bluuebunny/crossref_metadata_2025_split huggingface dataset:
Efficient Signalling with Dividends, Investment, and Stock Repurchases
Authors: WILLIAMS JOSEPH 
Published: April 2012

ABSTRACTThe efficient mix of dissipative dividends, investments in real and financial assets, and repurchases of stock is computed for a continuum of firms with inside information about the return on risky real assets. In the efficient signalling equilibrium, the representative firm optimally distributes dividends, invests in risky real assets to maximize net present value, holds no financial securities, and sells new stock in the market. This firm finances its value‐maximizing investment first from internal funds and second from stock sold to new investors.
Portfolio Rebalancing and the Turn‐of‐the‐Year Effect
Authors: RITTER JAY R. , CHOPRA NAVIN 
Published: April 2012

ABSTRACTThis paper finds that, for the 1935–1986 period, the market's risk‐return relation does not have a January seasonal. The findings differ from those of other studies due to the use of value‐weighted, rather than equally weighted, portfolios. Inferences are sensitive to the weighting procedure because of the small‐firm return patterns in January. In particular, even in those Januaries for which the market return is negative, small‐firm returns are positive, and they are more positive the higher is beta. This is consistent with the portfolio rebalancing explanation of the turn‐of‐the‐year effect.
An Analysis of Intertemporal Pricing for Forward Foreign Exchange Contracts
Authors: HUANG ROGER D. 
Published: April 2012

ABSTRACTAn asset‐pricing model with an unobservable time‐varying risk premium is used to price forward foreign exchange contracts. Specifically, the term spectrum of forward foreign exchange contracts is examined in order to focus on country‐specific and maturity‐specific information. The testable restrictions imposed by the model are consistent with both cross‐country and cross‐maturity forward contracts except at the short end of the maturity spectrum for cross‐country forward exchange rates. This indicates that the intertemporal model is relatively robust in valuing forward contracts of different maturities and for different exchange rates but that it may fail when there are significant short‐term country‐specific shocks.
Computing the Constant Elasticity of Variance Option Pricing Formula
Authors: SCHRODER MARK 
Published: April 2012

ABSTRACTThis paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi‐square distribution. This allows the application of well‐known approximation formulas and the derivation of a whole class of closed‐form solutions. In addition, a simple and efficient algorithm for computing this distribution is presented.
Original Issue High Yield Bonds: Aging Analyses of Defaults, Exchanges, and Calls
Authors: ASQUITH PAUL , MULLINS DAVID W. , WOLFF ERIC D. 
Published: April 2012

ABSTRACTThis paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979–1983 and from 3 to 9 percent for issue years 1984–1986. Exchanges are also a significant factor although they often are followed by default. Moreover, a significant percentage of high yield debt, 26–47 percent for 1977–1982, has been called. By December 31, 1988, approximately one third of the bonds issued in 1977–1982 has defaulted or been exchanged, and an additional one third had been called. On average, only 28 percent of these issues are still outstanding. There is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982.
Estimating the Strategic Value of Long‐Term Forward Purchase Contracts Using Auction Models
Authors: PARSONS JOHN E. 
Published: April 2012

ABSTRACTWe demonstrate how an auction model can be used in a traditional capital budgeting context to assign a value to the strategic advantage of long‐term forward contracts. Research in the field of industrial organization has pointed to the danger of ex post opportunistic bargaining as a motivation for the use of forward contracts in natural resources and manufactured products, but no operational procedure exists for estimating the value secured by these contracts. Arbitrage methods for valuing forward contracts assume a competitive market in which the factors creating the bargaining problem and motivating the use of long‐term contracts are not present. Use of the model is illustrated in the case of take‐or‐pay contracts for natural gas.
Capital Flow Controls, International Asset Pricing, and Investors' Welfare: A Multi‐Country Framework
Authors: ERRUNZA VIHANG , LOSQ ETIENNE 
Published: April 2012

