bluuebunny/crossref_metadata_2025_split huggingface dataset:
The Ex‐Dividend Day Behavior of Canadian Stock Prices: Tax Changes and Clientele Effects
Authors: BOOTH L. D. , JOHNSTON D. J. 
Published: April 2012

ABSTRACTWith some simple assumptions the ex‐dividend day price drop and the associated dividend can be used to measure the market's marginal tax rate. Previous research has estimated the implied tax rate for the U.S. This paper extends the analysis to Canada, where the tax treatment of dividends and capital gains is completely different from that in the U.S. The paper also presents estimates from 1970–80 to include four distinct periods when the tax treatment was different. Hence, we include an implied test of market efficiency as well as those for the “relevance” of taxes and the existence of tax based dividend clienteles.
Investigating the Valuation Effects of Announcements of Voluntary Corporate Selloffs
Authors: ALEXANDER GORDON J. , BENSON P. GEORGE , KAMPMEYER JOAN M. 
Published: April 2012

ABSTRACTWhile there has been an abundance of empirical research on the subject of mergers and acquisitions, little research exists on a closely related topic—voluntary corporate selloffs. This study examines the effect on shareholder wealth of the announcement by management of an investment decision to voluntarily sell part of its operations to another firm. Positive abnormal returns are found to occur on the announcement date. However, it is found that such selloffs generally occur after a period of abnormally negative returns, suggesting the announcement is preceded by the release of negative information about the firm.
Option Pricing Bounds in Discrete Time
Authors: PERRAKIS STYLIANOS , RYAN PETER J. 
Published: April 2012

ABSTRACTUpper and lower bounds are derived for call options traded at discrete intervals. These bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being “non‐negative beta.” The development of the bounds relies on the single‐price law and arbitrage arguments. Both single‐period and multiperiod results are produced, and put option bounds follow by extension. The bounds exist as equilibrium values given a consensus on stock price distribution; they are also valid for empirical studies, being adjustable for dividends and commissions.
Municipal Bond Demand Premiums and Bond Price Volatility: A Note
Authors: STOCK DUANE , SCHREMS EDWARD L. 
Published: April 2012

ABSTRACTThe behavior of different components of municipal bond yields may have a significant impact upon bond price behavior. Specifically, demand premiums created by banks may stabilize bond yields in some maturity ranges but not in others; for example, short‐term municipals may be stabilized but not long‐term. This research implies that bank demand behavior may create demand premiums that stabilize prices of short‐term municipal bonds relative to those of Treasury bonds of like maturity. While this implication is inconsistent with the residual theory of bank demand, it is consistent with the tax‐shield theory attributed to Hendershott and Koch [3, 4].
Expectations, Surprises and Treasury Bill Rates: 1960–82
Authors: HENDERSHOTT PATRIC H. 
Published: April 2012

ABSTRACTChanges in six‐month bill rates over semiannual periods in the 1960s and 1970s are successfully related to expected changes and to surprises. The latter include unanticipated changes in expected inflation, in the growth of industrial production and base money, and in inflation uncertainty. Estimation of the basic equation through the middle of 1983 does not suggest any change in structure. Moreover the equation “explains” 60 percent of the extraordinarily high level of real rates since late 1980, largely owing to an excess of unexpected net increases in anticipated inflation over actual increases.Our estimates provide some support for the expectations theory; there appears to be information content in six–month forward rates. While this content is swamped by the impact of surprises in equations explaining rate changes in terms of forward rates alone, the content is clear when proxies for the surprises are included in the equations.
Capital Structure Equilibrium under Market Imperfections and Incompleteness
Authors: SENBET LEMMA W. , TAGGART ROBERT A. 
Published: April 2012

ABSTRACTThis paper generalizes Miller's supply‐side equilibrium argument to other forms of capital market imperfections and incompleteness. If corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries. Corporations' attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole, but in equilibrium the capital structure of any single firm is a matter of indifference. In addition, the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties.
Commodity Bonds and Consumption Risks
Authors: O'HARA MAUREEN 
Published: April 2012

ABSTRACTThis paper analyzes the economic role of commodity bonds by examining the nature of the demand for these securities. I show that while commodity bonds protect against relative price changes, they do so by introducing variability into the future real income stream. This variability limits the desirability of using commodity bonds to provide “price insurance” for future consumption. However, this variability may allow commodity bonds to hedge risks to consumption caused by stochastic changes in income. The analysis also suggests that it is this “income insurance” rather than “price insurance” that is important in hedging risks to future consumption.
Arbitrage Pricing Theory and Utility Stock Returns
Authors: BOWER DOROTHY H. , BOWER RICHARD S. , LOGUE DENNIS E. 
Published: April 2012

