bluuebunny/crossref_metadata_2025_split huggingface dataset:
Pricing New Corporate Bond Issues: An Analysis of Issue Cost and Seasoning Effects
Authors: FUNG W. K. H. , RUDD ANDREW 
Published: April 2012

ABSTRACTThe pricing of new corporate bond issues is examined, with particular emphasis on the seasoning effect and the cost of underwriting. Considerable attention is paid to some special features of the corporate bond market, including the use of actual trader quotes so as to accurately measure holding period returns. Our results suggest that the cost of issuing corporate bonds is less than previously reported.
On Timing and Selectivity
Authors: ADMATI ANAT R. , BHATTACHARYA SUDIPTO , PFLEIDERER PAUL , ROSS STEPHEN A. 
Published: April 2012

ABSTRACTThe dichotomy between timing ability and the ability to select individual assets has been widely used in discussing investment performance measurement. This paper discusses the conceptual and econometric problems associated with defining and measuring timing and selectivity. In defining these notions we attempt to capture their intuitive interpretation. We offer two basic modeling approaches, which we term the portfolio approach and the factor approach. We show how the quality of timing and selectivity information can be identified statistically in a number of simple models, and discuss some of the econometric issues associated with these models. In particular, a simple quadratic regression is shown to be valid in measuring timing information.
The Impact of Preferred‐for‐Common Exchange Offers on Firm Value
Authors: PINEGAR J. MICHAEL , LEASE RONALD C. 
Published: April 2012

ABSTRACTThis paper examines the impact of capital structure changes which have no corporate tax consequences. Specifically, exchange offers involving preferred and common stock are analyzed. We find that systematic changes in firm value occur when companies announce preferred‐for‐common exchange offers. Consequently, we interpret our results to be consistent with a signalling hypothesis. We also find weaker evidence suggesting the existence of agency cost effects or wealth redistributions across security classes. Our findings imply that capital structure changes need not alter the tax status of the issuing firm to affect firm value.
Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures
Authors: HARRIS LAWRENCE , GUREL EITAN 
Published: April 2012

ABSTRACTAttempts to identify price pressures caused by large transactions may be inconclusive if the transactions convey new information to the market. This problem is addressed in an examination of prices and volume surrounding changes in the composition of the S&P 500. Since these changes cause some investors to adjust their holdings of the affected securities and since it is unlikely that the changes convey information about the future prospects of these securities, they provide an excellent opportunity to study price pressures. The results are consistent with the price‐pressure hypothesis: immediately after an addition is announced, prices increase by more than 3 percent. This increase is nearly fully reversed after 2 weeks.
Volume for Winners and Losers: Taxation and Other Motives for Stock Trading
Authors: LAKONISHOK JOSEF , SMIDT SEYMOUR 
Published: April 2012

ABSTRACTCapital gains taxes create incentives to trade. Our major finding is that turnover is higher for winners (stocks, the prices of which have increased) than for losers, which is not consistent with the tax prediction. However, the turnover in December and January is evidence of tax‐motivated trading; there is a relatively high turnover for losers in December and for winners in January. We conclude that taxes influence turnover, but other motives for trading are more important. We were unable to find evidence that changing the length of the holding period required to qualify for long‐term capital gains treatment affected turnover.
The Geometry of the Maximum Likelihood Estimator of the Zero‐Beta Return
Authors: KANDEL SHMUEL 
Published: April 2012

ABSTRACTThis paper explores geometric relations, in mean‐variance space, among the sample frontier, the maximum likelihood estimator, and two other estimators of the zerobeta return. It is also demonstrated that a partition of the portfolio space is determined by a family of parabolas; the zeros of each parabola are the maximum likelihood estimators associated with all portfolios on the parabola. This observation is the basis for an additional interpretation of the statistic of the Likelihood Ratio Test of portfolio efficiency without a riskless asset.
Equilibrium Interest Rates and Multiperiod Bonds in a Partially Observable Economy
Authors: DOTHAN MICHAEL U. , FELDMAN DAVID 
Published: April 2012

