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The article develops supply and demand functions for the commercial paper market. Between 1965 and 1968 the value of short-term debt issued by corporations more than tripled. The author estimates equations for supply and demand using quarterly data for the period 1954-1968. Results for several different industries are presented and discussed. Although the model worked will within the sample time frame, it performed less well for the two subsequent quarters, owing to structural changes in the market.

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]

The article presents a discussion of Arthur I. Bloomfield's research paper on a survey of central banking in developing countries. The reviewer said that his research was lucid and comprehensive and the author is in general agreement with Bloomfield on the various issues he discusses. The author adds to Bloomfield's paper by describing the various steps taken by the monetary authorities in India in the late 1940s and throughout most of the 1950s. The steps were taken to strengthen the banking and credit system.

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]

This article presents a discussion of E. M. Bernstein's paper about the financial problems of economic development. Bernstein discusses five facets of this problem: to decrease the size of the development program, to energize the inflow of foreign capital, to encourage domestic savings, to gather together the available resources, and to allocate the resources available to the private sector in a way that will stimulate the greatest increase in production. The author believes that this analysis leaves no room for argument.

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 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]

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 discussion of Gardner Patterson's research paper. The reviewer presents comments on terminology and the other is a matter of emphasis. The point of terminology has to do with the concept of mandatory saving. This type of saving means a reduction in consumption forced on people by an increase in prices. The author states that it is important to note how much additional money an economy is able to absorb in deciding how much deficit financing can be undertaken without risking inflation.

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]

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.

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.

The three papers presented at this session have provided a fine balance of theoretical analysis and statistical investigation. The paper by Black and Scholes is a particularly commendable contribution, thoroughly professional in execution and a very constructive piece of work in its broader implications. The authors has previously derived an equation for the valuation of options from the condition that opportunities for profitable arbitrage will be eliminated in efficient capital markets. In the present paper they carefully analyze a sizeable body of data to examine the efficiency of the operation of the option market as it is now structured. They validate their formula for the pricing of options by showing that in the absence of transactions costs, buying "undervalued" contracts and selling "overvalued" contracts at model prices computed with foreknowledge of the actual variances of the returns on the underlying stock over the holding period would produce quite insignificant average gains or losses. But when ex ante variances are estimated from previous stock price histories, buying "undervalued" contracts and selling "over-valued" contracts at model prices would have produced significantly negative excess portfolio returns, while substantial positive excess portfolio returns would have been made by buying overvalued and selling undervalued options at market prices. These results indicated that the true value of options is somewhere midway between market prices and "model" prices based on historical data. [ABSTRACT FROM AUTHOR]

The article presents a list of books related to finance, including "Instalment Credit Computations for Yields, Charges, Rebates and Earnings," by Nathan A. Batchker, "Simulation of Information and Decision Systems in the Firm," by Charles P. Bonini, and "Paciolo on Accounting," by Ralph F. Brown and Kenneth S. Johnston.

In two papers and in a recent book I have presented theory and evidence which lead to the conclusion that a corporation's share price (or its cost of capital) is not independent of the dividend rate. As you may know, MM (Modigliani and Miller) have the opposite view, and they argued their position at some length in a recent paper.3 Moreover, the tone of their paper made it clear that they saw no reasonable basis on which their conclusion could be questioned. Since they were so sure of their conclusion, it would seem advisable for me to review carefully my thinking on the subject, and this meeting appears to be a good time and place to do so. [ABSTRACT FROM AUTHOR]

The article presents a discussion of Charls Walker's and Ira Scott's research paper on the role of governments in bank earnings. Walker discusses discount policy in the 1950s. The author of this article states that the research presents only the advantages of discounting and few of the disadvantages. Also discussed is the third paper entitled "Elements of Timing and Response in the Balance Sheet of Banking." The author states that he has had difficulty commenting on these papers because of the obvious subject matter diversity.

The article addresses the democratization of money. The author equates the economic importance of the use of checks or deposit currency with the ability to physically distribute goods through railways. The author considers government intervention into the regulation of deposit currency, as it is beginning to replace the use of currency and coins, which are provided to the public free of charge. The author argues against the criticism that this is a socialization of the banking system by stating that this subsidy would take the place of the costs of generating paper currency and coins, and would strengthen the banking system by the increase in individual bank business.