ABSTRACTThis paper presents some new evidence that Arbitrage Pricing Theory may lead to different and better estimates of expected return than the Capital Asset Pricing Model, particularly in the case of utility stock returns. Results for monthly portfolio returns for 1971–1979 lead to the conclusion that regulators should not adopt the single‐factor risk approach of the CAPM as the principal measure of risk, but give greater weight to APT, whose multiple factors provide a better indication of asset risk and a better estimate of expected return.
The Leasing Puzzle
Authors: ANG JAMES , PETERSON PAMELA P. 
Published: April 2012

ABSTRACTPrevailing theories in finance and economics suggest that leases and debt are substitutes; an increase in one should led to a compensating decrease in the other. In particular, there are three views on the magnitude of the substitution coefficient. Standard finance theory treats cash flows from lease obligations as equivalent to debt cash flows, thus describing the tradeoff between debt and leases as one‐to‐one. Others are willing to use a tradeoff of leases for debt which is less than, but close to, one. The rationale for a dollar of leases using less of debt capacity than a dollar of debt obligation is based upon the differences in the terms and nature of lease and debt contracts. Finally, there are some who argue that since leased assets may be firm‐specific, the risk of moral hazard may be great, resulting in a tradeoff of greater than one‐to‐one; that is, a dollar of a lease obligation uses more of debt capacity than a dollar of a debt obligation.A series of empirical tests are performed in this study on samples of approximately 600 firms, covering the years 1976 through 1981, with none of the three views supported by the results. Instead, the results indicate that leases and debt are complements; greater use of debt is associated with a greater use of leasing. This finding reappears consistently for each year, each definition of leverage ratios, and each approach to analysis. This complementary relationship persists even after refinements are made to the estimation technique.
Continuous Maturity Diversification of Default‐Free Bond Portfolios and a Generalization of Efficient Diversification
Authors: HEANEY W. JOHN , CHENG PAO L. 
Published: April 2012

ABSTRACTThis paper presents a method for solving the mean‐variance portfolio selection problem that is applicable to the case where the number of securities is nondenumerably infinite. Necessary conditions for the existence of an optimal portfolio density are obtained and an expression for the efficient frontier is derived. The conditions for the existence of an optimal portfolio of continuously maturing bonds when their covariance matrix is singular are used to derive an arbitrage‐free bond pricing equation. A method for estimating the covariance matrix and the associated efficient frontier is presented.
The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions
Authors: FLANNERY MARK J. , JAMES CHRISTOPHER M. 
Published: April 2012

ABSTRACTThis paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co‐movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.
A Theoretic Framework for the Analysis of Credit Union Decision Making
Authors: SMITH DONALD J. 
Published: April 2012

ABSTRACTThis paper presents a formal theoretic framework to analyze credit union interest rates on loans and savings deposits. The unique motivational and institutional features of a credit union, in particular its structure as a financial service cooperative, are used to develop the objective function. This is based on a comparison of the credit union's rates to alternatively available market rates and includes parameters to recognize the possibility of borrower‐saver conflict. The principal result is that the optimal rates and reactions to exogenous changes depend critically on the preference of the organization toward financial gain to the borrowing and saving members.
Taxes and the Theory of Trade Debt
Authors: BRICK IVAN E. , FUNG WILLIAM K. H. 
Published: April 2012

ABSTRACTIn this paper, we show that taxes motivate the flow of trade credit without involving the assumption of credit market imperfections. The direction of trade credit flow depends on the distribution of marginal tax rates among buyers and sellers. In equilibrium, the trade credit decision follows a tax‐induced clientele on both the supply and demand side.
An Analysis of Brokers' and Analysts' Unpublished Forecasts of UK Stock Returns
Authors: DIMSON ELROY , MARSH PAUL 
Published: April 2012

ABSTRACTThis paper describes an empirical study of over 4000 specific share return forecasts made by 35 UK stockbrokers and by the internal analysts of a large UK investment institution. A comparison of forecast and realised returns reveals a small but potentially useful degree of forecasting ability. A large part of the information content of the forecasts, however, appears to be discounted in the market place within the first month. Nevertheless, an analysis of some 3000 transactions motivated by, and executed at the time of, the forecasts shows that the apparent predictive ability of the recommendations could be translated into superior performance by the fund's investment managers. Differences in forecasting ability between brokers do not appear to persist over time, but predictive accuracy can be improved by pooling simultaneous forecasts from different sources.
Credit Rationing and Financial Disorder
Authors: GUTTENTAG JACK , HERRING RICHARD 
Published: April 2012

