crash fears during the 2 months immediately preceding the crash.
The Relative Signalling Power of Dutch‐Auction and Fixed‐Price Self‐Tender Offers and Open‐Market Share Repurchases
Authors: COMMENT ROBERT , JARRELL GREGG A. 
Published: April 2012

ABSTRACTWe compare three forms of common stock repurchases. Dutch‐auction self‐tender offers and open‐market share repurchase programs are weaker signals of stock undervaluation than fixed‐price self‐tender offers. The price increase from buyback announcements is greater when insider wealth is at risk, greater following negative net‐of‐market stock returns, and unrelated to prior market returns. Buyback announcement returns are also increasing in the fraction of shares sought, which is consistent with both signalling and an upward‐sloping supply curve for stock.
Capital Structure and the Market for Corporate Control: The Defensive Role of Debt Financing
Authors: ISRAEL RONEN 
Published: April 2012

ABSTRACTA capital structure theory based on corporate control considerations is presented. The optimal debt level balances a decrease in the probability of acquisition against a higher share of the synergy for the target's shareholders. This leads to the following implications: (i) the probability of firms becoming acquisition targets decreases with their leverage, (ii) acquirers' share of the total equity gain increases with targets' leverage, (iii) when acquisitions are initiated, targets' stock price, targets' debt value, and acquirers' firm value increase, and (iv) during the acquisition, target firms' stock price changes further; the expected change is zero and the variance decreases with targets' debt level.
Structural and Return Characteristics of Small and Large Firms
Authors: CHAN K. C. , CHEN NAI‐FU 
Published: April 2012

ABSTRACTWe examine differences in structural characteristics that lead firms of different sizes to react differently to the same economic news. We find that a small firm portfolio contains a large proportion of marginal firms‐firms with low production efficiency and high financial leverage. We construct two size‐matched return indices designed to mimic the return behavior of marginal firms and find that these return indices are important in explaining the time‐series return difference between small and large firms. Furthermore, risk exposures to these indices are as powerful as log(size) in explaining average returns of size‐ranked portfolios.
Tests of the CAPM with Time‐Varying Covariances: A Multivariate GARCH Approach
Authors: NG LILIAN 
Published: April 2012

ABSTRACTThis paper examines an asset pricing model in which the Sharpe‐Lintner CAPM and the zero‐beta CAPM are special cases. The model allows the ratio of expected market risk premium to market variance, the conditional expected excess returns, and the risks to change over time. The results are found to be sensitive to the choice of the portfolio formation techniques. Significant time variability is shown in the conditional expected excess asset returns and risks and also in the reward‐to‐risk ratio.
Debt, Agency Costs, and Industry Equilibrium
Authors: MAKSIMOVIC VOJISLAV , ZECHNER JOSEF 
Published: April 2012

ABSTRACTWe show that risk characteristics of projects' cash flows are endogenously determined by the investment decisions of all firms in an industry. As a result, in reasonable settings, financial structures which create incentives to expropriate debtholders by increasing risk are shown not to reduce value in an industry equilibrium. Without taxes, capital structure is irrelevant for individual firms despite its effect on the equityholders' incentives, but the maximum total amount of debt in the industry is determinate. Allowing for a corporate tax advantage of debt, capital structure becomes relevant but firms are indifferent between distinct alternative debt levels.
Optimal Financial Instruments
Authors: ZENDER JAIME F. 
Published: April 2012

ABSTRACTDebt and equity are developed as optimal financial instruments in a model where cash flows and control rights are allocated to investors endogenously. When investment decisions must be made by a single party, the debtholder's cash flows are fixed in order to provide the equityholder with efficient incentives for investment. Ownership of control may be transferred to the debtholder to attenuate the impact of asymmetric information, concerning the investment opportunity, on the efficiency of the decision making.
The Effect of Business Risk on Corporate Capital Structure: Theory and Evidence
Authors: KALE JAYANT R. , NOE THOMAS H. , RAMÌREZ GABRIEL G. 
Published: April 2012

ABSTRACTUnder corporate and personal taxation, we demonstrate that the relation between optimal debt level and business risk is roughly U‐shaped. This result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option. Therefore, the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options. Results of empirical tests offer support for the predicted U‐shaped relationship.
Fundamentals and Stock Returns in Japan
Authors: CHAN LOUIS K. C. , HAMAO YASUSHI , LAKONISHOK JOSEF 
Published: April 2012

ABSTRACTThis paper relates cross‐sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high‐quality data set that extends from 1971 to 1988. The sample includes both manufacturing and nonmanufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between these variables and expected returns in the Japanese market. Of the four variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns.
Chaos and Nonlinear Dynamics: Application to Financial Markets
Authors: HSIEH DAVID A. 
Published: April 2012

