bluuebunny/crossref_metadata_2025_split huggingface dataset:
Taxes, Inflation and Corporate Financial Policy
Authors: SCHALL LAWRENCE D. 
Published: April 2012

ABSTRACTThis paper examines inflation‐induced distortions in personal and corporate income taxes and discusses the implications for corporate dividend and financial structure policies and for shareholder unanimity. The tax effects relating to capital gains and debt interest cause changes in aggregate corporate borrowing and lead to equilibrium tax relationships which differ from the zero‐inflation tax relationships.
Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study
Authors: JALILVAND ABOLHASSAN , HARRIS ROBERT S. 
Published: April 2012

ABSTRACTThis study of financing decisions by U.S. corporations examines the issuance of long term debt, issuance of short term debt, maintenance of corporate liquidity, issuance of new equity, and payment of dividends. Given costs and imperfections inherent in markets, a firm's financial behavior is characterized as partial adjustment to long run financial targets. Individual firm data are used so that speeds of adjustment are allowed to vary by company and over time. The results suggest that financial decisions are interdependent and that firm size, interest rate conditions, and stock price levels affect speeds of adjustment.
The Valuation of Assets under Moral Hazard
Authors: RAMAKRISHNAN RAM T. S. , THAKOR ANJAN V. 
Published: April 2012

ABSTRACTThe design of managerial incentive contracts is examined in a setting in which economic agents are risk averse, and the actions of managers can affect asset returns which contain both systematic and idiosyncratic risks. It is shown that in the absence of moral hazard, owners of assets will insure managers against idiosyncratic risks, but with moral hazard, contracts will depend on both systematic and idiosyncratic risks. The traditional recommendation of asset pricing models, namely, to focus only on systematic risks, is thus proved to be valid only when there is no moral hazard. The major empirically testable predictions of the model are (1) managerial incentive contracts will generally depend on systematic as well as idiosyncratic risks, (2) idiosyncratic risks will generally be important in investment decisions, (3) the managers of firms with relatively high levels of idiosyncratic risks will have compensations that are less dependent on their firms' excess returns, and (4) the compensations of managers of larger firms will be relatively more dependent on the excess returns of their firms.
Short Sales Restrictions and Kinks on the Mean Variance Frontier
Authors: DYBVIG PHILIP H. 
Published: April 2012

ABSTRACTWith a short sales restriction, there may be switching points along the mean variance frontier corresponding to changes in the set of assets held. Traditional wisdom holds that each switching point corresponds to a kink, while Ross has claimed that kinks never occur. This paper shows that the truth lies between the two views, since the efficient frontier may or may not be kinked at a switching point. There is some indication that kinks are rare, since a kink corresponds to a portfolio in which all assets have the same expected return.
On the Jensen Measure and Marginal Improvements in Portfolio Performance: A Note
Authors: JOBSON J. D. , KORKIE BOB 
Published: April 2012

ABSTRACTThe marginal performance contribution made by new assets in a portfolio is identified. The maximum change in a portfolio's Sharpe performance from the addition of new assets is a simple function of a generalized Jensen index and the unexplained covariances from a multivariate market model. Deviations from a higher dimension market line may be used to rank the desirability of asset additions to an existing portfolio. Statistical tests for the equality of the performance contributions by new assets is possible.
Estimating the Correlation Structure of International Share Prices
Authors: EUN CHEOL S. , RESNICK BRUCE G. 
Published: April 2012

ABSTRACTRecently, the case for international portfolio diversification has been convincingly argued in the framework of mean‐variance portfolio analysis by a number of researchers. However, virtually no empirical documentation exists concerning the best method for estimating the correlation structure of international share prices. In this paper, 12 models for estimating the international correlation matrix are presented and empirically tested relative to full historical extrapolation. The major evaluation criteria are the mean squared error and stochastic dominance based on the frequency distribution of the squared forecast errors. The results indicate that the National Mean Model strictly dominates all the others in terms of forecasting accuracy.
Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions
Authors: MISHKIN FREDERIC S. 
Published: April 2012

ABSTRACTThis paper conducts empirical tests of the equality of real interest rates across countries. The empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative PPP, or the unbiasedness of forward rate forecasts and ex ante relative PPP. The evidence suggests that it is worth studying open economy macroeconomic models which allow: 1) domestic real rates to differ from world rates, 2) time varying risk premiums in the forward market, or 3) deviations from ex ante relative PPP.
The Valuation of Options When Asset Returns Are Generated by a Binomial Process
Authors: STAPLETON R. C. , SUBRAHMANYAM M. G. 
Published: April 2012