ABSTRACTThis paper investigates the impact of capital flow restrictions on the pricing of securities, on the optimal portfolio composition for investors of different nationalities, and on their welfare. Under capital flow controls, the equilibrium price of a security is determined jointly by its international and national risk premiums, and investors acquire nationality‐specific portfolios along with a market‐wide proxy for the world market portfolio. Removal of investment barriers generally leads to an increase in the aggregate market value of the affected securities, and all investors favor a move toward market integration. Introduction of different types of index funds in the world market generally increases world market integration and investor welfare.
A Re‐Examination of the Wealth Expropriation Hypothesis: The Case of Captive Finance Subsidiaries
Authors: MALITZ ILEEN B. 
Published: April 2012

ABSTRACTThis paper re‐examines Kim, McConnell, and Greenwood's (1977) study of captive finance subsidiaries. We suggest that, as long as firms are concerned with reputation, shareholders will find it costly to engage in deliberate wealth expropriation and thus have no incentives to do so. Using a sample of fourteen firms with publicly traded debt, we compute and test the statistical significance of abnormal returns to shareholders, bondholders, and the firm when captives are incorporated. We find that shareholders gain 14.9 percent, bondholders lose 2.3 percent, and firm value increases a significant 10.4 percent. Our results are inconsistent with wealth expropriation and lend support to the importance of reputation to firms.
S&P 500 Cash Stock Price Volatilities
Authors: HARRIS LAWRENCE 
Published: April 2012

ABSTRACTS&P 500 stock return volatilities are compared to the volatilities of a matched set of stocks, after controlling for cross‐sectional differences in firm attributes known to affect volatility. No significant difference in volatility is observed between 1975 and 1983—before the start of trade in index futures and index options. Since then, S&P 500 stocks have been relatively more volatile. The difference is statistically, but not economically, significant. The relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns. Other factors besides the start of derivative trade could be responsible for the small increase in volatility.
Firm Size and Turn‐of‐the‐Year Effects in the OTC/NASDAQ Market
Authors: LAMOUREUX CHRISTOPHER G. , SANGER GARY C. 
Published: April 2012

ABSTRACTThis paper examines the turn‐of‐the‐year effect, the firm size effect, and the relation between these two effects for a sample of OTC stocks traded via the NASDAQ reporting system over the period 1973–1985. We find results similar to those based solely on listed stocks. The importance of these findings stems from the existence of nontrivial differences between the characteristics of the OTC/NASDAQ sample and the samples of listed firms examined previously in the literature. We also find that NASDAQ quoted bid‐ask spreads are highly negatively correlated with firm size, are not highly seasonal, and are large enough to preclude trading profits based upon a knowledge of the seasonality of small firms' returns.
LDC Debt: Forgiveness, Indexation, and Investment Incentives
Authors: FROOT KENNETH A. , SCHARFSTEIN DAVID S. , STEIN JEREMY C. 
Published: April 2012

ABSTRACTWe compare different indexation schemes in terms of their ability to facilitate forgiveness and reduce the investment disincentives associated with the large LDC debt overhang. Indexing to an endogenous variable (e.g., a country's output) has a negative moral hazard effect on investment. This problem does not arise when payments are linked to an exogenous variable such as commodity prices. Nonetheless, indexing payments to output may be useful when debtors know more about their willingness to invest than lenders. We also reach new conclusions about the desirability of default penalties under asymmetric information.
The Effect of Temporal Risk Aversion on Optimal Consumption, the Equity Premium, and the Equilibrium Interest Rate
Authors: AHN CHANG MO 
Published: April 2012

ABSTRACTThis paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive, while the usual risk aversion makes it more attractive. As temporal risk aversion increases, the equilibrium interest rate decreases and the equity premium increases. This paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate, depending on the nature of the nonseparability.
Corrections for Trading Frictions in Multivariate Returns
Authors: KORKIE BOB 
Published: April 2012

