bluuebunny/crossref_metadata_2025_split huggingface dataset:
Investment Risk, Bankruptcy Risk, and Pension Reform in Canada
Authors: PESANDO JAMES E. 
Published: April 2012

ABSTRACTThe wealth redistributive effects of retroactive termination insurance together with the difficulty of determining insurance premiums suggest that an alternative response, such as improved disclosure of worker benefits in the event of plan wind‐up, may be preferred if the government remains concerned about the security of benefits in underfunded plans. Members of money purchase plans may well be less subject to investment risk than members of defined benefit plans, contrary to the claim of many. In Canada, defined benefit plans appear to have been transformed into defined benefit/money purchase hybrids, and this has several important implications.
Optimal Sequential Investment When Capital is Not Readily Reversible
Authors: BALDWIN CARLISS Y. 
Published: April 2012

ABSTRACTWhen investment opportunities arrive one at a time and are reviewed sequentially, a corporation's optimal policy differs from a standard net present value rule if the corporation exercises control over an industry state variable and control is costly. The first condition presupposes a degree of market power for the firm; the second occurs if corporate investment decisions are imperfectly reversible.To address the problem of optimal investment in this context, a firm's investment decisions are modeled as a Markov reward process. The causes of economic irreversibility are discussed and general propositions concerning the optimal investment policy are derived. These propositions are then applied to the optimization of an exploration program by an oligopolistic firm (a price leader). Under particular demand and distributional assumptions, solutions for the optimal decision rule and the value of the exploration program are obtained and their properties examined.
Inflation, Taxation, and Interest Rates
Authors: GANDOLFI ARTHUR E. 
Published: April 2012

ABSTRACTThis paper demonstrates that the response of nominal interest rates to changes in inflationary expectations should lie between that predicted by the “Fisher” and “Darby” effects. The exact nature of the response will depend on the relative size of the income and capital gains tax rates, and the relative size of the derivatives of investment and savings to their respective after‐tax real rates. The other major conclusion of this paper is that capital gains taxation offsets the negative effect on investment produced by treating depreciation on a historic rather than a replacement cost basis.
Sufficient Conditions for Public Information to Have Social Value in a Production and Exchange Economy
Authors: KUNKEL J. GREGORY 
Published: April 2012

ABSTRACTConditions are derived under which all consumers in a production and exchange economy will prefer (at least weakly) disclosure of public information to no such disclosure. The conditions involve consumer endowments, the allocative efficiency of the financial market, and value maximizing behavior by firms. Cases exist where consumers will prefer disclosure of public information in a production and exchange economy, although they would be indifferent to such disclosure in an otherwise similar pure exchange economy. The difference in results is due purely to the fact that in production and exchange economies, information may be used to reallocate resources across time and firms, thus highlighting the fundamental difference between the role of information in pure exchange and in production and exchange economies.
Managerial Incentives in a Stock Market Economy
Authors: BECK PAUL J. , ZORN THOMAS S. 
Published: April 2012

ABSTRACTThis study presents an analysis of the managerial incentive problem in a stock market economy in which incentive contracts are structured in terms of security ownership. In our model, the manager's ownership share signals effort and is determined endogenously as the solution to a special portfolio decision problem. Managerial investment in the firm is evaluated under various security pricing arrangements. Our analysis indicates that, in general, stockholders should sell shares to a manager at a discount to ensure a Pareto efficient ownership (incentive) structure. However, efficient pricing (discount) schedules generally are nonlinear and, in many respects, isomorphic to discriminating price functions which have been considered in neoclassical models of monopoly.
Sufficient and Necessary Conditions for Information to have Social Value in Pure Exchange
Authors: HAKANSSON NILS H. , KUNKEL J. GREGORY , OHLSON JAMES A. 
Published: April 2012

ABSTRACTThis paper extends, corrects, and unifies earlier statements concerning the social value of public information as well as the no‐trading conditions in pure exchange. Sufficient and necessary conditions are provided for both the single‐period and two‐period cases in a postsignal trading model. The social value of information is shown to be closely linked to the allocational efficiency of the market, the degree of homogeneity of prior beliefs, and of information structures, the time‐additivity of preferences, and the efficiency of endowments. We conclude that the case in favor of public information is much stronger than previously suggested.
The Impact of Merger Bids on the Participating Firms' Security Holders
Authors: ASQUITH PAUL , KIM E. HAN 
Published: April 2012