ABSTRACTThis paper values options on assets whose returns, over a finite interval of time, are generated by a binomial process. It shows that a simple valuation relationship, between the option and the underlying stock, obtains if investors have preference functions that belong to a particular class, even if opportunities to hedge do not exist. One particular application of the theory is in the case where the stock price over a finite interval could increase by an amount, fall by the same amount, or stay at the same level. The results in this paper may be viewed as the foundation of the preference‐based approaches to obtaining a risk neutral valuation relationship.
Production and Risk Leveling in the Intertemporal Capital Asset Pricing Model
Authors: GRINOLS EARL L. 
Published: April 2012

ABSTRACTThis paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash‐Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market‐value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived.
Optimal Bank Behavior under Uncertain Inflation
Authors: LANDSKRONER YORAM , RUTHENBERG DAVID 
Published: April 2012

ABSTRACTIn this paper, we derive a model of the individual banking firm facing stochastic inflation. The bank is considered as a depository financial intermediary operating in the primary market as a multiproduct price discriminating firm. A secondary market is also considered where liquidity surpluses and deficits are traded. Two types of assets and liabilities are assumed: deposits and loans linked to a general price level and nonlinked instruments. Effects of changes in the parameters such as inflation rate and variability, reserve requirements are analyzed.
Option Pricing and Replication with Transactions Costs
Authors: LELAND HAYNE E. 
Published: April 2012

ABSTRACTTransactions costs invalidate the Black‐Scholes arbitrage argument for option pricing, since continuous revision implies infinite trading. Discrete revision using Black‐Scholes deltas generates errors which are correlated with the market, and do not approach zero with more frequent revision when transactions costs are included. This paper develops a modified option replicating strategy which depends on the size of transactions costs and the frequency of revision. Hedging errors are uncorrelated with the market and approach zero with more frequent revision. The technique permits calculation of the transactions costs of option replication and provides bounds on option prices.
The Trading Decision and Market Clearing under Transaction Price Uncertainty
Authors: HO THOMAS S. Y. , SCHWARTZ ROBERT A. , WHITCOMB DAVID K. 
Published: April 2012

ABSTRACTThis paper models an individual's trading decision, given: (1) his/her demand function to hold shares of an asset, (2) his/her expectation on what the market clearing price will be, and (3) the design of the market which determines how orders will be translated into trades. The particular market design we consider is the batched trading (periodic call) regime. Assuming investors are distributed according to their propensities to hold shares, we model the aggregation of orders to obtain market clearing values of price and volume and to show the way in which, with trading friction, these solutions differ from Pareto efficient values. The importance of this analysis for various issues concerning market design is noted.
Government Bond Returns, Measurement of Interest Rate Risk, and the Arbitrage Pricing Theory
Authors: GULTEKIN N. BULENT , ROGALSKI RICHARD J. 
Published: April 2012

ABSTRACTEmpirical tests are reported for Ross' arbitrage pricing theory using monthly data for U.S. Treasury securities during the 1960–1979 period. We find that mean returns on bond portfolios are linearly related to at least two factor loadings. Multivariate test results, however, are not consistent with the APT. Our sample data in the U.S. Treasury securities market are also not consistent with either version of the CAPM. One‐month‐ahead forecasts of excess returns using factor‐generating models are compared with corresponding naive predictions or predictions using the “market model” with various market portfolios.
Rational Expectations Model of Term Premia with Some Implications for Empirical Asset Demand Equations
Authors: WALSH CARL E. 
Published: April 2012

ABSTRACTThis paper derives the equilibrium time series processes characterizing the prices of bonds which differ by maturity using the CAPM relationship between expected returns. The assumption of rational expectations requires that asset demand behavior, which determines bond prices in equilibrium, be based on the covariances among returns that are implied by the assumption of market clearing. This requirement imposes nonlinear restrictions on the parameters in the solution for bond prices. Some implications for the types of comparative static exercises for which it is legitimate to assume invariant demand functions are discussed, and some numerical solutions for bond prices are derived.
More on Estimation Risk and Simple Rules for Optimal Portfolio Selection
Authors: ALEXANDER GORDON J. , RESNICK BRUCE G. 
Published: April 2012

ABSTRACTFor the risk‐averse investor, consideration of estimation risk is important in selecting an expected‐utility‐maximizing portfolio. It has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the Full Covariance Model is used. Alternatively, if the Market Model is used, the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk. However, as is demonstrated in this paper, the effect will generally not be as substantive as previously believed and in many situations can be safely ignored.
Divergence of Opinion in Complete Markets: A Note
Authors: VARIAN HAL R. 
Published: April 2012