ABSTRACTWhen observed stock returns are obtained from trades subject to friction, it is known that an individual stock's beta and covariance are measured with error. Univariate models of additive error adjustment are available and are often applied simultaneously to more than one stock. Unfortunately, these multivariate adjustments produce non‐positive definite covariance and correlation matrices, unless the return sample sizes are very large. To prevent this, restrictions on the adjustment matrix are developed and a correction is proposed, which dominates the uncorrected estimator. The estimators are illustrated with asset opportunity set estimates where daily returns have trading frictions.
Disclosure Decisions by Firms and the Competition for Price Efficiency
Authors: FISHMAN MICHAEL J. , HAGERTY KATHLEEN M. 
Published: April 2012

ABSTRACTThis paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities. It is shown that more efficient security prices can lead to more efficient investment decisions. This provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm. Disclosure decisions are studied. It is shown that firms may expend more resources on disclosure than is socially optimal. This is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure.
The Term Structure of Interest Rates in a Partially Observable Economy
Authors: FELDMAN DAVID 
Published: April 2012

ABSTRACTThis paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information. Unable to observe their stochastic investment opportunities, investors engage in dynamic Bayesian inference. This results in the endogenous identification of a more complex production function which generates a richer term structure, resembling the one that actual market prices imply. In addition, this paper introduces a characteristic function of the term structure and demonstrates that, in contrast with a fully observable economy, the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic.
Prepayment and the Valuation of Mortgage‐Backed Securities
Authors: SCHWARTZ EDUARDO S. , TOROUS WALTER N. 
Published: April 2012

ABSTRACTThis paper puts forward a valuation framework for mortgage‐backed securities. Rather than imposing an optimal, value‐minimizing call condition, we assume that at each point in time there exists a probability of prepaying; this conditional probability depends upon the prevailing state of the economy. To implement our valuation procedure, we use maximum‐likelihood techniques to estimate a prepayment function in light of recent aggregate GNMA prepayment experience. By integrating this empirical prepayment function into our valuation framework, we provide a complete model to value mortgage‐backed securities.
Adverse Selection in a Model of Real Estate Lending
Authors: CHARI V. V. , JAGANNATHAN RAVI 
Published: April 2012

ABSTRACTWe provide a rationale for the presence of points in mortgage loan contracts. Our analysis builds on two key features. First, insurance markets are unavailable for labor income. Second, the “due‐on‐sale” clause allows banks to offer loan contracts which partially insure against fluctuations in labor income. If explicit prepayment penalties are prohibited by law, points serve effectively as prepayment penalties. We also examine environments where such penalties are not prohibited and show that points will be used if interest rates cannot depend on the size of the loan.
The Intertemporal Relation Between the U.S. and Japanese Stock Markets
Authors: BECKER KENT G. , FINNERTY JOSEPH E. , GUPTA MANOJ 
Published: April 2012

ABSTRACTThis paper finds a high correlation between the open to close returns for U.S. stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the U.S. return in the current period. High correlations among open to close returns are a violation of the efficient market hypothesis; however, in trading simulations, the excess profits in Japan vanish when transactions costs and transfer taxes are included.
An Examination of the Super Bowl Stock Market Predictor
Authors: KRUEGER THOMAS M. , KENNEDY WILLIAM F. 
Published: April 2012

ABSTRACTFew prediction schemes have been more accurate, and at the same time more perplexing, than the Super Bowl Stock Market Predictor, which asserts that the league affiliation of the Super Bowl winner predicts stock market direction. In this study, we examine the record and statistical significance of this anomaly and demonstrate that an investor would have clearly outperformed the market by reacting to Super Bowl game outcomes.
Efficiency and Organizational Structure: A Study of Reverse LBOs
Authors: MUSCARELLA CHRIS J. , VETSUYPENS MICHAEL R. 
Published: April 2012

