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We present the first evidence that initial ratings of commercial paper influence common stock returns. Highly-rated industrial issues of commercial paper, unaccompanied by bank letters of credit, are associated with significantly positive abnormal returns; lower-rated issues are not. The stock price effects of changes in commercial paper ratings also demonstrate the relevance of ratings to the financing of firms. Rating downgrades, especially those that imply an exit from the commercial paper market, produce significantly negative abnormal returns; upgrades have no effects. Initial commercial paper ratings and subsequent reratings appear to help investors sort firms by their future prospects. [ABSTRACT FROM AUTHOR]

Banks have a unique ability to hedge against market-wide liquidity shocks. Deposit inflows provide funding for loan demand shocks that follow declines in market liquidity. Consequently, banks can insure firms against systematic declines in liquidity at lower cost than other institutions. We provide evidence that when liquidity dries up and commercial paper spreads widen, banks experience funding inflows. These flows allow banks to meet loan demand from borrowers drawing funds from commercial paper backup lines without running down their holdings of liquid assets. We also provide evidence that implicit government support for banks during crises explains these funding flows. [ABSTRACT FROM AUTHOR]

Diamond (1991) argues that a firm's reputation determines whether it borrows directly or through an intermediary. We test the Diamond model by examining the quantity response of commercial paper issued by bank holding companies to a rating downgrade. From 1986 to 1991, cumulative abnormal declines averaged 6.69 percent in the first two weeks after the downgrade and 11.05 percent in the subsequent 12 weeks. In contrast to commercial paper issued by bank holding companies, large CDs issued by affiliated banks did not change significantly in the period around a downgrade, suggesting that deposit insurance may have removed market discipline from the CD market. [ABSTRACT FROM AUTHOR]

An abstract of the article "An Empirical Investigation of Commercial Paper Sub-Markets: 1955-1968," by Stephen E. Skomp is presented.

The abstracts are from papers presented at the American Finance Association meetings in 1993. "Option Valuation with Systematic Stochastic Volatility" is from Kaushik I. Amin and Victor K. Ng. "Influence Costs and Capital Structure" is by Laurie Simon Bagwell and Josef Zechner. "An Equilibrium Model Rationalizing "Swings" in Financial and Macroeconomic Time Series Data" is by Gurdip S. Bakshi.

The article presents the American Finance Association's 1989 yearly report from the managing editor of "Journal of Finance." The managing editor discusses the submission fee increases of 1989, noting an increase in the number of submissions to the periodical. "Journal of Financial Economics" is noted as the only other major finance journal to publish turnaround statistics. The journal's stylistic guidelines and acceptance policies are mentioned. Smith Breeden Associates donated to the American Finance Association to allow for the establishing of the Smith Breeden prizes for best papers.

This article investigates empirically the comovements of the conditional mean and volatility of stock returns. It extends the results in the literature by demonstrating the role of the commercial paper-Treasury yield spread in predicting time variation in volatility. The conditional mean and volatility exhibit an asymmetric relation, which contrasts with the contemporaneous relation that has been tested previously. The volatility leads the expected return, and this time series relation is documented using offset correlations, short-horizon contemporaneous correlations, and a vector autoregression. These results bring into question the value of modeling expected returns as a constant function of conditional volatility. [ABSTRACT FROM AUTHOR]

The article presents abstracts on financial topics which include the use of hedge funds, the performance of firms before acquisition, and the time-variation of exchange rate exposure. [ABSTRACT FROM AUTHOR]

The article discusses Richard H. Thaler, the American Finance Association’s (AFA’s) Fellow for 2009. Thaler became an assistant professor at the University of Rochester after receiving his doctorate there. While at Rochester he developed an interest in the work of psychologists Daniel Kahneman and Amos Tversky, with whom he later collaborated on research. After moving to Cornell University in 1978, Thalen worked with doctoral candidate Werner DeBondt to produce a paper on the stock market that generated considerable controversy. Another paper he co-wrote with Andrei Shleifer and Charles M. C. Lee prompted a dispute with Nobel Prize-winner Merton Miller and colleagues.

This article presents the report of the Representative to the National Bureau of Economic Research (NBER). Founded in 1920, NBER works toward increasing economic understanding. It achieves this through programs, projects, working papers, books, periodicals, and its Summer Institute. Among the many programs sponsored by the Bureau are those focusing on Aging, Corporate Finance, and Industrial Organization. During 2000 NBER issued a total of 13 books. Periodicals include the monthly "NBER Digest," and the "Reporter."

