bluuebunny/crossref_metadata_2025_split huggingface dataset:
Time‐Dependent Variance and the Pricing of Bond Options
Authors: SCHAEFER STEPHEN M. , SCHWARTZ EDUARDO S. 
Published: April 2012

ABSTRACTIn this paper, we develop a model for valuing debt options that takes into account the changing characteristics of the underlying bond by assuming that the standard deviation of return is proportional to the bond's duration. The resulting model uses the bond price as the single state variable and thus preserves much of the simplicity and robustness of the Black‐Scholes approach. The paper provides comparisons between option prices computed using this model and those using the Black‐Scholes and Brennan and Schwartz models.
Tax Arbitrage and the Existence of Equilibrium Prices for Financial Assets
Authors: DAMMON ROBERT M. , GREEN RICHARD C. 
Published: April 2012

ABSTRACTIn models where both investors and securities are subject to differential taxation, there may be no set of prices that rule out infinite gains to trade, or “tax arbitrage.” This paper characterizes the joint restrictions on financial‐asset returns and investors' tax schedules that preclude tax arbitrage in the absence of short‐sale constraints. The authors show that, if there exists any configuration of marginal tax rates on investors' tax schedules that rule out infinite gains to trade, then “no‐tax‐arbitrage” prices will exist. They also show that the existence of “no‐tax‐arbitrage” prices ensures the existence of equilibrium prices.
Forward Markets, Stock Markets, and the Theory of the Firm
Authors: MacMINN RICHARD D. 
Published: April 2012

ABSTRACTThis paper models a competitive financial market economy in which there are forward markets as well as stock and bond markets. Although there are separation theorems in the stock and forward markets literatures, this analysis shows that neither separation theorem survives in this integrated financial market economy. Next, the analysis shows that the separation results hold and are equivalent if the manager has an appropriate compensation package. Then the model is modified to allow for depreciation charges and tax credits. A positive theory of hedging is developed that shows that the corporation can preserve deductions and credits by hedging and so increase corporate value.
Stock Return Anomalies and the Tests of the APT
Authors: GULTEKIN MUSTAFA N. , GULTEKIN N. BULENT 
Published: April 2012

ABSTRACTThis paper shows that the empirical tests of the Arbitrage Pricing Theory (APT) model are very sensitive to the anomalies observed in January in the stock returns data. There is a strong seasonal pattern in the estimates of the risk premia from the APT model. The most important implication of the findings in this paper is that the APT model can explain the risk‐return relation mostly for January. Once the January returns are excluded from the data, there is no significant relation between the expected stock returns and the risk measures predicted by the APT model.
Acquisition of Divested Assets and Shareholders' Wealth
Authors: SICHERMAN NEIL W. , PETTWAY RICHARD H. 
Published: April 2012

ABSTRACTThe divesting of corporate assets has become quite popular. Previous studies of divestitures have found conflicting impacts upon shareholders' wealth of the buying firm. This study measures the impacts of product‐line relatedness between the acquiring firm and the divested unit and financial weakness of the selling firm upon the abnormal returns to the acquiring firm. Although the study finds that the impact of financial strength of the seller is ambiguous, the purchase of related assets produces more wealth than does the purchase of unrelated divested units. Further, firms that purchase related divested units have larger proportions of insider ownership.
Components of the Bid‐Ask Spread and the Statistical Properties of Transaction Prices
Authors: GLOSTEN LAWRENCE R. 
Published: April 2012

ABSTRACTThe bid‐ask spread can be decomposed into two parts: one part due to asymmetric information and the other part due to other factors such as monopoly power. The part due to asymmetric information attenuates statistical biases in mean return, variance, and serial covariance. Thus, using spread data to adjust for biases in return moments requires knowing not only the spread but the composition of the spread. Furthermore, any spread‐estimation procedure using transaction prices must estimate two spread components. On the other hand, the appropriateness of some previously suggested statistical corrections is independent of the spread composition.
Orthogonal Frontiers and Alternative Mean‐Variance Efficiency Tests
Authors: LEHMANN BRUCE N. 
Published: April 2012

