bluuebunny/crossref_metadata_2025_split huggingface dataset:
Managerial Incentives and Corporate Investment and Financing Decisions
Authors: AGRAWAL ANUP , MANDELKER GERSHON N. 
Published: April 2012

ABSTRACTThis paper examines the relationship between common stock and option holdings of managers and the choice of investment and financing decisions by firms. The authors find support for the hypothesis of a positive relationship between the security holdings of managers and the changes in firm variance and in financial leverage. This conclusion is based on samples of acquiring and divesting firms. The findings are consistent with the hypothesis that executive security holdings have a role in reducing agency problems.
Mean‐Variance Spanning
Authors: HUBERMAN GUR , KANDEL SHMUEL 
Published: April 2012

ABSTRACTThe authors propose a likelihood‐ratio test of the hypothesis that the minimum‐variance frontier of a set of K assets coincides with the frontier of this set and another set of N assets. They study the relation between this hypothesis, exact arbitrage pricing, and mutual fund separation. The exact distribution of the test statistic is available. The authors test the hypothesis that the frontier spanned by three size‐sorted stock portfolios is the same as the frontier spanned by thirty‐three size‐sorted stock portfolios.
Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends
Authors: OFER AHARON R. , SIEGEL DANIEL R. 
Published: April 2012

ABSTRACTThis paper documents a relationship between announcements of unexpected changes in financial policy and unexpected changes in performance of the firm. Using a new methodology that combines analysis of stock price movements and earnings forecast data, the authors provide evidence that analysts revise their earnings forecasts following the announcement of an unexpected dividend change by an amount positively related to the size of the unexpected dividend change. They also provide evidence that these revisions are positively related to the change in equity value surrounding the announcement. Further, they find that these revisions are consistent with rationality. Their results therefore provide direct evidence consistent with the hypothesis that unexpected dividend changes signal information about firm performance to market participants.
Stock Splits and Stock Dividends: Why, Who, and When
Authors: LAKONISHOK JOSEF , LEV BARUCH 
Published: April 2012

ABSTRACTThis study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions. The findings suggest that stock splits are mainly aimed at restoring stock prices to a “normal range.” Some support can also be found for the oft‐mentioned signalling motive of stock splits. Stock dividends are altogether different from stock splits, and they appear to be a decreasing phenomenon. The clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends.
An Empirical Investigation of the Market for Comex Gold Futures Options
Authors: BAILEY WARREN 
Published: April 2012

ABSTRACTOption‐pricing models that assume a constant interest rate may misprice futures options if the interest rate fluctuates significantly or if the price of the underlying asset is correlated with the interest rate. The futures option‐pricing model of Ramaswamy and Sundaresan allows for a stochastic interest rate and correlation of the underlying asset's price with the interest rate. Using a data set of daily closing prices for Comex gold futures options, this paper tests the Ramaswamy and Sundaresan model against a constant interest rate model. Results indicate that the stochastic interest rate model is a superior predictor of market prices.
The Seasonal Stability of the Factor Structure of Stock Returns
Authors: CHO D. CHINHYUNG , TAYLOR WILLIAM M. 
Published: April 2012

ABSTRACTThis paper investigates the month‐by‐month stability of (a) daily returns and correlation coefficients of stock returns, (b) correlation and covariance matrices, (c) number of return‐generating factors, and (d) the APT pricing relationship. The results show that there is a January effect and a small‐firm effect in stock returns. Correlation matrices are more stable than covariance matrices, but both types of matrices are not stable across months and across the sample groups. The number of return‐generating factors is rather stable most of the time and for most of the sample groups, but there is some significant instability that is related to the average correlation coefficients among stocks. The APT pricing relationship does not seem to be supported by the two‐stage process using the maximum‐likelihood factor analysis.
The Issue Decision of Manager‐Owners under Information Asymmetry
Authors: BRADFORD WILLIAM D. 
Published: April 2012

ABSTRACTA firm must issue common stock in order to undertake a new investment, and the firm's manager‐owners can value the firm more accurately than the market. The ability of the manager‐owners to trade in the firm's shares during the issue (a) reduces the investments that are foregone because of the market's mispricing the firm's shares, (b) changes the size and direction of the stock price change when the firm announces a new stock issue, and (c) changes the market value of the firm before and after the issue announcement, whether or not it decides to issue.
The Temporal Price Relationship between S&P 500 Futures and the S&P 500 Index
Authors: KAWALLER IRA G. , KOCH PAUL D. , KOCH TIMOTHY W. 
Published: April 2012

