bluuebunny/crossref_metadata_2025_split huggingface dataset:
The Domino Effect and the Supervision of the Banking System
Authors: PAROUSH JACOB 
Published: April 2012

ABSTRACTThe paper models the domino effect and defines a measurement for the necessity of banking supervision. The effect of several factors, such as the desired stability of the banking system, its size, the amount of negative externalities that are considered by banks, and supervisory costs, on the necessity of supervision are studied. For instance, it was found that, under certain circumstances, supervision becomes less essential if the number of banks increases. The paper has also emphasized that objective difficulties in the supervision of banks, by simply imposing restrictions on their activities, are intrinsic to the operation of the banks themselves. The paper provides some insight into the current debate as to the necessity or redundancy of supervision and regulation.
A Tax‐Induced Clientele for Index‐Linked Corporate Bonds
Authors: HOCHMAN SHALOM , PALMON ODED 
Published: April 2012

ABSTRACTThis paper analyzes the circumstances under which tax considerations favor or disfavor the use of index‐linked corporate bonds. Using a model similar to Miller's, investors' choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns. It is concluded that the absence of index‐linked bonds in the U.S. cannot be attributed solely to tax reasons. However, following the 1986 Tax Reform Act, the tax code is expected to disfavor the use of index‐linked bonds.
Compensation and Incentives: Practice vs. Theory
Authors: BAKER GEORGE P. , JENSEN MICHAEL C. , MURPHY KEVIN J. 
Published: April 2012

ABSTRACTA thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by traditional economic theory—including egalitarian pay systems in which compensation is largely independent of performance, the overwhelming use of promotion‐based incentive systems, the absence of up‐front fees for jobs and effective bonding contracts, and the general reluctance of employers to fire, penalize, or give poor performance evaluations to employees. Typical explanations for these practices offered by behaviorists and practitioners are distinctly uneconomic—focusing on notions such as fairness, equity, morale, trust, social responsibility, and culture. The challenge to economists is to provide viable economic explanations for these practices or to integrate these alternative notions into the traditional economic model.
Bubbles, Fads and Stock Price Volatility Tests: A Partial Evaluation
Authors: WEST KENNETH D. 
Published: April 2012

ABSTRACTThis is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter [28] and Shiller [40]. It appears that neither small‐sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is a “fads” model in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination.
The Buying and Selling Behavior of Individual Investors at the Turn of the Year
Authors: RITTER JAY R. 
Published: April 2012

ABSTRACTThe average returns on low‐capitalization stocks are unusually high relative to those on large‐capitalization stocks in early January, a phenomenon known as the turn‐of‐the‐year effect. This paper finds that the ratio of stock purchases to sales by individual investors displays a seasonal pattern, with individuals having a below‐normal buy/sell ratio in late December and an above‐normal ratio in early January. Year‐to‐year variation in the early January buy/sell ratio explains forty‐six percent of the year‐to‐year variation in the turn‐of‐the‐year effect during 1971–1985.
The Winner's Curse and Bidder Competition in Acquisitions: Evidence from Failed Bank Auctions
Authors: GILIBERTO S. MICHAEL , VARAIYA NIKHIL P. 
Published: April 2012

ABSTRACTThis study examines the effect of bidder competition in acquisitions. We use predictions from auction theory to test whether acquirers of failed banks overpay (the “winner's curse”) when bidding in FDIC sealed‐bid purchase and assumption (P&A) transactions (auctions). The empirical results indicate that winning bids tend to increase as the number of competitors increases, as predicted by theory. We also find that bid levels of all bidders increase with increased competition, which is consistent with bidders' failing to adjust for the winner's curse in a common value auction setting. However, additional tests using winning bids only are consistent with both a common value and a private values model, so this result should be interpreted with caution.
The Quality Option and Timing Option in Futures Contracts
Authors: BOYLE PHELIM P. 
Published: April 2012

ABSTRACTOften futures contracts contain quality options whereby the short position has the choice of delivering one of an acceptable set of assets. We explore the implications of the quality option on the futures price. We develop a method for pricing the quality option for the general case ofndeliverable assets and provide numerical illustrations of its significance. Even when the asset prices are very highly correlated, this option can have nontrivial value, especially when there is a large number of deliverable assets. We analyze the impact of the timing option and its interaction with the quality option. A procedure is developed for valuing the timing option in the presence of the quality option, and some numerical estimates are obtained.
Temporal Aggregation and the Continuous‐Time Capital Asset Pricing Model
Authors: LONGSTAFF FRANCIS A. 
Published: April 2012