ABSTRACTThis paper catalogues properties of minimum norm orthogonal portfolios: portfolios which minimize a quadratic objective function and have returns uncorrelated with those of a candidate portfolio that is not mean‐variance efficient. The analysis shows that the dollar versions of these portfolios correspond to estimators of zero beta rates based on alternative statistical criteria and grouping procedures while costless orthogonal portfolios represent candidate mean‐variance efficiency tests. It also develops inference procedures for zero and unit net investment portfolios of individual securities (instead of grouped portfolios) that have zero expected betas. The resulting mean‐variance efficiency tests are reasonably insensitive to the underlying statistical assumptions.
The Choice of Issuance Procedure and the Cost of Competitive and Negotiated Underwriting: an Examination of the Impact of Rule 50
Authors: SMITH RICHARD L. 
Published: April 2012

ABSTRACTPrevious research suggests that firms choose negotiated issuance over competitive despite its apparently higher net interest cost. This result is shown to arise partly from failure to correct for a selectivity bias in the choice of issuance procedures. Two stage analysis is used in a model that includes qualitative and limited dependent variables to re‐estimate the net interest cost difference between competitive and negotiated issues. Results support the hypothesis that the choice of issuance procedure is consistent with shareholder wealth maximization. Examination of debt issues subject to Rule 50 of the Public Utility Holding Company Act indicates that the regulation, as applied, is not effective.
Effects of Capital Gains Taxation on Life‐Cycle Investment and Portfolio Management
Authors: BALCER YVES , JUDD KENNETH L. 
Published: April 2012

ABSTRACTWe examine the impact of capital income taxation, both accrual forms of taxation and taxation of realized capital gains, on total savings and the demand for corporate financial instruments. We find that investors may hold both debt and equity in the face of effective collection of capital gains taxation even in a flat tax system. We also find that the two taxes will have substantially different effects on saving and consumption behavior, making it unlikely that the tax structure can be summarized by any single equivalent accrual tax rate.
Capital Structure, Ownership, and Capital Payment Policy: The Case of Hospitals
Authors: WEDIG GERARD , SLOAN FRANK A. , HASSAN MAHMUD , MORRISEY MICHAEL A. 
Published: April 2012

ABSTRACTThis study examines effects of pertinent features of hospital capital payment policies on hospital capital structure decisions in a one‐period stochastic, value‐maximization model. Separate models are developed for for‐profit and not‐for‐profit hospitals. Hospital debt‐to‐assets ratios are analyzed empirically using a cross‐section of data from the American Hospital Association. Although the effect on capital structure of hospital reliance on cost‐based reimbursement cannot be signed theoretically, in both for‐profit and not‐for‐profit cases, a higher cost‐based share leads to higher leverage. Factors associated with high bankruptcy risk (e.g., earnings volatility) cause hospitals to take on less debt.
Private versus Public Ownership: Investment, Ownership Distribution, and Optimality
Authors: SHAH SALMAN , THAKOR ANJAN V. 
Published: April 2012

ABSTRACTExamined in this paper is the choice between private and public incorporation of an asset for an entrepreneur (asset owner) who hires a manager with superior information about the asset's return distribution. Public sale of equity is shown to be the preferred alternative when (a) capital market issue costs are low or (b) the assest's idiosyncratic risk is high and the owner is either sufficiently risk averse or sufficiently “optimistic” about the asset's expected return. Thus, those assets deemed most valuable by their owners will tend to be publicly incorporated. The paper also explores the impact of incorporation mode—private versus public—and information structure on the firm's investment policy and ownership distribution.
Optimal Futures Positions for Large Banking Firms
Authors: MORGAN GEORGE EMIR , SHOME DILIP K. , SMITH STEPHEN D. 
Published: April 2012