ABSTRACTAfter the stock market crash of October 19, 1987, interest in nonlinear dynamics, especially deterministic chaotic dynamics, has increased in both the financial press and the academic literature. This has come about because the frequency of large moves in stock markets is greater than would be expected under a normal distribution. There are a number of possible explanations. A popular one is that the stock market is governed by chaotic dynamics. What exactly is chaos and how is it related to nonlinear dynamics? How does one detect chaos? Is there chaos in financial markets? Are there other explanations of the movements of financial prices other than chaos? The purpose of this paper is to explore these issues.
The Pricing of Default‐free Interest Rate Cap, Floor, and Collar Agreements
Authors: BRIYS ERIC , CROUHY MICHEL , SCHÖBEL RAINER 
Published: April 2012

ABSTRACTThe paper focuses on the valuation of caps, floors, and collars in a contingent claim framework under continuous time. These instruments are interpreted as options on traded zero coupon bonds. The bond prices themselves are used as the underlying stochastic variables. This has the advantage that we end up with closed form solutions which are easy to compute. Special attention is devoted to the choice of the stochastic process appropriate for the price dynamics of the underlying zero coupon bonds.
Is Fairly Priced Deposit Insurance Possible?
Authors: CHAN YUK‐SHEE , GREENBAUM STUART I. , THAKOR ANJAN V. 
Published: April 2012

ABSTRACTWe analyze risk‐sensitive, incentive‐compatible deposit insurance in the presence of private information and moral hazard. Without deposit‐linked subsidies it is impossible to implement risk‐sensitive, incentive‐compatible deposit insurance pricing in a competitive, deregulated environment, except when the deposit insurer is the least risk averse agent in the economy. We establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital; the result holds for alternative sorting instruments as well. This suggests a contradiction between deregulation and fairly priced, risk‐sensitive deposit insurance.
One Market? Stocks, Futures, and Options During October 1987
Authors: KLEIDON ALLAN W. , WHALEY ROBERT E. 
Published: April 2012

ABSTRACTWe provide new evidence regarding the degree of integration among markets for stocks, futures and options prior to and during the October 1987 market crash. Where previous analyses have resulted in recommendations for the implementation of circuit breakers, the coordination of margin requirements across markets, and changes in regulatory jurisdiction, our analysis indicates that delinkage between markets during the crash was primarily caused by an antiquated mechanism for processing stock market orders. The results suggest that market integration may be better served by efficient order execution than by further restricting markets.To a large extent, the problems of mid‐October can be traced to the failure of these market segments [stocks, stock index futures, and stock options] to act as one. (Report of the Presidential Task Force [Brady Report] (1988, Executive Summary, p. vi)).
The 1985 Ohio Thrift Crisis, the FSLIC's Solvency, and Rate Contagion for Retail CDs
Authors: COOPERMAN ELIZABETH S. , LEE WINSON B. , WOLFE GLENN A. 
Published: April 2012

ABSTRACTThis paper uses both an ARIMA transfer‐function intervention model and a panel data analysis to examine the effect of the Ohio deposit insurance crisis in 1985 on the pricing of six‐month retail certificates of deposit (CDs) for federally‐insured Ohio banks and savings and loans. Adjusting for pricing reactions due to changes in market rates, we find a significant, unanticipated rise in CD‐rate premiums on the initial event week of the crisis that continued for approximately seven weeks. Consistent with a contingent insurance guarantee hypothesis, rate premiums are found to be risk based.
Sovereign Debt: Optimal Contract, Underinvestment, and Forgiveness
Authors: SCHWARTZ EDUARDO S. , ZURITA SALVADOR 
Published: April 2012

ABSTRACTIn this paper we develop a time consistent rational expectations model which analyzes the equilibrium loan contract between a borrowing country and a foreign bank. The loan contract specifies both the amount of the loan and the promised interest payments, and rationally reflects the investment decisions of the country and the possibilities of renegotiation and repudiation of the debt. An important feature of the model is that at the initial negotiation of the loan there is uncertainty about whether the country will renegotiate for partial forgiveness in the future, and whether it will eventually repudiate the debt, even having successfully renegotiated. Moreover, the probabilities of renegotiation and repudiation, and the amount of possible forgiveness are endogenously determined. In the model the repudiation decision is directly related to the underinvestment problem; the objective of the renegotiation is precisely to alleviate this problem. The model is used to analyze the effects of four variables on both the optimal contract and the country's welfare: the degree of penalties that a bank can impose on a defaulting country, the uncertainty of production, the productivity of investments and the riskless interest rate. The analysis has policy implications as well as testable predictions.
The Cross‐Section of Expected Stock Returns
Authors: FAMA EUGENE F. , FRENCH KENNETH R. 
Published: April 2012

ABSTRACTTwo easily measured variables, size and book‐to‐market equity, combine to capture the cross‐sectional variation in average stock returns associated with market β, size, leverage, book‐to‐market equity, and earnings‐price ratios. Moreover, when the tests allow for variation in β that is unrelated to size, the relation between market β and average return is flat, even when β is the only explanatory variable.
Seasonality and Consumption‐Based Asset Pricing
Authors: FERSON WAYNE E. , HARVEY CAMPBELL R. 
Published: April 2012