This article presents the report of the editor of the "Journal of Finance," for the year 2000. The transition from the previous editor, Rene Stulz, and the Ohio State University office, to the current editor and new offices at Carnegie Mellon University has gone well. A temporary increase during the transition period in the number of printed pages of the "Journal of Finance" has been relaxed. As a result, approximately a dozen fewer papers will be published in 2001 than during the previous year. Submissions of prospective papers continue to be brisk.

The article presents a report from the American Finance Association's Representative to the National Bureau of Economic Research (NBER). The article reviews the mission of the organization, which focuses on economic research done by both individual economists and larger groups. The article provides information relative to NBER programs, projects, other conferences, Summer Institute, working papers, books, journals, periodicals, and fellowships. Martin Feldstein continues as President of NBER for 1996.

The article presents a series of abstracts of papers presented at the 1996 American Finance Association meeting, including "The Timing and Subsequent Performance of Seasoned Offerings: The Case of Rights Issues," "Testing Continuous-Time Models of the Spot Interest Rate," and "Bias in Analysts' Earnings Forecasts as an Explanation for the Long-Run Underperformance of Stocks Following Equity Offerings."

The abstracts of several papers from the 1994 American Finance Association meeting are presented. "An Experimental Examination of the Effects of Forecast Bias on Individuals' Use of Forecasted Information" is by Lucy F. Ackert, Bryan K. Church, and Mohamed Shehata. "Executive Careers and Compensation Surrounding Takeover Bids" is by Anup Agrawal and Ralph A. Walkling. "Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility" is by Torben G. Andersen.

The article presents a report of the representative to the National Bureau of Economic Research (NBER). NBER sponsors the study of a wide range of economic issues, by both individual researchers and special projects groups. During 1997 NBER published 442 working papers, 7 books, and 2 journals. Other endeavors supported by NBER include programs on a variety of topics from aging to public economics, a summer institute, and visiting fellows from other institutions. In 1997 David Laibson of Harvard University arrived as an Aging Felllow.

This study finds a bibliometric regularity in the finance literature that the number of authors publishing n papers is about l/nc of those publishing one paper. We find that the finance literature conforms very well to the inverse square law (c = 2) 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. [ABSTRACT FROM AUTHOR]

It is rather unusual to find all the papers presented in one of these sessions adhering so closely to the session title. I am taking note of this point to emphasize the unusual commonality of the two papers. Namely, both papers use the two parameter CAPM as their basic framework, and both papers investigate (or better, reinvestigate) classic, fundamental corporate finance issues. These are not trivial or second order issues undertaken in the two papers--capital budgeting, capital structure and dividend policy have always been at the core of corporation finance. But there is even a third similarity between these two papers; and that is, they both use numerical examples and solutions to illustrate some very difficult conceptual and analytical problems and to draw general conclusions. In many of the topics or cases studied in the two papers, analytical solutions were extremely complex or impossible, so that the usefulness of numerical examples was clearly demonstrated. [ABSTRACT FROM AUTHOR]

I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance portfolios, or to avoid the higher trading costs of low priced stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is suboptimal and leads to lower after-tax returns. Tax-motivated selling is most evident in December. [ABSTRACT FROM AUTHOR]

The article includes abstracts on articles related to the financial services industry, including "Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders," "Dynamic Equilibrium and Volatility in Financial Asset Markets," and "Liquidation Costs and Capital Structure."

The article presents the report of the Managing Editor of the "Journal of Finance" for the year 1996. The editor reports an increase of 68 submissions over last year, with an acceptance rate over nine percent. The editor is addressing the backlog by offering the papers through the World Wide Web. The editor is visiting the Harvard Business School for the academic year, and through the use of overnight mail, faxes and email, is able to handle the editing of the publication. The editor also notes the contribution of the referees who help review papers for publication.

The article presents a miscellany of material including style instructions for potential contributors, an application for membership in the American Finance Association, and a call for papers for an annual conference on risk management and corporate governance to be held in Chicago, Illinois on October 1-2, 2009.