ABSTRACTWe examine how the empirical implications of the Capital Asset Pricing Model (CAPM) are affected by the length of the period over which returns are measured. We show that the continuous‐time CAPM becomes a multifactor model when the asset pricing relation is aggregated temporally. We use Hansen's Generalized Method of Moments (GMM) approach to test the continuous‐time CAPM at an unconditional level using size portfolio returns. The results indicate that the continuous‐time CAPM cannot be rejected. In contrast, the discrete‐time CAPM is easily rejected by the tests. These results have a number of important implications for the interpretation of tests of the CAPM which have appeared in the literature.
Management Buyouts of Divisions and Shareholder Wealth
Authors: HITE GAILEN L. , VETSUYPENS MICHAEL R. 
Published: April 2012

ABSTRACTThis paper examines the wealth effects to parent company shareholders around the announcement of divisional management buyouts. Despite the relative absence of “arm's‐length” bargaining between buyer and seller, there is no evidence that divisional management buyouts result in reductions in parent company share prices. Instead, small but statistically significant wealth gains are found during the two‐day period surrounding the buyout announcement. This evidence suggests that divisional buyouts reallocate ownership of corporate assets to higher valued uses and that parent company stockholders share in the expected benefits of this change in ownership structure.
Economic Significance of Predictable Variations in Stock Index Returns
Authors: BREEN WILLIAM , GLOSTEN LAWRENCE R. , JAGANNATHAN RAVI 
Published: April 2012

ABSTRACTKnowledge of the one‐month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2% of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60% of the variance of the returns on the value weighted index, whereas the average return was two basis points higher.
Options Arbitrage in Imperfect Markets
Authors: FIGLEWSKI STEPHEN 
Published: April 2012

ABSTRACTOption valuation models are based on an arbitrage strategy—hedging the option against the underlying asset and rebalancing continuously until expiration—that is only possible in a frictionless market. This paper simulates the impact of market imperfections and other problems with the “standard” arbitrage trade, including uncertain volatility, transactions costs, indivisibilities, and rebalancing only at discrete intervals. We find that, in an actual market such as that for stock index options, the standard arbitrage is exposed to such large risk and transactions costs that it can only establish very wide bounds on equilibrium options prices. This has important implications for price determination in options markets, as well as for testing of valuation models.
Optimal Bank Reorganization Policies and the Pricing of Federal Deposit Insurance
Authors: ACHARYA SANKARSHAN , DREYFUS JEAN‐FRANCOIS 
Published: April 2012

ABSTRACTOptimal dynamic regulatory policies for closing ailing banks and for deposit insurance premia are derived as functions of the rate of flow of bank deposits, and interest rate on deposits, the economy's risk‐free interest rate, and the regulators' bank audit/administration costs. Under competitive conditions, the threshold assets‐to‐deposits ratio below which a bank should be optimally closed is shown to be greater than or equal to one. Optimal deposit insurance premia and probabilities of bank closure are shown to be nondecreasing in the bank's risk on investment and nonincreasing in the bank's current assets‐to‐deposits ratio.
Stock Splits, Volatility Increases, and Implied Volatilities
Authors: SHEIKH AAMIR M. 
Published: April 2012

ABSTRACTA test of the efficiency of the Chicago Board Options Exchange, relative to post‐split increases in the volatility of common stocks, is presented. The Black‐Scholes and Roll option pricing formulas are used to examine the behavior of implied standard deviations (ISDs) around split announcement and ex‐dates. Comparisons with a control group of stocks find no relative increase in ISDs of stocks announcing splits. However, a relative increase is detected at the ex‐date. Therefore, the joint hypothesis that 1) the Black‐Scholes and Roll formulas are true and 2) the CBOE is efficient can be rejected.
The Equilibrium Valuation of Risky Discrete Cash Flows in Continuous Time
Authors: SHIMKO DAVID C. 
Published: April 2012

ABSTRACTThis paper values a contingent claim to discrete stochastic cash flows generated by a Poisson arrival process with a randomly varying intensity parameter. In the most general case, both the size and the arrival intensity of cash flows may correlate wih state variables in a continuous time economy. Assuming the conditions of an intertemporal capital aset pricing model, solutions for the value of the contingent claim can be found using various techniques. The paper suggests immediate applications to the valuation of insurance contracts, the decision to build a firm with unknown future investment opportunities, and the pricing of mortgage‐backed securities.
Does the Stock Market Overreact to Corporate Earnings Information?
Authors: ZAROWIN PAUL 
Published: April 2012

ABSTRACTThis paper tests whether the stock market overreacts to extreme earnings, by examining firms' stock returns over the 36 months subsequent to extreme earnings years. While the poorest earners do outperform the best earners, the poorest earners are also significantly smaller than the best earners. When poor earners are matched with good earners of equal size, there is little evidence of differential performance. This suggests that size, and not investor overreaction to earnings, is responsible for the “overreaction” phenomenon, the tendency for prior period losers to outperform prior period winners in the subsequent period.
A Re‐Examination of Shareholder Wealth Effects of Calls of Convertible Preferred Stock
Authors: MAIS ERIC L. , MOORE WILLIAM T. , ROGERS RONALD C. 
Published: April 2012