ABSTRACTThis paper empirically examines the intraday price relationship between S&P 500 futures and the S&P 500 index using minute‐to‐minute data. Three‐stage least‐squares regression is used to estimate lead and lag relationships with estimates for expiration days of the S&P 500 futures compared with estimates for days prior to expiration. The results suggest that futures price movements consistently lead index movements by twenty to forty‐five minutes while movements in the index rarely affect futures beyond one minute.
Death and Taxes: The Market for Flower Bonds
Authors: MAYERS DAVID , SMITH CLIFFORD W. 
Published: April 2012

ABSTRACTCertain U.S. Government securities, known as flower bonds, can be redeemed at par plus accrued interest for the purpose of paying estate taxes, if held at the time of death. Thus, a flower bond, selling at a discount, is like a straight bond plus a life insurance policy. An equilibrium derived from a rational flower bond pricing model implies the existence of clienteles: individuals with the highest death probabilities hold the deepest discount flower bonds. The empirical implication, that bonds with the deepest discount should be redeemed at the fastest rate, is tested and the results support the proposition.
An Alternative Testable Form of the Consumption CAPM
Authors: KAZEMI HOSSEIN B. 
Published: April 2012

ABSTRACTThis paper develops a consumption‐oriented model of asset prices in a multigood economy that is, in principle, testable even when aggregate consumption of goods and their market prices are only partially observable. Previous studies show that, when there are m consumption goods, equilibrium expected excess returns on securities are functions of their covariances with variables—aggregate consumption expenditure and market prices of consumption goods. Without making any further assumptions, the present model shows that a similar equilibrium relationship can be expressed in terms of covariances of asset returns with the following variables: market prices of k consumption goods and aggregate consumption of goods. Because the author's result provides researchers with some flexibility in choosing the set of variables that measure riskiness of securities, it should lead to more powerful tests of the model.
A Theory of Noise Trading in Securities Markets
Authors: TRUEMAN BRETT 
Published: April 2012

ABSTRACTIn a recent article, Black [1] introduces a type of trading that he terms noise trading. He asserts that noise trading, which he defines as trading on noise as if it were information, must be a significant factor in securities markets. However, he does not provide an explanation of why any investors would rationally want to engage in noise trading. The goal of this paper is to provide such an explanation for one type of investor, managers of investment funds. As shown here, the incentive for a manager to engage in noise trading arises because of the positive signal that the level of the manager's trading provides about his or her ability to collect private information concerning current and potential investments. If the manager's compensation is directly related to investors' perceptions of his or her ability, the manager will then trade more frequently than is justified on the basis of his or her private information. In addition to providing this explanation for noise trading, the results of this analysis may also be useful for further empirical exploration of the relation between investment fund portfolio turnover and subsequent performance.
The Total Cost of Transactions on the NYSE
Authors: BERKOWITZ STEPHEN A. , LOGUE DENNIS E. , NOSER EUGENE A. 
Published: April 2012

ABSTRACTThis paper develops a measure of execution costs (market impact) of transactions on the NYSE. The measure is the volume‐weighted average price over the trading day. It yields results that are less biased than measures that use single prices, such as closes. The paper then applies this measure to a data set containing more than 14,000 actual trades. We show that total transaction costs, commission plus market impact costs, average twenty‐three basis points of principal value for our sample. Commission costs, averaging eighteen basis points, are considerably higher than execution costs, which average five basis points. They vary slightly across brokers and significantly across money managers. Though brokers do not incur consistently high or low transaction costs, money managers experience persistently high or lost costs. Finally, the paper explores the possible tradeoff between commission expenditures and market impact costs. Paying higher commissions does not yield commensurately lower execution costs, even after adjusting for trade difficulty. We cannot determine whether other valuable brokerage services are being purchased with higher commission payments or whether some money managers really are inefficient consumers of brokerage trading services.
Closed‐End Fund Shares' Abnormal Returns and the Information Content of Discounts and Premiums
Authors: BRAUER GREGGORY A. 
Published: April 2012

ABSTRACTClosed‐end funds' discounts contain information in the sense that they can be used to construct portfolios that earn returns exceeding those predicted by the two‐factor capital asset pricing model. The precise nature of the information contained in a discount is not clear, however. This paper provides evidence that the information contained in a discount is an incomplete prediction of the fund's likelihood of being open‐ended profitably.
The January Effect and Aggregate Insider Trading
Authors: SEYHUN H. NEJAT 
Published: April 2012

ABSTRACTThis study investigates the seasonal pattern of aggregate insider trading to help distinguish between two competing explanations for the seasonal pattern of security returns. The first potential explanation examined is that the January effect arises from predictable changes in turn‐of‐the‐year demand for securities. The second potential explanation examined is that the January effect represents compensation for the higher risk of trading against informed traders at the turn of the year.
Jump‐Diffusion Processes and the Term Structure of Interest Rates
Authors: AHN CHANG MO , THOMPSON HOWARD E. 
Published: April 2012