ABSTRACTIn this paper, we extend earlier work on hedging models so that uncertainty about both deposit supply and loan demand is incorporated as well as random rates of return on loans and CD's. Our model suggests that the optimal forward position is the sum of three ratios that should be estimated simultaneously. Using bank‐specific data, the optimal hedge ratios are estimated in both the pre‐deregulation and deregulation subperiods. Our results show that previous studies of bank hedging with interest rate futures have greatly overstated (a) the volume of short futures positions that banks should take and (b) the degree of homogeneity of optimal hedge ratios across the banking system. Similarly, deregulation has not uniformly affected the interest rate risk borne by different institutions.
Estimation Bias Induced by Discrete Security Prices
Authors: BALL CLIFFORD A. 
Published: April 2012

ABSTRACTCommonly, equilibrium security prices are modeled by continuous‐state stochastic processes, while observed prices are rounded into discrete units. This paper models the rounding mechanism and examines the probabilistic structure of the resultant rounded process. We provide accurate and simple estimates of the inflation in estimated variance and kurtosis induced by ignoring rounding. In particular, the maximum‐likelihood estimate of security price volatility using rounded prices is developed, and a simulation analysis is performed to examine the small‐sample properties of this estimator. For many practical applications, a simple correction for rounding becomes available.
Time‐Invariant Portfolio Insurance Strategies
Authors: BRENNAN MICHAEL J. , SCHWARTZ EDUARDO S. 
Published: April 2012

ABSTRACTThis paper characterizes the complete class of time‐invariant portfolio insurance strategies and derives the corresponding value functions that relate the wealth accumulated under the strategy to the value of the underlying insured portfolio. Time‐invariant strategies are shown to correspond to the long‐run policies for a broad class of portfolio insurance payoff functions.
Intradaily Price‐Volume Adjustments of NYSE Stocks to Unexpected Earnings
Authors: WOODRUFF CATHERINE S. , SENCHACK A. J. 
Published: April 2012

ABSTRACTThe speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price‐volume transactions data. A differential price‐adjustmentp rocess was observed,w ith stocks having large,p ositive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises. Volume, transaction frequency, and size were found to be directly related to the absolute degree of surprise,b ut very favorablee arnings‐surprises tocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade.
Warrant Exercise, Dividends, and Reinvestment Policy
Authors: SPATT CHESTER S. , STERBENZ FREDERIC P. 
Published: April 2012

ABSTRACTIn this paper, we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants. We analyze several obstacles to acquiring large blocks in order to exploit sequential strategies. First, we identify several reinvestment policies for which sequential exercise is not advantageous, thereby eliminating the gain from hoarding. However, sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders, even absent dividends, because using exercise proceeds to repurchase stock or to expand the firm's scale increases the riskiness of an equity share. Second, oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders, suggesting a potential cost to unsuccessful hoarding.
Business Cycles and the Behavior of Metals Prices
Authors: FAMA EUGENE F. , FRENCH KENNETH R. 
Published: April 2012

ABSTRACTThe theory of storage says that the marginal convenience yield on inventory falls at a decreasing rate as inventory increases. The authors test this hypothesis by examining the relative variation of spot and futures prices for metals. As the hypothesis implies, futures prices are less variable than spot prices when inventory is low, but spot and futures prices have similar variability when inventory is high. The theory of storage also explains inversions of “normal” futures‐spot price relations around business‐cycle peaks. Positive demand shocks around peaks reduce metal inventories and, as the theory predicts, generate large convenience yields and price inversions.
The Purchasing Power of Money and Nominal Interest Rates: A Re‐Examination
Authors: SHOME DILIP K. , SMITH STEPHEN D. , PINKERTON JOHN M. 
Published: April 2012