ABSTRACTThis paper analyzes the market for financial assets in a production and exchange economy with several realized outputs and a single unobservable source of nondiversifiable risk. The paper demonstrates that, for a large class of diffusion outputs and preferences, optimizing consumers first estimate the realizations of the unobservable factor and then use these estimates to determine portfolio and consumption rules. Moreover, the explicit consideration of this unobservable productivity factor affects equilibrium demands and prices. The equilibrium spot rate of interest emerges as the “best estimate” of the unobservable factor, and multiperiod default‐free bonds arise as the optimal hedge for the unobservable changes of the stochastic investment opportunity set.
A Model of Dynamic Takeover Behavior
Authors: GIAMMARINO RONALD M. , HEINKEL ROBERT L. 
Published: April 2012

ABSTRACTSeveral observed features of takeover contests appear to be inconsistent with value‐maximizing behavior on the part of the agents involved. For instance, managers occasionally resist takeover bids, presumably in order to facilitate competition among bidders. However, counterbids do not always materialize, suggesting that management resistance was not in the best interests of the firm's shareholders. On the other hand, a successful takeover is sometimes accompanied by a decrease in the value of the acquirer's shares. In addition, valuable combinations are occasionally not consummated.We present a simple illustration of sequential takeover bidding in which all managers act in the best interests of their respective shareholders. Within the context of this model, we provide an explanation of the type of behavior described above.
Expectations of Exchange Rates and Differential Inflation Rates: Further Evidence on Purchasing Power Parity in Efficient Markets
Authors: HUANG ROGER D. 
Published: April 2012

ABSTRACTThe paper tests the null hypothesis of ex ante purchasing power parity. The empirical evidence obtained is inconsistent with the null for major industrialized countries over the current floating exchange rate regime. Expected nominal exchange rate changes appear to deviate systematically from expected inflation rate differentials over the same holding period even though real exchange rate changes appear to be serially uncorrelated. This supports the presence of time‐varying risk premia in foreign exchange markets and real determinants of exchange rate movements as suggested by equilibrium theories of international asset markets.
A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends
Authors: OFER AHARON R. , THAKOR ANJAN V. 
Published: April 2012

ABSTRACTThis paper develops a model in which managers can signal their firms' true values by using either a dividend or a stock repurchase or both. The authors explain a number of stylized facts about these cash‐disbursement mechanisms, particularly those concerning the relative magnitudes of stock price responses to dividends and repurchases. Most importantly, they explain why a stock repurchase elicits a significantly higher price response, on average, than a dividend announcement.
Costless Signalling in Financial Markets
Authors: FRANKE GÜNTER 
Published: April 2012

ABSTRACTA costless, fully revealing signalling equilibrium is derived from two easily understandable conditions. The outsider‐rationality condition states that the outsiders relate the price that they offer to pay for a security inversely to the supply of this security, which they interpret as a quality signal. The no‐arbitrage condition requires that the marginal exchange rate for two securities be the same in both primary and secondary markets. These conditions restrict the firm's financing policy and have strong implications for the valuation of securities and of the total firm. A costless signalling equilibrium is obtained.
The Effect of Long‐Term Performance Plans on Corporate Sell‐Off‐Induced Abnormal Returns
Authors: TEHRANIAN HASSAN , TRAVLOS NICKOLAOS G. , WAEGELEIN JAMES F. 
Published: April 2012

ABSTRACTThis study examines the association between long‐term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell‐off proposals. The results indicate that divesting companies with long‐term performance plans experience a more favorable stock market reaction at the announcement of sell‐off proposals relative to firms without long‐term performance plans. The findings imply that long‐term performance plans serve as an effective mechanism to motivate managers to make better decisions.
Optimal Hedging in Futures Markets with Multiple Delivery Specifications
Authors: KAMARA AVRAHAM , SIEGEL ANDREW F. 
Published: April 2012