ABSTRACTThe authors investigate the term structure of interest rates when the underlying state variables and production technologies follow the jump‐diffusion processes. Even in some cases where the traditional expectations theory about the term structure is consistent with general equilibrium under diffusion processes, the traditional theory is not consistent under jump‐diffusion processes. It is shown that bond prices are strictly higher under jump risks than otherwise and that consumers with logarithmic utility functions will develop hedge portfolios in the presence of jump diffusion.
Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection
Authors: EUN CHEOL S. , RESNICK BRUCE G. 
Published: April 2012

ABSTRACTIn this paper, ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates. It is shown that exchange rate uncertainty is a largely nondiversifiable factor adversely affecting the performance of international portfolios. Therefore, it is essential to effectively control exchange rate volatility. For that purpose, two methods of exchange risk reduction are simultaneously employed: multicurrency diversification and hedging via forward exchange contracts. The empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the U.S. domestic portfolio in out‐of‐sample periods.
The October 1979 Change in the U.S. Monetary Regime: Its Impact on the Forecastability of Canadian Interest Rates
Authors: PESANDO JAMES E. , PLOURDE ANDRÉ 
Published: April 2012

ABSTRACTSubsequent to the October 1979 shift in monetary policy in the United States, interest rates in North America not only reached unprecedented levels but also exhibited unprecedented volatility. Using Canadian data, the authors show that anticipated quarterly changes in long‐term rates associated with the rational‐expectations model have remained small during this post‐shift period. The authors examine three sets of recorded forecasts of long‐term interest rates in Canada and note their failure to improve upon the no‐change prediction. The “perverse” relationship between the slope of the yield curve and the subsequent movement in long‐term rates exists in the Canadian data but is of only modest value in a forecasting context. The excess returns on long‐term bonds implicit in the recorded forecasts of the level of interest rates vary sharply, yet there is little evidence that forecasters have identified a predictable component of time‐varying term premia.
Risk‐Based Premiums for Insurance Guaranty Funds
Authors: CUMMINS J. DAVID 
Published: April 2012

ABSTRACTInsurance guaranty funds have been adopted in all states to compensate policyholders for losses resulting from insurance company insolvencies. The guaranty funds charge flat premium rates, usually a percentage of premiums. Flat premiums can induce insurers to adopt high‐risk strategies, a problem that can be avoided through the use of risk‐based premiums. This article develops risk‐based premium formulas for three cases: a) an ongoing insurer with stochastic assets and liabilities, b) an ongoing insurer also subject to jumps in liabilities (catastrophes), and c) a policy cohort, where claims eventually run off to zero. Premium estimates are provided and compared with actual guaranty fund assessment rates.
An Asset‐Pricing Theory Unifying the CAPM and APT
Authors: WEI K. C. JOHN 
Published: April 2012

ABSTRACTThis study shows that the competitive‐equilibrium version of the APT may be extended to develop an exact model if idiosyncratic risks obey the Ross separating distribution. The results indicate that one only need add the market portfolio as an extra factor to the factor model in order to obtain an exact asset‐pricing relation. Thus, this study presents an extension and integration of the CAPM and APT. The “empirical” APT is also generalized to allow for some factors to be omitted from the econometric model employed to test the theory. The developed model is extremely robust and may be reduced to the CAPM or expanded to approximate Ross's APT depending upon the number of omitted factors. Further, the importance of the market portfolio is shown to be a monotonic increasing function of the number of omitted factors. Finally, the study demonstrates that, in a finite economy, the pricing‐error bound of the Ross APT in a correlated‐residuals factor structure is an increasing function of the absolute value of market‐residual beta, rather than the weight of the asset in the market portfolio as is the case of uncorrelated factor residuals. However, under the normality assumption, the pricing error becomes an extra component related to the market‐portfolio factor, and the exact asset‐pricing relation is once again obtained.
The Interrelation of Stock and Options Market Trading‐Volume Data
Authors: ANTHONY JOSEPH H. 
Published: April 2012

ABSTRACTThis research empirically investigates the relation between common stock and call option trading volumes. The paper hyothesizes and tests a sequential flow of information between the stock and option markets. If information trading for CBOE‐listed firms is predominantly accomplished through option trading, then existing research methodologies may be biased against finding any significant economic consequences in those instances where option listing is an important variable. Results indicate that trading in call options leads trading in the underlying shares, with a one‐day lag.
Testing Rationality in the Point Spread Betting Market
Authors: GANDAR JOHN , ZUBER RICHARD , O'BRIEN THOMAS , RUSSO BEN 
Published: April 2012