ABSTRACTWhile it has been known for some time that, under uncertainty, the original version of the Fisher hypothesis is not precisely correct, empirical researchers have largely ignored this fact. Such an omission has possibly resulted in erroneous conclusions concerning other hypotheses; most notably the impact of prices on the real economy. This paper clarifies some of the previous interpretations of the existing empirical literature and provides a theoretical version of the relation between prices and interest rates. Empirical tests based on both the Livingston survey data and data from time‐series forecasting models provide support for the Fisher effect and the hypothesis that only covariance risk is priced in the Treasury bill market.
Stock Prices, Earnings, and Expected Dividends
Authors: CAMPBELL JOHN Y. , SHILLER ROBERT J. 
Published: April 2012

ABSTRACTLong historical averages of real earnings help forecast present values of future real dividends. With aggregate U.S. stock market data (1871–1986), a vector‐autoregressive forecast of the present value of future dividends is, for each year, roughly a weighted average of moving‐average earnings and current real price, with between two thirds and three fourths of the weight on the earnings measure. We develop the implications of this for the present‐value model of stock prices and for recent results that long‐horizon stock returns are highly forecastable.
Predicting Contemporary Volume with Historic Volume at Differential Price Levels: Evidence Supporting the Disposition Effect
Authors: FERRIS STEPHEN P. , HAUGEN ROBERT A. , MAKHIJA ANIL K. 
Published: April 2012

ABSTRACTThis paper presents empirical evidence comparing two models of trading in equities—the well‐known tax‐loss‐selling hypothesis and “the disposition effect.” According to the disposition effect, investors are reluctant to realize losses but are eager to realize gains. This paper distinguishes between the two models with a new methodology that examines the relationship between volume at a given point in time and volume that took place in the past at different stock prices. The evidence overwhelmingly supports the disposition effect not only as a determinant of year‐end volume, but also as a determinant of volume levels throughout the year.
Joint Estimation of Factor Sensitivities and Risk Premia for the Arbitrage Pricing Theory
Authors: BURMEISTER EDWIN , McELROY MARJORIE B. 
Published: April 2012

ABSTRACTThe APT is represented as a multivariate regression model with across‐equations restrictions. Both observed and unobserved (latent) macroeconomic factors are included, thus generalizing and unifying two previous strands of literature. Large portfolios representing unobserved factors are treated as endogenous, and nonlinear 3SLS estimates are shown to differ sharply from estimates that ignore this endogeneity. Using monthly stock returns and six factors, we cannot reject January effects. The following results are invariant with respect to the inclusion of January effects: we reject the CAPM in favor of the APT; however, we cannot reject the APT restrictions on the linear factor model.
Banking Panics, Information, and Rational Expectations Equilibrium
Authors: CHARI V. V. , JAGANNATHAN RAVI 
Published: April 2012

ABSTRACTThis paper shows that bank runs can be modeled as an equilibrium phenomenon. We demonstrate that some aspects of the intuitive “story” that bank runs start with fears of insolvency of banks can be rigorously modeled. If individuals observe long “lines” at the bank, they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run. However, bank runs occur even when no one has any adverse information. Extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations.
Dynamic Capital Structure Choice: Theory and Tests
Authors: FISCHER EDWIN O. , HEINKEL ROBERT , ZECHNER JOSEF 
Published: April 2012

ABSTRACTThis paper develops a model of dynamic capital structure choice in the presence of recapitalization costs. The theory provides the optimal dynamic recapitalization policy as a function of firm‐specific characteristics. We find that even small recapitalization costs lead to wide swings in a firm's debt ratio over time. Rather than static leverage measures, we use the observed debt ratio range of a firm as an empirical measure of capital structure relevance. The results of empirical tests relating firms' debt ratio ranges to firm‐specific features strongly support the theoretical model of relevant capital structure choice in a dynamic setting.
The October 1987 S&P 500 Stock‐Futures Basis
Authors: HARRIS LAWRENCE 
Published: April 2012