ABSTRACTNearly all futures contracts allow delivery of any of several qualities of the underlying asset. Consequently, the price of the futures contract is associated more with the price of the expected cheapest deliverable variety than with the price of the par‐delivery variety. The delivery specifications introduce a delivery risk for every hedger in the market. We derive the optimal hedging strategies in these markets. Their hedging effectiveness is evaluated for wheat futures contracts in Chicago. Hedging optimally would have significantly reduced the variance of the rates of return on hedges while yielding similar mean returns.
Off‐Board Trading of NYSE‐Listed Stocks: The Effects of Deregulation and the National Market System
Authors: HAMILTON JAMES L. 
Published: April 2012

ABSTRACTAn econometric time‐series model of off‐board trading of NYSE‐listed stocks shows that high NYSE commission rates were an incentive for third‐market trading but that trading on the regional exchanges, which is most of the off‐board trading, has been affected very little by commissions or their deregulation. The effects of some changes in the trading organization and rules are estimated, including several that are part of the emerging National Market System. The estimates imply that the NMS has increased competition for the NYSE, as Congress intended, and has prompted the NYSE to improve its performance to retain market share.
The Market Reaction to Stock Splits
Authors: LAMOUREUX CHRISTOPHER G. , POON PERCY 
Published: April 2012

ABSTRACTIn this paper, a model of market reaction to stock splits is presented and tested. We argue that the announcement of a split sets off the following chain of events. The market recognizes that, subsequent to the (reverse) split ex‐day, the daily number of transactions along with the raw volume of shares traded will increase (decrease). This increase in volume results in an increase in the noisiness of the security's return process. The increase in noise raises the tax‐option value of the stock, and it is this value that generates the announcement effect of stock splits. Empirical evidence using security returns, daily trading volume, and shareholder data strongly supports this theory. The evidence, in conjunction with this theory, also agrees with extant literature that splits result in decreased liquidity, but there is no evidence that this reduction in liquidity is priced.
Trading Mechanisms and Stock Returns: An Empirical Investigation
Authors: AMIHUD YAKOV , MENDELSON HAIM 
Published: April 2012

ABSTRACTThis paper examines the effects of the mechanism by which securities are traded on their price behavior. We compare the behavior of open‐to‐open and close‐to‐close returns on NYSE stocks, given the differences in execution methods applied in the opening and closing transactions. Opening returns are found to exhibit greater dispersion, greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns. We study the effects of the bid‐ask spread and the price‐adjustment process on the estimated return variances and covariances and discuss the associated biases. We conclude that the trading mechanism has a significant effect on stock price behavior.
Growth Opportunities and Risk‐Taking by Financial Intermediaries
Authors: HERRING RICHARD J. , VANKUDRE PRASHANT 
Published: April 2012

ABSTRACTWe show that growth opportunities which cannot be converted to cash under conditions of financial distress are a critical determinant of an intermediary's choice of risk. Financial institutions in which is a low proportion of total assets will be much more likely to engage in go‐for‐broke behavior. The model leads to a reevaluation of the effectiveness of several traditional remedies for dealing with banks that take excessive risks such as raising insurance premiums, intervening before capital is depleted, and restricting investment options. The model also has implications about a new approach to the examination of financial intermediaries.
Risk‐Shifting Incentives and Signalling Through Corporate Capital Structure
Authors: JOHN KOSE 
Published: April 2012

ABSTRACTThis paper examines optimal corporate financing arrangements under asymmetric information for different patterns of temporal resolution of uncertainty in the underlying technology. An agency problem, a signalling problem and an agency‐signalling problem arise as special cases. The associated informational equilibria and the optimal financing arrangements are characterized and compared. In the agency‐signalling equilibrium the private information of corporate insiders at the time of financing is signalled through capital structure choices which deviate optimally from agency‐cost minimizing financing arrangements, which in turn induce risk‐shifting incentives in the investment policy. In the pure signalling case the equilibrium is characterized by direct contractual precommitments to implement investment policies which are riskier than pareto‐optimal levels. Empirical implications for debt covenants and the announcement effect of investment policies and leverage increasing transactions on existing stock and bond prices are explicitly derived.
The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study
Authors: COPELAND THOMAS E. , FRIEDMAN DANIEL 
Published: April 2012