ABSTRACTThis paper investigates whether merger bids have an impact on the wealth of the participating firms' bondholders and stockholders. Monthly and daily bond and stock returns are calculated relative to the announcement date of a merger bid for a sample of conglomerate mergers. The results show that while the stockholders of target firms gain from a merger bid, no other securityholders either gain or lose. To provide direct evidence on the existence of “diversification effects” and “incentive effects,” we test whether the bondholders' returns are dependent upon the correlation between the returns of the merging firms and whether the size of the bondholders' and stockholders' returns in individual mergers are correlated. The results are consistent with a capital market that efficiently resolves conflicts of interest between stockholders and bondholders.
The Relation Between Common Stock Returns Trading Activity and Market Value
Authors: JAMES CHRISTOPHER , EDMISTER ROBERT O. 
Published: April 2012

ABSTRACTThis study examines the relation between common stock returns, trading activity and market value. Our results indicate that although firm size and trading activity are highly correlated, differences in trading activity are not the underlying reason for the firm size anomaly, the finding of systematic differences in risk adjusted returns across stocks of firms of different size.
The Estimation of Quality‐adjusted Rates of Return in Stamp Auctions
Authors: TAYLOR WILLIAM M. 
Published: April 2012

ABSTRACTThe stamp auction market exemplifies markets in which a dominant feature is the quality variation in the traded assets. The observed price changes are a mixture of the “true” price change and the quality variation. This paper applies the time series signal extraction method to obtain estimates of quality‐adjusted rates of return and quality‐adjusted price indexes for stamp auction price series. The method is applicable to other areas in which there is quality variation or in which values are observed with error. Some features of stamps as an investment are also examined.
Motivating Management to Reveal Inside Information
Authors: TRUEMAN BRETT 
Published: April 2012

ABSTRACTThis paper develops incentive schemes which motivate a manager to release private information that he has concerning the probabilities of occurrence of the various output levels of his firm. It is shown that, in the context of a pure‐exchange economy, a complete prohibition on the manager's trading in his firm's stock is sufficient to motivate him to truthfully release his private information. When the setting is extended to that of a production‐exchange economy, the manager must also be allowed to choose the production plan that he most prefers in order for him to be motivated to release his information truthfully. In fact, no incentive scheme in a general production‐exchange economy can be guaranteed to motivate the manager to release his information truthfully if he is not allowed to choose the production plan freely. However, when more structure is placed on the economy, such an incentive scheme can be developed as described in the latter part of this paper.
Over‐the‐Counter Option Market Dividend Protection and “Biases” in the Black‐Scholes Model: A Note
Authors: GESKE ROBERT , ROLL RICHARD , SHASTRI KULDEEP 
Published: April 2012

ABSTRACTMost options are traded over‐the‐counter (OTC) and are dividend “protected;” the exercise price decreases on the ex date by an amount equal to the dividend. This protection completely inhibits the early exercise of American call options. Nevertheless, OTC‐protected options have market values which differ systematically from Black‐Scholes values for European options on non‐dividend paying stocks. The pricing difference is related to both the variance of the underlying stock return and to time until expiration of the option, but it is quite small in dollar amount.
An Empirical Analysis of the Role of the Medium of Exchange in Mergers
Authors: CARLETON WILLARD T. , GUILKEY DAVID K. , HARRIS ROBERT S. , STEWART JOHN F. 
Published: April 2012

ABSTRACTIn empirical studies of differences between firms which are acquired and those which are not, researchers typically divide firms into two groups‐acquired and nonacquired. In this paper, we argue that cash takeovers may be sufficiently different from noncash acquisitionst hat failure to distinguish between them may lead to inappropriateg eneralizations. We provide evidence from the mid 1970s that three categories of firms can be distinguished:n onacquireda, cquiredi n a cash takeover, and acquired in an exchange of securities.
Economies of Scale and Economies of Scope in Multiproduct Financial Institutions: A Study of British Columbia Credit Unions
Authors: MURRAY JOHN D. , WHITE ROBERT W. 
Published: April 2012

ABSTRACTThis paper investigates the production technology facing computerized credit unions in Canada. A full system of translog cost equations is estimated in order to test for economies of scale, economies of scope, and other production characteristics in a multiproduct context. The regression results indicate that most of the credit unions in our sample experience significant increasing returns to scale as they expand their level of output. There is also evidence of cost complementarity or economies of scope in their mortgage and other lending activities. As a result, legislation which limits the ability of credit unions to grow and diversify will likely raise the operating costs of this important group of financial institutions. Additional structural tests of the most general translog specification suggest that none of the restrictive production conditions commonly imposed by other researchers using Cobb‐Douglas and CES specifications provide a valid representation of credit union technology. The results of many earlier studies are therefore open to question.
The Relation between Stock Prices and Inflationary Expectations: The International Evidence
Authors: SOLNIK BRUNO 
Published: April 2012