The article presents commentary from Jessica A. Wachter about a paper written by Yacine Ait-Sahalia and Michael W. Brandt entitled (A&B) "Variable Selection for Portfolio Choice," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper A&B employed conditional moments of return to select an optimal portfolio. The author of the current paper acknowledges the validity of their work for single-period investments, but raises questions about its suitability for investments that extend over multiple periods.

The article presents commentary from Paola Sapienza about a paper written by Naveen Khanna and Sheri Tice (K&T) entitled "The Bright Side of Internal Capital Markets," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper K&T discussed the impact on both diversified and stand-alone firms of Wal-Mart's entry into their markets. The author of the current paper notes that K&T assumed Wal-Mart's entry to be an exogenous and unanticipated event, and raises questions over whether that is indeed the case.

The article presents a response to the paper "Asset Writedowns: Managerial Incentives and Security Returns," by John S. Strong and John R. Meyer. The author discusses the interpretation that the research findings are indicative of the failure of semi-strong form market efficiency. He also cites evidence supporting the notion that asset writedowns are a signal of economic value-enhancing corporate restructuring in the near future. The author also considers what a sequel to the original paper should address.

What determines the net foreign asset position of the residents of a particular country is an important question in international economics. Rene Stulz's paper seeks to answer it in a framework where two countries differ in their technology and asset preferences, but where they produce the same good. In the Ricardo example, Portugal and England trade in wine (or cloth) alone. This eliminates the role of the relative price of national outputs, the exchange rate and thus allows for the existence of an international riskless asset. It also severely reduces the international flavor of the model and is not convincingly justified. Note that complexity is hardly a reason since the author and others have successfully constructed related models with more than one good. Several other simplifications, convincingly justified in the paper, need no further elaboration. [ABSTRACT FROM AUTHOR]

There have been several studies reported in the literature dealing with the valuation and the determinants of the premium on convertible bonds, see [1,2,3,5]. The phenomenon of liquidation of the convertible bonds seems to have received relatively scant attention and the theorists and practitioners alike are hard pressed to find cogent rationale for the voluntary conversion of convertible bonds. Once the share price exceeds the conversion price the holder of the convertible bond faces the decision either to convert it into shares or hold on to it until a later date. The paper by Mehta attempts to offer a rationale for this voluntary conversion of the convertible bonds taking place gradually over a period of time. He provides empirical data to indicate that voluntary conversion of convertible bonds does take place in the market and that it is gradual over time. After analyzing a number of possible reasons for voluntary conversion of the convertible bonds the author concludes that because of uncertain growth in share prices, the (convertible bond) CB holders hedge their position by selling the call option and where the price subsequently goes up they close their position by converting the CB assuming that this would be cheaper than the alternative of selling the CB and buying the shares in the market with the associated transaction costs and tax considerations taken into account. The paper rules out other motives of CB conversion such as the interest/dividend differential on the CB and its underlying equity on the grounds that it would be inconsistent with the gradual voluntary conversion of the CBs over time. The paper argues that voluntary conversion of CB can best be explained in terms of market imperfections and two of these imperfections considered by the author are taxes and transaction costs. [ABSTRACT FROM AUTHOR]

The main theme of Professor Fewing's paper can be summarized as follows. A change in the time preference rate effects the nondiversifiable risk of a stock. Such a change in the nondiversifiable risk is transmitted via the growth factor. Thus, the higher the growth rate, the larger are the changes in the nondiversifiable risk of a stock triggered by a change in the time preference rate. The change in the time preference rate and the change in the nondiversifiable risk are positively related. Economic rationale suggests that unless the change in the time preference rate differentially interacts with the cashflow stream, which is totally excluded from consideration in the paper, stocks of all corporations would be similarly affected by this change. That is, there would be no differential changes in the nondiversifiable risk of the stocks with varying degrees of growth resulting from an exogenous change in the time preference rate. This can be simply demonstrated using the author's final results contained in his equation (14). [ABSTRACT FROM AUTHOR]

Commercial paper sells at an extra discount if it matures in the next calendar year but Treasury bills do not. The discount is apparent in downward price shifts before the year-end, and upward price shifts at the turn of the year that are significantly correlated with the simultaneous returns to small stocks, and that cannot reflect tax-loss selling. Cross-sectional and time-series tests on prices, as well as flow of funds evidence on trades by institutional investors, indicate that both the debt and equity patterns reflect agency problems related to portfolio disclosures. [ABSTRACT FROM AUTHOR]

A miscellany of information is presented including a list of papers accepted for publication in the periodical's June, 2009 issue, information for those seeking to use the publication in a classroom setting, and style instructions for those submitting manuscripts.