ABSTRACTCommon stock price reactions to announcements of 67 calls of in‐the‐money convertible preferred stocks are examined, and a significant average abnormal return of −1.6 percent is documented. The finding is robust to the choice of estimation period and the assumed return‐generating process. Annual dividend obligations for the called preferred issues in the sample typically are greater than the dividends for the common shares into which they are converted, and announcement‐period abnormal returns are negatively correlated with changes in dividends. Moreover, calls that result in dilution of voting rights appear to have greater adverse valuation effects than calls that do not alter voting rights concentration.
The Size and Incidence of the Losses from Noise Trading
Authors: DE LONG J. BRADFORD , SHLEIFER ANDREI , SUMMERS LAWRENCE H. , WALDMANN ROBERT J. 
Published: April 2012

ABSTRACTRecent empirical research has identified a significant amount of volatility in stock prices that cannot easily be explained by changes in fundamentals; one interpretation is that asset prices respond not only to news but also to irrational “noise trading.” We assess the welfare effects and incidence of such noice trading using an overlapping‐generations model that gives investors short horizons. We find that the additional risk generated by noise trading can reduce the capital stock and consumption of the economy, and we show that part of that cost may be borne by rational investors. We conclude that the welfare costs of noise trading may be large if the magnitude of noise in aggregate stock prices is as large as suggested by some of the recent empirical litrature on the excess volatility of the market.
Asset Pricing in Partially Segmented Markets: Evidence from the Finnish Market
Authors: HIETALA PEKKA T. 
Published: April 2012

ABSTRACTThis paper analyzes asset pricing in a partially segmented market where citizens of a small country are allowed to hold only their domestic securities, whereas the rest of the investors (“foreigners”) are essentially allowed to hold all securities. In this market setting it may occur that the citizens of the small country are willing to pay less for their domestic securities than are the foreign investors. The paper derives equilibrium required rates of return for different investors in this market setting which perfectly occurred in Finland and tests this equilibrium model using data from the Finnish stock market. Empirical results are consistent with the hypotheses derived from the model.
Comovements in Stock Prices and Comovements in Dividends
Authors: SHILLER ROBERT J. 
Published: April 2012

ABSTRACTThe comovements in real stock prices between the U.K. and the U.S. appear to be too large to be accounted for in terms of the comovements of real dividends between the countries even after consideration of the possibility of information pooling. When consideration is made of the comovements of real interest rates between the countries, there is weaker evidence of excess comovement of price.
An Empirical Investigation of U.S. Firms in Reorganization
Authors: FRANKS JULIAN R. , TOROUS WALTER N. 
Published: April 2012

ABSTRACTThe purpose of this paper is to understand the institutional features of Chapter 11 from an empirical examination of thirty firms that have emerged from reorganization. We find the recontracting framework of Chapter 11 to be complex, lengthy, and costly. Violations of absolute priority in favor of stockholders are frequently encountered. These deviations may result from the bargaining process of Chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder‐oriented management to preserve firm value. An example of such recontracting addresses Myers' underinvestment problem. An investigation of the effects of Chapter 11 on the pricing of risky debt is also provided.
New Hope for the Expectations Hypothesis of the Term Structure of Interest Rates
Authors: FROOT KENNETH A. 
Published: April 2012

ABSTRACTSurvey data on interest rate expectations permit separate testing of the two alternative hypotheses in traditional term structure tests: that the expectations hypothesis fails, and that expected future interest rates are ex post inefficient forecasts. We find that the source of the spread's poor predictions of future interest rates varies with maturity. At short maturities the expectations hypothesis fails. At long maturities, however, changes in the yield curve reflect changes in expected future rates one‐for‐one, an implication of the expectations hypothesis. This result confirms earlier findings that long rates underreact to short rates, but now it cannot be attributed to term premia.
Valuing Commercial Mortgages: An Empirical Investigation of the Contingent‐Claims Approach to Pricing Risky Debt
Authors: TITMAN SHERIDAN , TOROUS WALTER 
Published: April 2012

ABSTRACTThis paper empirically investigates a contingent‐claims model of commercial mortgage pricing. We find that the magnitude of the observed default premia for a sample of nonprepayable fixed rate bullet mortgages can be explained by the contingent‐claims model. In addition, the model explains a significant proportion of the period‐to‐period changes in the default premia. However, given an assumed negative correlation between building value changes and interest rate changes, the model's risk structure tends to increase less steeply with increasing maturity than the observed risk structure.
The Informational Content of Initial Public Offerings
Authors: GALE IAN , STIGLITZ JOSEPH E. 
Published: April 2012