ABSTRACTFive‐minute changes in the S&P 500 index and futures contract are examined over a ten‐day period surrounding the October 1987 stock market crash. Since nonsynchronous trading problems are severe in these data, new index estimators are derived and used. The estimators use the complete transaction history of all 500 stocks. Nonsynchronous trading explains part of the large absolute futures‐cash basis observed during the crash. The remainder may be due to disintegration of the two markets. Even after adjustment for nonsynchronous trading, the index displays more autocorrelation than does the futures and the futures leads the index.
Earnings Yields, Market Values, and Stock Returns
Authors: JAFFE JEFFREY , KEIM DONALD B. , WESTERFIELD RANDOLPH 
Published: April 2012

ABSTRACTEarlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E/P) is not clear‐cut. This paper re‐examines these two effects with (a) a substantially longer sample period, 1951–1986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven months. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings.
Common Stochastic Trends in a System of Exchange Rates
Authors: BAILLIE RICHARD T. , BOLLERSLEV TIM 
Published: April 2012

ABSTRACTUnivariate tests reveal strong evidence for the presence of a unit root in the univariate time‐series representation for seven daily spot and forward exchange rate series. Furthermore, all seven spot and forward rates appear to be cointegrated; that is, the forward premiums are stationary, and one common unit root, or stochastic trend, is detectable in the multivariate time‐series models for the seven spot and forward rates, respectively. This is consistent with the hypothesis that the seven exchange rates possess one long‐run relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates.
Syndicate Size, Spreads, and Market Power during the Introduction of Shelf Registration
Authors: FOSTER F. DOUGLAS 
Published: April 2012

ABSTRACTThe introduction of shelf registration in 1982 is used to examine the extent of price‐taking behavior among investment banks. Changes in underwriting syndicates are compared with the concomitant adjustment in underwriting spreads and management fees. The evidence is consistent with higher organizing costs and/or market power in the underwriting syndicate. Evidence on the components of the spreads and syndicate composition during the introduction of shelf registration is also presented.
Nonnormalities and Tests of Asset Pricing Theories
Authors: AFFLECK‐GRAVES JOHN , MCDONALD BILL 
Published: April 2012

ABSTRACTThe robustness of the multivariate test of Gibbons, Ross, and Shanken (1986) to nonnormalities in the residual covariance matrix is examined. After considering the relative performance of various tests of normality, simulation techniques are used to determine the effects of nonnormalities on the multivariate test. It is found that, where the sample nonnormalities are severe, the size and/or power of the test can be seriously misstated. However, it is also shown that these extreme sample values may overestimate the population parameters. Hence, we conclude that the multivariate test is reasonably robust with respect to typical levels of nonnormality.
Measuring Corporate Bond Mortality and Performance
Authors: ALTMAN EDWARD I. 
Published: April 2012

ABSTRACTThis study develops an alternative way to measure default risk and suggests an appropriate method to assess the performance of fixed‐income investors over the entire spectrum of credit‐quality classes. The approach seeks to measure the expected mortality of bonds and the consequent loss rates in a manner similar to the way actuaries assess mortality of human beings. The results show that all bond ratings outperform riskless Treasuries over a ten‐year horizon and that, despite relatively high mortality rates, B‐rated and CCC‐rated securities outperform all other rating categories for the first four years after issuance, with BB‐rated securities outperforming all others thereafter.
Corporate Bankruptcy and Managers' Self‐Serving Behavior
Authors: LODERER CLAUDIO F. , SHEEHAN DENNIS P. 
Published: April 2012

ABSTRACTWe investigate whether insiders of bankrupt firms hold less stock or reduce their stockholdings compared to what we observed for insiders of similar firms that do not go bankrupt. We find little evidence of such time‐series and cross‐sectional differences in spite of the fact that the stock value of bankrupt firms falls by more than ninety percent in the five years preceding bankruptcy. One implication of our results is that the amount of stock owned and the magnitude of the trades undertaken by corporate insiders of both bankrupt and nonbankrupt firms appear to provide no information about firm value.