ABSTRACTA complete understanding of security markets requires a simultaneous explanation of price behavior, trading volume, portfolio composition (ie., asset allocation), and bid‐ask spreads. In this paper, these variables are observed in a controlled setting—a computerized double auction market, similar to NASDAQ. Our laboratory allows experimental control of information arrival—whether simultaneously or sequentially received, and whether homogeneous or heterogeneous. We compare the price, volume, and share allocations of three market equilibrium models: telepathic rational expectations, which assumes that traders can read each others minds (strong‐form market efficiency); ordinary rational expectations, which assumes traders can use (some) market price information, (a type of semi‐strong form efficiency); and private information, where traders use no market information. We conclude 1) that stronger‐form market models predict equilibrium prices better than weaker‐form models, 2) that there were fewer misallocation forecasts in simultaneous information arrival (SIM) environments, 3) that trading volume was significantly higher in SIM environments, 4) and that bid‐ask spreads widen significantly when traders are exposed to price uncertainty resulting from information heterogeneity.
Implied Spot Rates as Predictors of Currency Returns: A Note
Authors: PETERSON DAVID R. , TUCKER ALAN L. 
Published: April 2012

ABSTRACTCurrency call option transactions data and the Black‐Scholes option pricing model, as modified by Merton for continuous dividends and as adapted to currency options by Biger and Hull and by Garman and Kohlhagen, are used to imply spot foreign exchange rates. The proportional deviation between implied and simultaneously observed spot rates is found to be a direct and statistically significant determinant of subsequent returns on foreign currency holdings after controlling for interest rate differentials. Further, an ex ante trading rule reveals that the additional information contained in implied rates often is sufficient to generate significant economic profits.
Term Structure Multiplicity and Clientele in Markets with Transactions Costs and Taxes
Authors: DERMODY JAIME CUEVAS , PRISMAN ELIEZER ZEEV 
Published: April 2012

ABSTRACTThe authors investigate term structure with realistic transactions costs and taxes. Its properties are derived from a certain no‐arbitrage condition via duality theory in convex programming. Transactions costs imply an infinite multiplicity of term structures. A simple example with realistic transactions costs shows that this multiplicity can induce a valuation range of over 277 basis points. Transactions costs also allow equilibrium without short sale restrictions. The authors find the minimum transactions costs that prevent arbitrage. In addition, the exact conditions for weak clientele, in which investors will not buy some bonds and may not sell any that they already hold, are established.
Was the Tax‐Exempt Bond Market Inefficient or Were Future Expected Tax Rates Negative?
Authors: KOCHIN LEVIS A. , PARKS RICHARD W. 
Published: April 2012

ABSTRACTThis paper shows that the sharp narrowing with maturity of the spread between taxable and tax‐exempt yields leaves room for tax arbitrage. At times, tax‐exempt forward rates have exceeded taxable forward rates. At such times, only expectations of higher taxes on Treasury than on municipal bonds would eliminate profit opportunities. The authors develop the idea of forward tax rates and compute forward tax rates for 1955 through 1984. They also outline tax‐arbitrage mechanisms involving private forward sale of long municipal bonds or the use of the Municipal Bond Futures Contract and show the potential profits.
Capital Structure Theory and REIT Security Offerings
Authors: HOWE JOHN S. , SHILLING JAMES D. 
Published: April 2012

ABSTRACTIn this paper, we examine the stock price reactions to announcements of new security offerings by Real Estate Investment Trusts (REITs). REITs offer a unique setting in which to study these events because they do not pay taxes at the firm level. Theory suggests that the net tax gain to corporate borrowing is unambiguously negative for a REIT. Contrary to some recent studies, however, we find a positive stock price reaction to debt offerings, while the negative equity‐issuance effect is preserved. Further empirical evidence lends support to signalling as the explanation for the positive significant debt‐issuance effect.
Option Bounds with Finite Revision Opportunities
Authors: RITCHKEN PETER H. , KUO SHYANJAW 
Published: April 2012