ABSTRACTThis paper presents empirical tests of market rationality using data from the point spread betting market on National Football League games. Data from this market avoid many common pitfalls of tests of rationality in conventional financial markets. The authors test for rationality with two types of tests, statistical and economic. Results of the tests reveal that the statistical tests cannot reject market rationality while the economic tests do reject market rationality.
Exact Arbitrage Pricing and the Minimum‐Variance Frontier
Authors: TIEMANN JONATHAN 
Published: April 2012

ABSTRACTThe author examines the relationship between the Arbitrage Pricing Theory of Ross and mean‐variance analysis. In particular, conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum‐variance frontier. Also, a sufficient condition is given under which the existence of a positive minimum‐variance portfolio of all the assets in the economy will imply the existence of a positive minimum‐variance portfolio on a subset. This means that rejection of the hypothesis of the existence of a positive minimum‐variance portfolio on a subset satisfying this condition implies rejection for the whole set.
Is the Real Interest Rate Stable?
Authors: ROSE ANDREW K. 
Published: April 2012

ABSTRACTUnivariate time‐series models for consumption, nominal interest rates, and prices each appear to have a single unit root before 1979. If nominal interest rates have a unit root but inflation and inflation forecast errors do not, then ex ante real interest rates have a unit root and are therefore nonstationary. This deduction does not depend on the properties of the unobservable ex post observed real return, which combines the ex ante real interest rate and inflation‐forecasting errors. The unit‐root characteristic of real interest rates is puzzling from at least two perspectives: many models imply that the growth rate of consumption and the real interest rate should have similar time‐series characteristics; also, nominal returns for other assets (e.g., stocks and bonds) appear to have different times‐series properties from those of treasury bills.
Vendor Financing
Authors: BRENNAN MICHAEL J. , MAKSIMOVICs VOJISLAV , ZECHNER JOSEF 
Published: April 2012

ABSTRACTThis paper shows that, even in the presence of a perfectly competitive banking industry, it is optimal for firms with market power to engage in vendor financing if credit customers have lower reservation prices than cash customers or if adverse selection makes it infeasible to write credit contracts that separate customers according to their credit risk. We analyze how the advantage of vendor financing depends on the relative size of the cash and credit markets, the heterogeneity of credit customers, and the number of firms in the industry.
Canada's Dual Class Shares: Further Evidence on the Market Value of Cash Dividends
Authors: BAILEY WARREN 
Published: April 2012

ABSTRACTThe Canada Income Tax Act of 1971 permitted Canadian corporations to create two classes of equity, one paying ordinary cash income and the other paying capital gains income. Cash‐paying shares have often sold at a premium. Empirical results indicate that the premium is largely explained by the relative value of the dividends paid and by costs imposed on investors by stock dividend payment and share conversion procedures. Premiums for a few firms also reflect the relative liquidity of the two classes of shares. No evidence exists that investors prefer cash income to equal amounts of capital gains.
The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions
Authors: DOUKAS JOHN , TRAVLOS NICKOLAOS G. 
Published: April 2012

ABSTRACTThis study presents direct evidence on the effect of international acquisitions on stock prices of U.S. bidding firms. Shareholders of MNCs not operating in the target firm's country experience significant positive abnormal returns at the announcement of international acquisitions. Shareholders of U.S. firms expanding internationally for the first time experience insignificant positive abnormal returns, while shareholders of MNCs operating already in the target firm's country experience insignificant negative abnormal returns. The abnormal returns are larger when firms expand into new industry and geographic markets—especially those less developed than the U.S. economy. The evidence is consistent with the theory of corporate multinationalism, predicting an increase in the firm's market value from the expansion of its existing multinational network.
Underpricing of Newly Issued Bonds: Evidence from the Swiss Capital Market
Authors: WASSERFALLEN WALTER , WYDLER DANIEL 
Published: April 2012

ABSTRACTThe pricing of newly issued bonds on the Swiss capital market is investigated over the years 1980–1982. The results reveal a slight underpricing of new bonds at the issue date that is roughly equal to the difference in transactions costs between the markets for new and seasoned bonds. Underpricing is no longer observed when the new bonds start to be traded on the stock exchange, that is, after about two days. Tests of several hypotheses show that unexpected changes in interest rates over the offering period explain part of the underpricing.
Investing in Bankrupt Firms
Authors: MORSE DALE , SHAW WAYNE 
Published: April 2012

ABSTRACTWe examine the investment characteristics of firms electing to enter bankruptcy, between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. Our results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankrupt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantly with the filing of bankruptcy, but there is a significant increase in return variance. The financial markets also react to various announcements of stages in the reorganization process.