ABSTRACTMost of the evidence on consumption‐based asset pricing is based on seasonally adjusted consumption data. The consumption‐based models have not worked well for explaining asset returns, but with seasonally adjusted data there are reasons to expect spurious rejections of the models. This paper examines asset pricing models using not seasonally adjusted aggregate consumption data. We find evidence against models with time‐separable preferences, even when the models incorporate seasonality and allow seasonal heteroskedasticity. A model that uses not seasonally adjusted consumption data and nonseparable preferences with seasonal effects works better according to several criteria. The parameter estimates imply a form of seasonal habit persistence in aggregate consumption expenditures.
Positive Prices in CAPM
Authors: NIELSEN LARS TYGE 
Published: April 2012

ABSTRACTSome equilibrium prices in CAPM may be negative because of nonmonotonicity of preferences. We identify several sets of sufficient conditions for prices to be positive. The central conditions impose bounds on the investors' risk aversion. These bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean and standard deviation. The relevant range is specified on the basis of exogenous parameters and variables, and it must contain any endogenously determined equilibrium. The bounds on risk aversion ensure that the preferences for assets are sufficiently well‐behaved within the relevant range.
A Simple and Numerically Efficient Valuation Method for American Puts Using a Modified Geske‐Johnson Approach
Authors: BUNCH DAVID S. , JOHNSON HERB 
Published: April 2012

ABSTRACTGeske and Johnson (1984) develop an equation for the American put price and obtain accurate prices using a method requiring quadrivariate normal integrals evaluated over an interval containing four equally spaced exercise points. We show that a modification of their method which uses optimal placement of exercise points yields in most cases accurate values using nothing more than bivariate normals. In the more difficult (deep‐in‐the‐money) cases, trivariate normals suffice.
Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data
Authors: WHITED TONI M. 
Published: April 2012

ABSTRACTThis paper presents evidence supporting the theory that problems of asymmetric information in debt markets affect financially unhealthy firms' ability to obtain outside finance and, consequently, their allocation of real investment expenditure over time. I test this hypothesis by estimating the Euler equation of an optimizing model of investment. Including the effect of a debt constraint greatly improves the Euler equation's performance in comparison to the standard specification. When the sample is split on the basis of two measures of financial distress, the standard Euler equation fits well for the a priori unconstrained groups, but is rejected for the others.
Causal Relations Among Stock Returns, Interest Rates, Real Activity, and Inflation
Authors: LEE BONG‐SOO 
Published: April 2012

ABSTRACTUsing a multivariate vector‐autoregression (VAR) approach, this paper investigates causal relations and dynamic interactions among asset returns, real activity, and inflation in the postwar United States. Major findings are (1) stock returns appear Granger‐causally prior and help explain real activity, (2) with interest rates in the VAR, stock returns explain little variation in inflation, although interest rates explain a substantial fraction of the variation in inflation, and (3) inflation explains little variation in real activity. These findings seem more compatible with Fama (1981) than with Geske and Roll (1983) or with Ram and Spencer (1983).
Reputation and Performance Among Security Analysts
Authors: STICKEL SCOTT E. 
Published: April 2012

ABSTRACTMembers of the Institutional Investor All‐American Research Team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance. This contemporaneous advantage is complemented by a timing advantage; All‐Americans supply forecasts more often than other analysts. Stocks returns immediately following large upward forecast revisions suggest that All‐Americans impact prices more than other analysts. However, there is virtually no difference in returns following large downward revisions. Nevertheless, the collective results suggest a positive relation between reputation and performance, and, assuming that All‐Americans are better paid, pay and performance.
Dividends and Losses
Authors: DeANGELO HARRY , DeANGELO LINDA , SKINNER DOUGLAS J. 
Published: April 2012

ABSTRACTAn annual loss is essentially a necessary condition for dividend reductions in firms with established earnings and dividend records: 50.9% of 167 NYSE firms with losses during 1980–1985 reduced dividends, versus 1.0% of 440 firms without losses. As hypothesized by Miller and Modigliani, dividend reductions depend on whether earnings include unusual items that are likely to temporarily depress income. Dividend reductions are more likely given greater current losses, less negative unusual items, and more persistent earnings difficulties. Dividend policy has information content in that knowledge that a firm has reduced dividends improves the ability of current earnings to predict future earnings.
Insider Trading in Financial Signaling Models
Authors: BAGNOLI MARK , KHANNA NAVEEN 
Published: April 2012

ABSTRACTWe study the impact of voluntary trade by the manager. We find that, in contrast to standard signaling models, an action is good news for some firms and bad news for others, depending on observable characteristics of the firm, its managers, and their compensation plans. Further, voluntary trade eliminates separating equilibria and thus the possibility of exactly inferring the manager's private information. This may cause the manager to take inefficient actions so as to earn trading profits. Such undesirable behavior can be more effectively constrained by compensation contracts based on phantom shares or nontradeable options instead of large stockholdings.