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.

The article presents commentary about a paper written by E. Han Kim entitled "Miller's Equilibrium, Shareholder Leverage Clienteles, and Optimal Capital Structure," which was published in the May, 1982 edition of the "Journal of Finance." The author regards Kim's paper as a survey of research on optimal capital structure inspired by Merton Miller's article "Debt and Taxes." He discusses the portion of Kim's paper that contrasted complete and incomplete capital market environments, and notes the importance of tax arbitrage restrictions in understanding them.

This article presents a discussion of a paper that examined the state of the credit union industry. The author commends the survey that the paper provided; however, he feels the conclusion raised important issues that should have been dealt with. Some of these issues include the sharp slowdown in credit union growth as a result of various developments in financial markets and the implementation of regulatory changes that will ensure the industry never achieves the growth it has experienced. The author also states that the paper should have thoroughly discussed the impact of the Depository Institutions Deregulation and Monetary Control Act of 1980.

This article presents a discussion of a paper that examined uncertainty in monetary aggregates. The author discusses some the areas where he saw problems in the paper's argument such as the lack of analysis of the information gap between the author's preliminary and final figures. The author suggests that an effective analysis of this data could provide researchers with better information on the significance of the lack of information about developments in monetary aggregates. The author also addresses how the paper examines seasonal adjustment and notes that the paper fails to present a specified policy on this issue.

This article presents a discussion of a paper that examined the behavior of companies when dealing with foreign exchange. The author states that the paper follows a risky asset management hypothesis and examines several ways that foreign currency assets and liabilities can change. The author discusses several of the paper's strengths and also comments on various areas where it could be improved. The author discusses the conclusions reached in the paper and states that the strength of these points should be examined.

Both papers in this session try to discriminate between various theories of the determination of exchange rates. The null hypothesis of the Brittain paper is that monetary factors are not relevant in the determination of exchange rates. After examining some of the implications of current monetary models he rejects the null hypothesis. The Sargen paper sets out to explain the empirical observation that in the floating exchange rate period some rates were highly volatile while others seemed to be quite stable. He examines the implications of two alternative theories. He finds that the Purchasing Power Parity (PPP) theory as extended by Girton & Roper is not quite adequate in explaining exchange rate fluctuations, but that it explains reserve changes quite well. The Aliber-Dornbusch-McKinnon approach, which is the alternative theory, implies that structural parameters of the economy will influence exchange rate volatility. He then proceeds to estimate these parameters and finds that they are not sufficiently different across countries to account for the differences in exchange rate volatility. [ABSTRACT FROM AUTHOR]

The Duesenberry-Bosworth (DB) paper (and the impressive amount of work which ties behind it) are a welcome addition to the literature on models of the financial sector. In the first instance, there has been considerable interest in recent years in moving away from models with a heavy dosage of term structure and risk structure equations towards a model in which interest rates are explicitly determined by portfolio behavior of demanders and suppliers of various financial assets. Needless to say, the DB effort takes a giant step in this direction. To me at least, the other main attraction of the DB effort is that it attempts to exploit the flow of funds data, whose promise has long been touted but is as yet unrealized. The present paper reports a number of policy simulations with their complete macroeconometric model. The general structure of the model is given in the paper before us but most of the details are omitted. The model, however, is described more extensively in research which has recently been reported elsewhere. Since it is difficult to evaluate the simulations reported without some reference to the underlying model, I will be pardoned if I say a few words on this score. [ABSTRACT FROM AUTHOR]

This paper analyzes how blockholders can exert governance even if they cannot intervene in a firm's operations. Blockholders have strong incentives to monitor the firm's fundamental value because they can sell their stakes upon negative information. By trading on private information (following the “Wall Street Rule”), they cause prices to reflect fundamental value rather than current earnings. This in turn encourages managers to invest for long-run growth rather than short-term profits. Contrary to the view that the U.S.'s liquid markets and transient shareholders exacerbate myopia, I show that they can encourage investment by impounding its effects into prices. [ABSTRACT FROM AUTHOR]