ABSTRACTWe consider an Arrow‐Debreu model with agents who have different subjective probabilities. In general, asset prices will depend only on aggregate consumption and the distribution of subjective probabilities in each state of nature. If all agents have identical preferences then an asset with “more dispersed” subjective probabilities will have a lower price than an asset with less dispersed subjective probabilities if risk aversion does not decline too rapidly. It seems that this condition is likely to be met in practice, so that increased dispersion of beliefs will generally be associated with reduced asset prices in a given Arrow‐Debreu equilibrium.
Interest Rate Term Structure Estimation with Exponential Splines: A Note
Authors: SHEA GARY S. 
Published: April 2012

ABSTRACTVasicek and Fong [11] developed exponential spline functions as models of the interest rate term structure and claim such models are superior to polynomial spline models. It is found empirically that i) exponential spline term structure estimates are no more stable than estimates from a polynomial spline model, ii) data transformations implicit in the exponential spline model frequently condition the data so that it is difficult to obtain approximations in which one can place confidence, and iii) the asymptotic properties of the exponential spline model frequently are unrealistic. Estimation with exponential splines is no more convenient than estimation with polynomial splines and gives substantially identical estimates of the interest rate term structure as well.
On Determination of Stochastic Dominance Optimal Sets
Authors: BAWA VIJAY S. , BODURTHA JAMES N. , RAO M. R. , SURI HIRA L. 
Published: April 2012

ABSTRACTApplying Fishburn's [4] conditions for convex stochastic dominance, exact linear programming algorithms are proposed and implemented for assigning discrete return distributions into the first‐ and second‐order stochastic dominance optimal sets. For third‐order stochastic dominance, a superconvex stochastic dominance approach is defined which allows classification of choice elements into superdominated, mixed, and superoptimal sets. For a choice set of 896 security returns treated previously in the literature, 454, 25, and 13 distributions are in the first‐, second‐, and third‐order convex stochastic dominance optimal sets, respectively. These optimal sets compare with admissible first‐, second‐, and third‐order stochastic dominance sets of 682, 35, and 19 distributions, respectively.The applicability of superconvex stochastic dominance for continuous distributions defined over a bounded interval is then shown. The difficulties in identifying the elements of the superdominated set for distributions defined over the entire real line are demonstrated in the determination of the dominated choices for a set of normally distributed mutual fund returns previously examined by Meyer [9]. Specifically, we find that the dominated set determined by Meyer is too large.
Empirical Tests of Boundary Conditions for Toronto Stock Exchange Options
Authors: HALPERN PAUL J. , TURNBULL STUART M. 
Published: April 2012

ABSTRACTUsing option and stock transaction data for the period 1978–1979, three issues were investigated: first, the conformance of observed prices to various boundary conditions; second, the evolution of the market over time, as the volume of trading and the number of listed options increased; and third, to test the efficiency of the market. It was found that violations did occur. Using a trading rule based on the signal of observed violations, the results suggest that even after transaction costs the market was inefficient over the sample period.
Expected Inflation and Interest Rates in a Multi‐asset Model: A Note
Authors: MITCHELL DOUGLAS W. 
Published: April 2012

ABSTRACTThis paper analyzes the effect of expected inflation on nominal interest rates, in a theoretical model with money and two different bond types. The inclusion of three assets instead of the usual two causes the effect of expected inflation on the interest rates to deviate from unity. Depending on the sizes of the wealth and interest rate effects on the various asset demands, the effect of expected inflation could even be negative. Several special cases are also considered, and the implications for the interpretation of empirical results are discussed.
Currency Risk and Country Risk in International Banking
Authors: SHAPIRO ALAN C. 
Published: April 2012

ABSTRACTThis paper focuses on the conditions under which banks are subject to currency and country risks on their dollar‐denominated loans to foreign firms and governments. We conclude that currency risk is a function of the rates of domestic and foreign inflation, deviations from purchasing power parity, and the effect of these deviations on the firm's and the nation's dollar‐equivalent cash flows. Country risk is largely determined by the variability of the nation's terms of trade and the government's willingness to allow the national economy to adjust rapidly to changing economic fortunes.
A Test of the OPEC Cartel Hypothesis: 1974–1983
Authors: LODERER CLAUDIO 
Published: April 2012

ABSTRACTThis paper tests whether the higher oil prices of the last decade could have been the result of producer collusion. We find little evidence that OPEC influenced oil prices during the years of skyrocketing prices (1974–1980), but there is evidence that it did so during the recent years of softening prices (1981–1983).
Positively Weighted Portfolios on the Minimum‐Variance Frontier
Authors: GREEN RICHARD C. 
Published: April 2012

ABSTRACTDuality theory is employed to provide necessary and sufficient conditions for portfolios on the minimum‐variance frontier to have positive investment proportions in all assets. These conditions involve the feasibility of portfolios that have non‐negative correlation with all assets and positive correlation with at least one. Using these results, several “qualitative” results concerning the signs of investment proportions in efficient portfolios are proved. It is argued that the conditions that ensure all‐positive weights in efficient portfolios are intuitively compelling and are not unique to the CAPM. With large numbers of assets, however, the signs of weights in minimum‐variance portfolios can be very sensitive to slight departures from these conditions due to, for example, sampling error.
Information Asymmetry and the Dealer's Bid‐Ask Spread: A Case Study of Earnings and Dividend Announcements
Authors: VENKATESH P. C. , CHIANG R. 
Published: April 2012