ABSTRACTThis paper is a report on 72 firms which went public since 1983 but previously underwent a full or divisional LBO. Accounting measures of performance reveal significant improvements in profitability which resulted mainly from these firms' ability to reduce costs. Firms experience dramatic increases in leverage at the LBO, but the leverage ratios are gradually reduced. The evidence is consistent with the hypothesis that the change in the governance structure of these firms towards more concentrated residual claims created a new organizational structure which is more efficient than its predecessor.
Managerial Share Ownership and the Stock Price Effects of Antitakeover Amendment Proposals
Authors: MCWILLIAMS VICTORIA B. 
Published: April 2012

ABSTRACTStudies that test for an average stock price effect of antitakeover amendments present different results, disagreeing with respect to both the significance and the direction of the effect. This study determines whether effects can be identified when managerial share ownership and amendment type are considered. Results suggest a negative relation between managerial share ownership and the stock price reaction to all but fair price amendment proposals.
A Comment on Excess Asset Reversions and Shareholder Wealth
Authors: MOORE NORMAN H. , PRUITT STEPHEN W. 
Published: April 2012

ABSTRACTThis study re‐examines the earlier finding of Alderson and Chen (1986a) that financial markets do not consider excess pension assets in determining share prices and that significant increases in shareholder wealth occur when an overfunded pension plan is terminated. The results document that specific event‐time contamination (corporate restructuring announcements) provides the driving force for all the earlier findings.
Purchasing Power Parity in the Long Run
Authors: ABUAF NISO , JORION PHILIPPE 
Published: April 2012

ABSTRACTThis paper re‐examines the evidence on Purchasing Power Parity (PPP) in the long run. Previous studies have generally been unable to reject the hypothesis that the real exchange rate follows a random walk. If true, this implies that PPP does not hold. In contrast, this paper casts serious doubt on this random walk hypothesis. The results follow from more powerful estimation techniques, applied in a multilateral framework. Deviations from PPP, while substantial in the short run, appear to take about three years to be reduced in half.
Disentangling the Coefficient of Relative Risk Aversion from the Elasticity of Intertemporal Substitution: An Irrelevance Result
Authors: KOCHERLAKOTA NARAYANA R. 
Published: April 2012

ABSTRACTFor homothetic time and state separable preferences, the coefficient of relative risk aversion (CRRA) is equal to the reciprocal of the elasticity of intertemporal substitution (EIS). This paper shows that, when the growth rate of consumption is i.i.d., asset pricing models based upon preferences in which the CRRA and the EIS are no longer linked do not have more explanatory power. Further, in these stochastic environments, estimates of the CRRA in the standard preferences are measures of the true CRRA and not the EIS. These results are fairly accurate descriptions of economies calibrated using United States annual data.
Corporate Sale‐and‐Leasebacks and Shareholder Wealth
Authors: SLOVIN MYRON B. , SUSHKA MARIE E. , POLONCHEK JOHN A. 
Published: April 2012

ABSTRACTIn this paper, we examine the market valuation effects of corporate sale‐and‐leasebacks. Specifically, we test whether such transactions offer a net benefit to lessees or lessors by evaluating the impact on share prices from announcements of sale‐and‐leasebacks of major corporate assets. Our evidence indicates that the announcements are associated with positive abnormal returns to lessees. We conclude that this positive market reaction results from an overall reduction in the present value of expected taxes occasioned by the transactions. Our evidence also suggests that the gains from sale‐and‐leasebacks accrue solely to lessee firms.
Patterns of Productivity in the Finance Literature: A Study of the Bibliometric Distributions
Authors: CHUNG KEE H. , COX RAYMOND A. K. 
Published: April 2012

ABSTRACTThis study finds a bibliometric regularity in the finance literature that the number of authors publishing n papers is about of those publishing one paper. We find that the finance literature conforms very well to the inverse square law if data are taken from a large collection of journals. When applied to individual finance journals, we find that values of c range from 1.95 to 3.26. We also find that top‐rated journals have higher concentrations among their contributors. This implies that the phenomenon “success breeds success” is more common in higher quality publications.
Principal‐Agent Problems in S&L Salvage
Authors: KANE EDWARD J. 
Published: April 2012