This article introduces Eugene F. Fama, the Robert McCormick Distinguished Service Professor of Finance at the University of Chicago in Chicago, Illinois, and makes the announcement that Fama has been chosen to receive the Morgan Stanley-American Finance Association Award for Excellence in Finance.

Employing a comprehensive database on transactions of commercial paper issued by domestic U.S. nonfinancial corporations, we study the determinants of very short-term corporate yield spreads. We find that liquidity plays a role in the determination of spreads but, somewhat surprisingly, credit quality is the more important determinant of spreads, even at horizons of less than 1 month. These results are robust across a variety of proxies for liquidity and credit risk, and have important implications for the literature on the modeling of corporate bond prices. [ABSTRACT FROM AUTHOR]

The article presents commentary from Matthew Richardson about a paper written by Geert Bekaert and Robert J. Hodrick (B&H), entitled "Expectations Hypotheses Tests," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper B&H examined the expectations hypothesis for interest rates. The author of the current paper notes that B&H have made three important contributions by focusing attention on testing methodologies, by developing a general econometric methodology, and by highlighting the poor finite sample properties of the Wald test.

The article presents commentary from Ananth Madhavan about a paper written by Kumar Venkataraman entitled "Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper Venkataraman concluded that automated stock exchanges could not yet match the benefits afforded by floor traders on traditional exchanges. The author of the current paper raises questions about some of Venkataraman's interpretations.

The article presents a report by the American Finance Association representative to the U.S. National Bureau of Economic Research (NBER) concerning the group's activities in programs, projects, and conferences. The article discusses the NBER's programs, which meet twice during the academic year and once at the Summer Institute, covering subjects such as economic fluctuations, labor studies, and industrial organization. The article describes research projects on subjects such as tax exempt debt, Japanese monetary policy, and forecasting business cycles. The article also covers conferences, the Summer Institute, working papers, and books published by the NBER.

This paper attempts to value the insurance provided by the Pension Benefit Guarantee Corporation (PBGC) under Title IV of ERISA (1974). The author's approach is to use an option pricing framework to develop two put option valuation models. After an introductory overview of the issues and problem, the author presents two put models in Section I of the paper: (1) One model under the assumption of voluntary termination by the firm and (2) a second model assuming bankruptcy (involuntary termination) on the part of the firm. Section II of the paper contains some empirical estimates for the value of PBGC insurance using the models from part one plus some actual pension data from a survey reported in Pensions and Investment Age (July 11, 1983). The author concludes that the actual value of PBGC insurance to a company is fairly represented by the value of the put option and is bounded by the two put option values developed under the voluntary and bankruptcy scenarios of Section I. He also concludes that simply taking the difference between the actuarially determined value of the accrued benefits (A) and the value of assets in the pension fund plus 30 percent of equity (F + 0.3E) is a very low estimate of the real value of PBGC insurance to major U.S. corporations. [ABSTRACT FROM AUTHOR]

This paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986. The median value of tax benefits, estimated at the time the buyout company goes private, has a lower bound of 21% and an upper bound of 143 % of the premium paid to pre-buyout shareholders. The estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions. The paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout. The results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts. [ABSTRACT FROM AUTHOR]

This article presents the author's comments on a paper that examined expected returns on stocks. The author suggests that the paper did an excellent job evaluating variance-bound literature; however, he believes that the analysis conducted was partial and failed to highlight the conclusions reached by other prominent researchers on volatility. The author also is skeptical of the conclusion drawn in the paper that suggests turning to nonstandard models for expected returns to explain stock price volatility. The author notes that the field has come a long way in understanding the statistical traps involved with volatility and pushes for more research.