ABSTRACTWe develop a model of lender behavior in the presence of default risk and moral hazard that determines default premiums and identifies the conditions under which borrowers are rationed. A hypothesis regarding a cognitive bias in the formation of expectations provides a dynamic component to our analysis and allows us to explain how an economy becomes vulnerable to a financial crisis and why vulnerability may increase over time.
The Structure of Asset Prices and Socially Useless/Useful Information
Authors: OHLSON JAMES A. 
Published: April 2012

ABSTRACTThis paper relates the value of additional information to asset prices in a pure exchange setting. The price structure of interest revolves around a “pricing‐hypothesis”: the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy. Two basic results are developed. First, if the incremental information is useless then the pricing‐hypothesis applies. Second, if the pricing hypothesis is assumed valid, then the information is valuable in a weak sense. The results are also considered in the context of empirical research. The case is made for viewing statistical tests of association between prices and signals as tests of the social value of information.
Additional Evidence on the Relation Between Divestiture Announcements and Shareholder Wealth
Authors: ROSENFELD JAMES D. 
Published: April 2012

ABSTRACTThis paper presents estimates of the effect of voluntary divestiture announcements on shareholder wealth. The results show that both spin‐off and sell‐off announcements tend to have a positive influence on the stock prices of the divesting firms, and that the spin‐offs “outperform” the sell‐offs on the day of the event. We also find that the economic gains to the shareholders of the selling and acquiring firms are nearly identical, suggesting that the sell‐off decision is perceived by both investor groups as a positive net present value (NPV) transaction.
A Risk Minimizing Strategy for Portfolio Immunization
Authors: FONG H. GIFFORD , VASICEK OLDRICH A. 
Published: April 2012

ABSTRACTConsider a fixed‐income portfolio whose duration is equal to the length of a given investment horizon. It is shown that there is a lower limit on the change in the end‐of‐horizon value of the portfolio resulting from any given change in the structure of interest rates. This lower limit is the product of two terms, of which one is a function of the interest rate change only, and the other depends only on the structure of the portfolio. Consequently, this second term provides a measure of immunization risk. If this measure is minimized, the exposure of the portfolio to any interest rate change is the lowest.
New Findings Regarding Day‐of‐the‐Week Returns over Trading and Non‐Trading Periods: A Note
Authors: ROGALSKI RICHARD J. 
Published: April 2012

ABSTRACTThis paper decomposes daily close to close returns into trading day and non‐trading day returns. We discover that all of the average negative returns from Friday close to Monday close documented in the literature for stock market indexes occurs during the non‐trading period from Friday close to Monday open. In addition, average trading day returns (open to close) are identical for all days of the week. January/firm size/turn‐of‐the‐year anomalies are shown to be interrelated with day‐of‐the‐week returns.
Upper and Lower Bounds of Put and Call Option Value: Stochastic Dominance Approach
Authors: LEVY HAIM 
Published: April 2012

ABSTRACTApplying stochastic dominance rules with borrowing and lending at the risk‐free interest rate, we derive upper and lower values for an option price for all unconstrained utility functions and alternatively for concave utility functions. The derivation of these bounds is quite general and fits any kind of stock price distribution as long as it is characterized by a “nonnegative beta.”Transaction costs and taxes can be easily incorporated in the model presented here since investors are not required to revise their portfolios continuously. The “price” that is paid for this generalization is that a range of values rather than a unique value is obtained.
The Valuation of Options on Futures Contracts
Authors: RAMASWAMY KRISHNA , SUNDARESAN SURESH M. 
Published: April 2012

ABSTRACTRational restrictions are derived for the values of American options on futures contracts. For these options, the optimal policy, in general, involves premature exercise. A model is developed for valuing options on futures contracts in a constant interest rate setting. Despite the fact that premature exercise may be optimal, the value of this American feature appears to be small and a European formula due to Black serves as a useful approximation. Finally, a model is developed to value these options in a world with stochastic interest rates. It is shown that the pricing errors caused by ignoring the location of the interest rate (relative to its long‐run mean) range from −5% to 7%, when the current rate is ±200 basis points from its long‐run value. The role of interest rate expectations is, therefore, crucial to the valuation. Optimal exercise policies are found from numerical methods for both models.
On the Optimality of Portfolio Insurance
Authors: BENNINGA SIMON , BLUME MARSHALL 
Published: April 2012