ABSTRACTThis paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971–80. The Fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world. Using interest rates as a proxy for expected inflation, our data provide consistent support for the Geske and Roll model whose basic hypothesis is that stock price movements signal (negative) revisions in inflationary expectations. Finally, a weak real interest rate effect was found for some of these countries.
Stock Market Returns and Inflation: Evidence from Other Countries
Authors: GULTEKIN N. BULENT 
Published: April 2012

ABSTRACTThis paper investigates the relation between common stock returns and inflation in twenty‐six countries for the postwar period. Our results do not support the Fisher Hypothesis, which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one‐to‐one correspondence with expected inflation. There is a consistent lack of positive relation between stock returns and inflation in most of the countries.
Year‐End Tax‐Induced Sales and Stock Market Seasonality
Authors: GIVOLY DAN , OVADIA ARIE 
Published: April 2012

ABSTRACTThe paper relates two phenomena in the stock market: the high return during the month of January and the apparent existence of widespread sales of stocks for tax purposes towards the end of the fiscal year. The findings suggest that, due to the tax‐induced sales, the price of many stocks over the last 35 years was temporarily depressed in December but recovered in the following January. This price recovery is a major contributor to the high returns observed in January. The tax effect is present in firms of all sizes but much more pronounced for small firms. The analysis also indicates that a more precise identification of the tax‐switch candidates may prove that the tax‐induced sales are, in fact, the sole contributor to the high January's returns.
The Optimal Pricing Policy of a Monopolistic Marketmaker in the Equity Market
Authors: MILDENSTEIN ECKART , SCHLEEF HAROLD 
Published: April 2012

ABSTRACTThis paper presents a stochastic optimization model for marketmaking in security markets with a single dealer. Buy and sell orders are assumed to arrive at rates that are functions of the ask and bid prices. The dealer incurs both proportional and fixed transaction costs as well as portfolio costs. Methods of dynamic programming and semi‐Markov Decision Processes are used to characterize optimal pricing policies and to perform sensitivity analysis. Both bid and ask prices are nonincreasing functions of the dealer's inventory. Spread is unrelated to inventory position but positively related to order size. Computational examples demonstrate various results.
Fixed Versus Variable Rate Loans
Authors: SANTOMERO ANTHONY M. 
Published: April 2012

ABSTRACTThis paper discusses the nature of fixed and variable loan contracts and derives the conditions which determine the optimal quantity of each. The results indicate that the payoff functions are quite different and dependent upon the project financed. The appropriate conditions for the allocation of loan terms to a set of borrowers are then developed. Finally, the analysis derives the optimal portfolio frontier and risk‐return trade‐off for the banking firm. Here, it is demonstrated that the solution is unlikely to be at a point of zero interest rate risk.
On the Distributional Conditions for a Consumption‐oriented Three Moment CAPM
Authors: KRAUS ALAN , LITZENBERGER ROBERT 
Published: April 2012

ABSTRACTIn this paper, we develop sufficient conditions on probability distributions for a three moment (mean, variance, and skewness) consumption‐oriented capital asset pricing model (CAPM) to price correctly a subset of assets. The assumptions that individuals in an allocationally efficient capital market have identical probability beliefs and monotone increasing strictly concave utility functions displaying nonincreasing absolute risk aversion imply an aggregate preference function that exhibits preference for expected return, aversion to variance of return, and preference for positive skewness. For otherwise arbitrary preferences, we show that quadratic characteristic lines are sufficient for a subset of assets to be priced according to a three moment consumption‐oriented CAPM.
Agency, Delayed Compensation, and the Structure of Executive Remuneration
Authors: EATON JONATHAN , ROSEN HARVEY S. 
Published: April 2012

ABSTRACTIn this paper we examine the factors affecting the structure of executives' compensation packages. We focus particularly on the role of various types of delayed compensation as means of “bonding” executives to their firms.The basic problem is to design a compensation package that rewards actions that are in the long‐run interest of the stockholders. Firms must take into account their ability to discern unfortunate circumstances from mismanagement, the extent to which a compensation package forces the executive to face risks beyond his control, and the willingness of a given executive to bear this risk. We use our theory to interpret some executive compensation data from the early 1970s.
Screening, Market Signalling, and Capital Structure Theory
Authors: LEE WAYNE L. , THAKOR ANJAN V. , VORA GAUTAM 
Published: April 2012

ABSTRACTThis paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt‐equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.
On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information
Authors: CHAN YUK‐SHEE 
Published: April 2012