ABSTRACTNew legislation and traditional FDIC insolvency‐resolution procedures transform and intensify the principal‐agent problems most responsible for the FSLIC mess. These problems explain counterproductive constraints on the governance and operating policies of the agency responsible for rescuing and salvaging assets in insolvent thrifts: the RTC. The constraints slow insolvency resolution, increase interim financing costs, and undermine RTC recovery of asset value. Operationalizing its task as preserving evanescent and economically misconceived “franchise values,” the RTC allows insolvents to seek financing on an unconsolidated basis, initiates bidding for one institution at a time, holds back seriously troubled assets, and recruits an overly narrow range of bidders.
Debt and Input Misallocation
Authors: KIM MOSHE , MAKSIMOVIC VOJISLAV 
Published: April 2012

ABSTRACTWe investigate a class of agency costs of debt that arise because debt financing affects the firm's incentives to use inputs efficiently. A methodology for estimating this class of costs is presented and applied to a major industry, air transport. Our results are consistent with agency models that predict a decrease in efficiency as the debt increases. A part of the loss of efficiency that we identify is attributable to the greater use by levered firms of inputs that can be monitored and are collateralizable.
The Default Risk of Swaps
Authors: COOPER IAN A. , MELLO ANTONIO S. 
Published: April 2012

ABSTRACTWe characterize the exchange of financial claims from risky swaps. These transfers are among three groups: shareholders, debtholders, and the swap counterparty. From this analysis we derive equilibrium swap rates and relate them to debt market spreads. We then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders. In a simplified case, we obtain closed‐form solutions for the value of the default risk in the swap. For interest‐rate swaps, we obtain numerical solutions for the equilibrium swap rate, including default risk. We compare these with equilibrium debt market default risk spreads.
Animal Spirits, Margin Requirements, and Stock Price Volatility
Authors: KUPIEC PAUL H. , SHARPE STEVEN A. 
Published: April 2012

ABSTRACTA simple overlapping generations model is used to characterize the effects of initial margin requirements on the volatility of risky asset prices. Investors are assumed to exhibit heterogeneous preferences for risk‐bearing, the distribution of which evolves stochastically across generations. This framework is used to show that imposing a binding initial margin requirement may either increase or decrease stock price volatility, depending upon the microeconomic structure behind fluctuations in economy‐wide average risk‐bearing propensity. The ambiguous effect on volatility similarly arises when the source of heterogeneity is noise trader beliefs.
The Reversal of Large Stock‐Price Decreases
Authors: BREMER MARC , SWEENEY RICHARD J. 
Published: April 2012

ABSTRACTExtremely large negative 10‐day rates of return are followed on average by larger‐than‐expected positive rates of return over following days. This price adjustment lasts approximately 2 days and is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon. While perhaps not representing abnormal profit opportunities, these reversals present a puzzle as to the length of the price adjustment period. Such a slow recovery is inconsistent with the notion that market prices quickly reflect relevant information.
An Examination of Ex‐Dividend Day Stock Price Movements: The Case of Nontaxable Master Limited Partnership Distributions
Authors: SHAW WAYNE H. 
Published: April 2012

ABSTRACTThis study examines the unit (stock) price and volume behavior of master limited partnerships (MLP) around the ex‐dividend day. Since the dividends of MLPs are not taxable to the unitholder, tax based hypotheses predict no abnormal unit movements around the ex‐day. Significant positive excess returns and volume are found before the ex‐dividend day, and significant negative excess returns are found on the ex‐dividend day. The findings which are not significantly impacted by the Tax Reform Act of 1986 suggest ex‐day stock movements are not solely a function of investor marginal tax rates or corporate trading behavior.