ABSTRACTThis paper examines the optimality of an insurance strategy in which an investor buys a risky asset and a put on that asset. The put's striking price serves as the insurance level. In complete markets, it is highly unlikely that an investor would utilize such a strategy. However, in some types of less complete markets, an investor may wish to purchase a put on the risky asset. Given only a risky asset, a put, and noncontinuous trading, an investor would purchase a put as a way of introducing a risk‐free asset into the portfolio. If, in addition, there is a risk‐free asset and the investor's utility function displays constant proportional risk‐aversion, then the investor would buy the risk‐free asset directly and not buy a put. In sum, only under the most incomplete markets would an investor find an insurance strategy optimal.
Approximate Factor Structures: Interpretations and Implications for Empirical Tests
Authors: GRINBLATT MARK , TITMAN SHERIDAN 
Published: April 2012

ABSTRACTThis paper provides some new insights about approximate factor structures, as defined by Chamberlain and Rothschild [2], and their implications for empirical tests. First, we show that any economy that satisfies an approximate factor structure can be transformed, in a manner that does not alter the characteristics of investor portfolios, into an economy that satisfies an exact factor structure, as defined by Ross [9]. Second, we show that principal components analysis represents just one of many methods of forming groups of well‐diversified portfolios with no idiosyncratic risk in large samples. Correct factor loadings will be obtained by regressing security returns on any group of these portfolios. Our interpretations of the Chamberlain and Rothschild results also provide additional insights into the testability of the Arbitrage Pricing Theory. We show that securities cannot be repackaged to hide factors in the manner suggested by Shanken [10] without the variance of some of the repackaged securities approaching infinity in large economies.
A VARMA Analysis of the Causal Relations Among Stock Returns, Real Output, and Nominal Interest Rates
Authors: JAMES CHRISTOPHER , KOREISHA SERGIO , PARTCH MEGAN 
Published: April 2012

ABSTRACTPrevious research has documented a negative relation between common stock returns and inflation. Recently, Fama[3]and Geske and Roll[6]have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.
A Model for the Determination of “Fair” Premiums on Lease Cancellation Insurance Policies
Authors: SCHALLHEIM JAMES S. , McCONNELL JOHN J. 
Published: April 2012

ABSTRACTLease cancellation insurance protects the lessor against early termination of a cancellable operating lease. This paper presents a contingent claims model for determining the “fair” premium for this type of insurance policy. Comparative statics are considered, and some numerical examples are presented to illustrate the model. Among other things, the insurance premium is sensitive to the expected rate of economic depreciation of the leased asset and to the leased asset's systematic and nonsystematic risk.
The Puzzle of Financial Leverage Clienteles
Authors: SARIG ODED , SCOTT JAMES 
Published: April 2012

ABSTRACTEmpirically, it appears that common stock of publicly traded corporations with high‐debt ratios tends to be held by investors with relatively low marginal taxes while the stock in companies with little debt is held by investors in high‐tax brackets. A number of authors have argued that in an equilibrium similar to the one described by Miller [8], these clienteles should exist. We argue that standard portfolio theory does not imply financial leverage clienteles for publicly traded firms. We explain the empirical relationship between investor tax rates and leverage ratios by the existence of dividend clienteles and a positive relationship between dividend yield and leverage ratios.
Implications of the Discreteness of Observed Stock Prices
Authors: GOTTLIEB GARY , KALAY AVNER 
Published: April 2012

ABSTRACTStock prices on the organized exchanges are restricted to be divisible by ⅛. Therefore, the “true” price usually differs from the observed price. This paper examines the biases resulting from the discreteness of observed stock prices. It is shown that the natural estimators of the variance and all of the higher order moments of the rate of returns are biased. An approximate set of correction factors is derived and a procedure is outlined to show how the correction can be made. The natural estimators of the “beta” and of the variance of the market portfolio, on the other hand, are “nearly” unbiased.
The Price Elasticity of Demand for Whole Life Insurance
Authors: BABBEL DAVID F. 
Published: April 2012

ABSTRACTIn this study a real price index is created for whole life insurance sold in the United States from 1953 to 1979. New purchases of whole life insurance are shown to be negatively related to changes in this cost index, contrary to what has been widely accepted in the insurance literature, but consistent with economic theory. The existence of strong price elasticity of demand for whole life insurance does not ensure, however, that the insurance industry manifests a high degree of price competition.
Introducing Recursive Partitioning for Financial Classification: The Case of Financial Distress
Authors: FRYDMAN HALINA , ALTMAN EDWARD I. , KAO DUEN‐LI 
Published: April 2012

ABSTRACTThe purpose of this study is to present a new classification procedure, Recursive Partitioning Algorithm (RPA), for financial analysis and to compare it with discriminant analysis within the context of firm financial distress. RPA is a computerized, nonparametric technique based on pattern recognition which has attributes of both the classical univariate classification approach and multivariate procedures. RPA is found to outperform discriminant analysis in most original sample and holdout comparisons. We also observe that additional information can be derived by assessing both RPA and discriminant analysis results.