ABSTRACTThe ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once. A model is developed in which there is price risk from holding equity between periods. When the uncertainty is small, there must be pooling in the first period. When uncertainty is large, the pooling equilibria dominate the separating equilibrium.
The Effects of Beta, Bid‐Ask Spread, Residual Risk, and Size on Stock Returns
Authors: AMIHUD YAKOV , MENDELSON HAIM 
Published: April 2012

ABSTRACTMerton's [26] recent extension of the CAPM proposed that asset returns are an increasing function of their beta risk, residual risk, and size and a decreasing function of the public availability of information about them. Associating the latter with asset liquidity and following Amihud and Mendelson's [2] proposition that asset returns increase with their illiquidity (measured by the bid‐ask spread), we jointly estimate the effects of these four factors on stock returns.
The Price Effect of Option Introduction
Authors: CONRAD JENNIFER 
Published: April 2012

ABSTRACTThis paper examines the price effect of option introduction from 1974 to 1980. The introduction of individual options causes a permanent price increase in the underlying security, beginning approximately three days before introduction. The price effect appears to be associated with introduction, and not announcement, throughout the sample period. Excess returns volatility declines with option introduction. Systematic risk is unchanged. There is a positive relation between the price increase and a measure of activity in the options market.
Initial Public Offerings and Underwriter Reputation
Authors: CARTER RICHARD , MANASTER STEVEN 
Published: April 2012

ABSTRACTThis paper examined the returns earned by subscribing to initial public offerings of equity (IPOs). Rock (1986) suggests that IPO returns are required by uninformed investors as compensation for the risk of trading against superior information. We show that IPOs with more informed investor capital require higher returns. The marketing underwriter's reputation reveals the expected level of “informed” activity. Prestigious underwriters are associated with lower risk offerings. With less risk there is less incentive to acquire information and fewer informed investors. Consequently, prestigious underwriters are associated with IPOs that have lower returns.
Predicting Stock Returns in an Efficient Market
Authors: BALVERS RONALD J. , COSIMANO THOMAS F. , MCDONALD BILL 
Published: April 2012

ABSTRACTAn intertemporal general equilibrium model relates financial asset returns to movements in aggregate output. The model is a standard neoclassical growth model with serial correlation in aggregate output. Changes in aggregate output lead to attempts by agents to smooth consumption, which affects the required rate of return on financial assets. Since aggregate output is serially correlated and hence predictable, the theory suggests that stock returns can be predicted based on rational forecasts of output. The empirical results confirm that stock returns are a predictable function of aggregate output and also support the accompanying implications of the model.
Heteroskedasticity in Stock Returns
Authors: SCHWERT G. WILLIAM , SEGUIN PAUL J. 
Published: April 2012

ABSTRACTWe use predictions of aggregate stock return variances from daily data to estimate time‐varying monthly variances for size‐ranked portfolios. We propose and estimate a single factor model of heteroskedasticity for portfolio returns. This model implies time‐varying betas. Implications of heteroskedasticity and time‐varying betas for tests of the capital asset pricing model (CAPM) are then documented. Accounting for heteroskedasticity increases the evidence that risk‐adjusted returns are related to firm size. We also estimate a constant correlation model. Portfolio volatilities predicted by this model are similar to those predicted by more complex multivariate generalized‐autoregressive‐conditional‐heteroskedasticity (GARCH) procedures.
The Behavior of Eurocurrency Returns Across Different Holding Periods and Monetary Regimes
Authors: LEWIS KAREN K. 
Published: April 2012

ABSTRACTRecent empirical studies of the risk premium across foreign exchange and other asset markets such as equity and longer term bonds have found conflicting evidence about the latent variable model restrictions of the consumption‐based intertemporal capital asset pricing model. While studies using data for holding periods of one month or less generally reject the model, evidence using three‐month holding periods indicates that the model cannot be rejected when including the returns on long relative to short deposit rates. This paper investigates the sources of differences in results using returns on foreign exchange and Eurocurrency deposits at three different maturities.
Turn‐of‐Month Evaluations of Liquid Profits and Stock Returns: A Common Explanation for the Monthly and January Effects
Authors: OGDEN JOSEPH P. 
Published: April 2012

ABSTRACTThis paper presents and tests a hypothesis that the standardization of payments in the United States at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month. The hypothesis also asserts that returns generally will be greater following the month of December and will vary inversely with the stringency of monetary policy. Empirical results using stock index returns for 1969–1986 support the hypothesis. This analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the January effect.