ABSTRACTThis article generalizes the single‐period linear‐programming bounds on option prices by allowing for a finite number of revision opportunities. It is shown that, in an incomplete market, the bounds on option prices can be derived using a modified binomial option‐pricing model. Tighter bounds are developed under more restrictive assumptions on probabilities and risk aversion. For this case the upper bounds are shown to coincide with the upper bounds derived by Perrakis, while the lower bounds are shown to be tighter.
An Unconditional Asset‐Pricing Test and the Role of Firm Size as an Instrumental Variable for Risk
Authors: CHAN K. C. , CHEN NAI‐FU 
Published: April 2012

ABSTRACTIn an intertemporal economy where both risk (stock beta) and expected return are time varying, the authors derive a linear relation between the unconditional beta and the unconditional return under certain stationarity assumptions about the stochastic process of size‐portfolio betas. The model suggests the use of long time periods to estimate the unconditional portfolio betas. The authors find that, after controlling for the betas thus estimated, a firm‐size proxy, such as the logarithm of the firm size, does not have explanatory power for the averaged returns across the size‐ranked portfolios.
Bond Covenants and Delegated Monitoring
Authors: BERLIN MITCHELL , LOEYS JAN 
Published: April 2012

ABSTRACTThis paper examines alternative contracting arrangements available to a firm seeking to finance an investment project. The authors consider the choice between loan contracts with covenants based on noisy indicators of the firm's financial health and loan contracts enforced by a monitoring specialist. In one interpretation, the specialist is a financial intermediary. The firm's choice is shown to depend upon the firm's credit rating, the accuracy of financial indicators of the firm's condition, the loss from premature liquidation of the firm's project, and the cost of monitoring.
Estimating the Volatility of Discrete Stock Prices
Authors: CHO D. CHINHYUNG , FREES EDWARD W. 
Published: April 2012

ABSTRACTThis paper introduces an estimator of stock price volatility that eliminates, at least asymptotically, the biases that are caused by the discreteness of observed stock prices. Assuming that the observed stock prices are continuously monitored, an estimator is constructed using the notion of how quickly the price changes rather than how much the price changes. It is shown that this estimator has desirable asymptotic properties, including consistency and asymptotic normality. Also, through a simulation study, the authors show that it outperforms natural estimators for the low‐ and middle‐priced stocks. Furthermoret, he simulation study demonstratest hat the proposed estimator is robust to certain misspecifications in measuring the time between price changes.
Risk in Banking and Capital Regulation
Authors: KIM DAESIK , SANTOMERO ANTHONY M. 
Published: April 2012

ABSTRACTThis paper investigates the role of bank capital regulation in risk control. It is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance. Bank capital regulation is a way to redress this bias toward risk. Utilizing the mean‐variance model, the following results are shown: (a) the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks; (b) as a solution to problems of the capital ratio regulation, the “theoretically correct” risk weights under the risk‐based capital plan are explicitly derived; and (c) the “theoretically correct” risk weights are restrictions on asset composition, which alters the optimal portfolio choice of banking firms.
A Note on Unsuccessful Tender Offers and Stockholder Returns
Authors: FABOZZI FRANK J. , FERRI MICHAEL G. , FABOZZI T. DESSA , TUCKER JULIA 
Published: April 2012

ABSTRACTRecent research shows that unsuccessful tender offers may affect target share returns for two years past the offer's announcement. This note examines target returns in the interim between the announcement and one year after the offer's withdrawal. Analyzing a recent sample of targets that did not get another bid in the year following a failed tender offer, this study reaches two conclusions. First, all of an offer's premium disappears by the time failure becomes public. Second, excess returns are zero in the post‐failure year. An explanation that is based on the causes of the tender offers' failures is presented.