ABSTRACTThis paper develops a theory of financial intermediation that highlights the contribution of intermediaries as informed agents in a market with imperfect information. We consider a venture capital market where the entrepreneurs select the qualities of projects and their perquisite consumptions, about which the investors are imperfectly informed. It is shown that when all investors have positive search costs, the entrepreneurs are induced to offer the unacceptable inferior projects (“lemons” only), and the investors will not enter the venture capital market, but put their funds in other low return investments–an undesirable allocation of resources.Beginning with an initial undesirable situation, the financial intermediaries may evolve as informed agents that induce a Pareto‐preferred allocation, leading the investors to a higher welfare state. We focus our analysis on the existence of intermediation equilibra when the market for intermediation services is competitive. The distribution of returns on projects, the fees charged by intermediaries, and the fraction of institutional holdings are all endogenous in equilibrium. It is shown that (i) there cannot be a competitive intermediation equilibrium with very high institutional holdings, and (ii) in other cases multiple equilibra may exist, but the one with the highest institutional holdings dominates the others in a Pareto sense.
The Market Model and Capital Asset Pricing Theory: A Note
Authors: STAPLETON R. C. , SUBRAHMANYAM M. G. 
Published: April 2012

ABSTRACTThis note shows that a linear market model is sufficient to derive a linear relationship between beta and expected return. Furthermore, the slope of the relationship will be identical with that of the Capital Asset Pricing Model if the return on the market portfolio is normally distributed. However, results from characterization theory suggest that the linear market model assumption is close to that of multivariate normality.
Intertemporal Commodity Futures Hedging and the Production Decision
Authors: HO THOMAS S. Y. 
Published: April 2012

ABSTRACTThis paper deals with the producer's optimal use of commodity futures in hedging. The framework for analysis is an intertemporal consumption and investment model. The producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval. During the period, he faces both price and output uncertainties. In applying stochastic dynamic programming methods, this paper shows the effect of these risks on his consumption behavior. Further, the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions. Finally, implications of these results on the futures markets are discussed.
Tax Effects in Term Structure Estimation
Authors: JORDAN JAMES V. 
Published: April 2012

ABSTRACTThis study is a refinement and an extension of an earlier study by McCulloch of tax effects in the regression equation for term structure estimation. This study includes tests for tax effects and heteroskedasticity, a reconsideration of the need for an instrumental variable, and a search for the capital gains tax rate in addition to the ordinary‐income tax rate. There are two major findings: (1) statistically significant tax‐induced bias in the non‐tax‐adjusted equation and (2) evidence that the capital gains tax is misspecified in the tax‐adjusted equation.
Real Stock Returns and Inflation
Authors: DAY THEODORE E. 
Published: April 2012

ABSTRACTThis paper develops the relation between the real rate of return on the stock market and changes in the price level using a multiperiod economy with production. The observed relation between real ex post stock returns and inflation is shown to be consistent with equilibrium in an economy with rational investors. The relation between expected real returns and expected inflation is shown to depend on the form of the economy's production function and on the form of investor preferences. When the production function exhibits stochastic constant returns to scale, the model explains the negative relation between expected real returns and expected inflation which has frequently been observed in empirical studies.
Technological and Regulatory Forces in the Developing Fusion of Financial‐Services Competition
Authors: KANE EDWARD J. 
Published: April 2012

ABSTRACTProduct lines of traditionally heterogeneous financial institutions are rapidly fusing into a homogeneous blend. Institutions and market structures are reshaping themselves to lower the cost of serving customer demand for financial services. This paper contends that contemporary adaptations exploit scope economies rooted in technological change and deposit‐insurance subsidies to innovative forms of risk‐bearing.As they reorient work flows, financial firms are simultaneously restructuring their organizations to lower net burdens from government regulation. Alternative state and federal regulatory and legislative bodies compete vigorously for the regulatory business of developing institutional hybrids. Evolution of Federal Reserve policy toward “nonbank banks” exemplifies the process.
How Big is the Tax Advantage to Debt?
Authors: KANE ALEX , MARCUS ALAN J. , McDONALD ROBERT L. 
Published: April 2012

ABSTRACTThis paper uses an option valuation model of the firm to answer the question, “What magnitude tax advantage to debt is consistent with the range of observed corporate debt ratios?” We incorporate into the model differential personal tax rates on capital gains and ordinary income. We conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms. When it is possible for the value of the underlying assets to jump discretely to zero, differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms. Moreover, if the tax advantage to debt is small, the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt‐to‐firm value ratios.