ABSTRACTRecent theoretical work on the bid‐ask spread asserts that the dealer should widen the bid‐ask spread when he or she suspects that the information advantage possessed by informed traders has increased. Thus, the dealer's spread can be employed to test for an increase in information asymmetry prior to an anticipated information event. In this paper, the method is applied to earnings and dividend announcements, which have been documented to be information events. The authors study three groups of announcements: (a) joint announcements—i.e., earnings and dividend announcements that are made on the same day, (b) initial (first) announcements—earnings or dividend announcements that were not preceded by another announcement in the prior thirty days, and (c) following (second) announcements—those announcements that follow the first announcement by at least ten days but by no more than thirty days. The authors find a strong increase in information asymmetry only before the second announcements and virtually no increase before the joint and first announcements. This is consistent with the hypothesis that there is, on average, normal information asymmetry before announcements, but that the dealer will suspect a nonroutine announcement (with an attendant increase in information asymmetry) when the second announcement is separated from the first by more than ten days. Other possible explanations for the results are discussed, and suggestions for future research are outlined.
Contributing Authors and Institutions to the Journal of Finance: 1946–1985
Authors: HECK J. LOUIS , COOLEY PHILIP L. , HUBBARD CARL M. 
Published: April 2012

ABSTRACTPublication of the December 1985 issue of the Journal of Finance completed the Journal's first 40 years of contributions to the profession. This study identifies and summarizes the contributing authors, where they earned their doctoral degrees, and their employers at the time of publication. The authors, degree‐granting institutions, and employers appearing most frequently in the Journal are ordered for the entire 40‐year period and for various subperiods. Where possible, the present findings are compared with those of previously published studies.
Earnings Announcements, Stock Price Adjustment, and the Existence of Option Markets
Authors: JENNINGS ROBERT , STARKS LAURA 
Published: April 2012

ABSTRACTThis paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices. Extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior. As an alternative, we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options. We find the two samples exhibit different adjustment processes, with the nonoption firms requiring substantially more time to adjust.
Efficiency Tests of the Foreign Currency Options Market
Authors: BODURTHA JAMES N. , COURTADON GEORGES R. 
Published: April 2012

ABSTRACTBased on a new options transactions data base from the Philadelphia Stock Exchange Foreign Currency Options Market, this paper examines the importance of the effect of nonsynchronous prices and transaction costs on the usual option market efficiency tests. The tests conducted are based on the transaction cost adjusted early exercise and put‐call parity pricing boundaries applicable to the American foreign currency options market. The test results show that the put‐call parity boundary tests are sensitive to both nonsynchronous prices and transaction costs. The early exercise boundary tests are sensitive to transaction costs but are not very sensitive to simultaneity of the option price and the underlying spot price. Under the no‐transaction costs scenario, a large number of early exercise boundary violations is found even when simultaneous spot and option prices are used. These violations disappear when actual transaction costs are taken into account.
LaPlace Transforms as Present Value Rules: A Note
Authors: BUSER STEPHEN A. 
Published: April 2012

ABSTRACTThe present value equation in finance is shown to be equivalent to the Laplace transformation in mathematics. Based on this observation, the list of known analytic solutions for the present value problem is increased from a handful to more than one hundred. General properties of the Laplace transform are examined as well in light of the newly discovered significance for finance.
Adjusting for Beta Bias: An Assessment of Alternate Techniques: A Note
Authors: McINISH THOMAS H. , WOOD ROBERT A. 
Published: April 2012

ABSTRACTThis paper tests the effectiveness of techniques proposed by: Scholes‐Williams; Dimson; Fowler, Rorke, and Jog; and Cohen, Hawawini, Maier, Schwartz, and Whitcomb to control for bias in beta estimates from thin trading and price adjustment delays. Each technique produces beta estimates that reduce the amount of this bias, but the amount of reduction in the best case is only 29%.
Valuation of Risky Assets in Arbitrage Free Economies with Frictions
Authors: PRISMAN ELIEZER Z. 
Published: April 2012

ABSTRACTThis paper derives a framework for arbitrage models in markets with frictions. It generalizes the existence of a valuation operator to such markets. As in perfect markets, the valuation operator is a linear operator and its existence is implied by the no‐arbitrage condition. In imperfect markets the valuation operator is individual‐specific and depends on the agent's position in the market. The methodology employed in the paper is duality in convex programming.