This paper discusses the pricing of assets in an intertemporal rational-expectations model when real production and inflation evolve according to first-order autocorrelated processes. The focus is on the structure of the various intertemporal discount rates (yields) exhibited by this economy. Yield curves are identified for consumption claims, indexed bonds, and nominally riskless bonds and can be extended to any claim that can be approximated by a (finite) linear combination of such securities. The model demonstrates that, if the average term structure for nominally riskless securities is upward sloping, then the yield curve for consumption (market) claims is downward sloping, suggesting that conventional methods for computing long-term discount rates err by not accounting for maturity factors. The paper also explores the relationship between the intertemporal equilibrium and its embedded single-period equilibria. The single-period risk measures in this economy are derived and shown to be (generally) functions of maturity. A model of nominal bond betas is constructed along these lines. It is shown that bond betas that are increasing functions of maturity do not necessarily imply an upward-sloping term structure. [ABSTRACT FROM AUTHOR]

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This paper presents a simple model of net foreign investment. It is shown that an increase in the expected return of investments in the foreign technology decreases net foreign investment in the domestic country, whereas an increase in the variance of the return of investments in the foreign technology increases net foreign investment in the domestic country. An increase in foreign wealth accompanied by an equivalent decrease in domestic wealth is shown to increase net foreign investment in the domestic country. Finally, it is shown that an increase in the risk tolerance coefficient of the domestic investor has, to a first approximation, no effect on net foreign investment in the domestic country. A closed-form solution is given for the case in which all investors have a logarithmic utility function and is used to derive the dynamics of net foreign investment. One direction in which the present model could be extended consists in taking into account the fact that it is harder for domestic investors to enforce property rights abroad than at home. If property rights cannot be enforced abroad by domestic investors and at home by foreign investors, net foreign investment is always equal to zero, even though gross foreign investment differs from zero. Whereas the differential cost of enforcing property rights at home and abroad for domestic investors creates incentives for foreign investors to take actions which reduce the value of the net investment abroad by domestic investors, domestic investors can impose substantial penalties on foreign investors if they engage in confiscatory actions. The suggested extension of the analysis involves the development of a concept of equilibrium that accounts for the dependence of the actions of domestic investors on what they believe foreign investors will do. [ABSTRACT FROM AUTHOR]

This paper constructs a general equilibrium model with endogenous stochastic production and establishes that the equilibrium interest rate can he constant in a closed production economy when the preferences are represented by constant absolute risk aversion utility functions. The results in this paper and their limitations are compared and contrasted with related contributions in the financial economics literature. [ABSTRACT FROM AUTHOR]

The article defines differences between Tobin's "q" and the valuation ratio, which is called "v" in the Neo-Passinetti Theorem concerning distribution and mentions methods used in financial research. Tobin's q is usually related to investment at the aggregate level and is a ratio for asset valuation which considers market price and replacement cost. The v shows a relationship between the capital employed or book value of assets and the market value of shares. The Malkiel-von Furstenberg-Watson paper clarifies the meaning of coefficients in regression analysis, while the Ciccolo-Fromm paper explains how q indicates relative potential profitability in an industrial environment. The Durbin-Watson statistic is mentioned, as well as the fund flows between surplus and deficit sectors.

My comments are directed to the paper by Professors Cohn and Lessard, which examines the potential implications for the use of several non-standard forms for residential mortgage instruments in an inflationary economic environment. Overall, the paper represents a modest contribution to the existing literature, containing three especially noteworthy features. First, the paper presents a relatively concise statement about the scope of research activities of the recent MIT-Sloan School Mortgage Market Study. Second, the paper has a relatively careful statement about the design of several "new" alternative non-standard mortgage instruments. Third, the paper discusses in some detail the micro-effects on the borrower in terms of the implied real and nominal payment streams for each of the proposed non-standard mortgages under different long run economic scenarios. [ABSTRACT FROM AUTHOR]

The article discusses the various endeavors of the National Bureau of Economic Research (NBER). Founded in 1920, NBER sponsors and distributes research aimed at furthering economic knowledge. The Bureau maintains several ongoing programs including those specializing in Asset Pricing, Children's Health & Well-Being, and Corporate Finance, among several others. Researchers can explore topics of common interest under the aegis of an NBER Project. Projects ongoing in 1999 focused on such areas as international capital flows, school choice, and Social Security reform. NBER also publishes working papers, periodicals, and books.

This article presents a discussion of an article that examined private deposit insurance as well as boarder issues that have implications for finance theory. The author notes that the paper addresses the questions of whether the appropriate incentives for risk-taking are being offered to insured institutions and whether the current system extends the government's guarantee to an inappropriate extent. The author asserts that risk-related deposit insurance premiums are not the answer to this problem. He discusses some of the problems with the deposit insurance system such as their determination of when insolvency occurs.