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The article presents a list of books related to business and finance. Some of the books are "The Politics of Israel: The First Decade of Statehood," by Marver H. Bernstein, "Guidebook to California Taxes With Special Emphasis on Relationship to Federal Taxes," by Russell S. Bock, "The Mechanics of Inflation," "Marxism and Freedom: From 1776 Until Today," by Raya Dunayevskaya, "Prosperity through Competition," by Ludwig Erhard, "Practical Financial Statement Analysis," 4th ed., by Roy A. Foulke, "Supply and Demand," by Hubert Henderson, and "Corporate Bonds: Quality and Investment Performance," by W. Braddock Hickman.

The article presents a list of books received including "Determination: An Analysis of Wage Criteria," by Jules Backman, "Principles and Policy," by Royall Brandis, and "City Expenditures in the United States," by Harvey E. Brazer.

The article presents a discussion of research papers by Professors Scott, Walker, and Horwich. The author discusses three points about Scott's paper. The first point is about the impact of Federal Reserve discount policy upon banks' liquidity standards. The second is the statement that institutional developments affecting the supply of and demand for loanable funds will, by increasing the tendency of interest rates to go up and down, raise the premium that banks put on liquidity. The third is the proposition that comparing 1929 with 1956, banking liquidity lessened.

A discussion of several conference papers that examined monetary policy is presented. The author notes that one of the papers offered a clear argument on the role of monetary policy in international finance. The author also explores the idea of flexible exchange rates and the problems that inflation may present. The author proposes that a deflation of income would actually solve many of the economic problems the U.S. is facing in the postwar period.

The report of the American Finance Association's representative to the National Bureau of Economic Research (NBER) is presented. NBER has ongoing programs, which also meet during the Summer Institute, on topics such as asset pricing, health economics, and industrial organization. Research projects include international comparisons of welfare programs, which is under the direction of researcher Rebecca Blank.

The article presents a response to the paper "Orthogonal Frontiers and Alternative Mean-Variance Efficiency Tests," by Bruce N. Lehmann. The author discusses some difficulties associated with the approach outlined in the original article, such as using unknown betas. The author highlights the main contribution of the paper, the introduction of an alternative procedure allowing researchers not to be restricted by the number of time-series observations and to use returns on many individual assets instead of forming portfolios.

This article presents a discussion of a paper that examined how external financing activities of firms are usually accompanied by a decrease in their equity values. Some theories that have examined this concept are the theory of signalling with differential information, the theory of agency and the theory of liquidity, which was examined in the observed paper. The author notes that firms have reasons to hold money or liquid assets in order to maintain opportunities to invest in profitable projects. The author discusses how firms meet this liquidity need and offers suggestions on how to improve the model of liquidity theory.

In recent months there has been no shortage of mergers in the U.S. We have seen numerous multibillion dollar takeovers and the issuance of new merger guidelines by antitrust authorities. In thinking about mergers, there are two large categories of issues. The first has to do with the owners and managers of the participating companies. Do shareholders of acquired firms benefit? Do shareholders of acquiring firms benefit? On net, is there value created by mergers? Or do many mergers simply carry out the whims of managers? The second large set of questions has to do with whether mergers improve the allocation of resources in the economy. Any value creation that might occur through merger could be as a result of real economic efficiency or as a result of the creation or exercise of monopoly power. Value creation to owners is not a sufficient basis for public policy decision on mergers since there are many competing theories about what might lead to such value. Richard Ruback's paper, in some sense, takes Paul Halpern's suggestion to the extreme. Halpern (1982) suggests that mergers are a theory of special cases. Ruback's paper is a paper about one and one case only. In discussing that paper there are three general areas on which I will focus. First, what should we expect to learn from a case study. Second, what methodological issues are raised in the paper. Third, what sort of interpretation can we make of the results of the paper. [ABSTRACT FROM AUTHOR]

The article comments on two articles published within the issue; "Some Notes on Financial Incentive-Signalling Models, Activity Choice and Risk Preferences," by S. Ross, and "Welfare Aspects of Options and Supershares," by N. Hakansson. The author notes that both Hakansson and Ross are prominent figures in literature which focuses on the power of options to complete financial markets. The author views the basic premise of Hakansson's paper to be the normative desirability of introducing derivative assets which complete the financial market. He feels that Hakannson's work establishes conditions under which the market portfolio can play the powerful role which is assigned in Ross' paper. The author notes that, if the conditions described by the authors were realized, financial markets could be completed by an institution facilitating trades in options written on the market portfolio.

These two papers apply the monetary approach to the balance of payments to explain: (1) the relationship between daily changes in forward and spot exchange rates, and exchange rates and interest differentials; and (2) the relationship between exchange rate movements and/or reserve movements and monetary developments over quarterly time periods. Both papers are based on traditional assumptions of the monetarist approach but find that non-monetary factors are also needed to explain countries' exchange rate and reserve movements. It might be useful to consider the validity of some of the basic assumptions when applied to individual industrial countries. [ABSTRACT FROM AUTHOR]

Miscellaneous items are presented including information on the American Finance Association's (AFA's) 2010 annual meeting, style instructions for those submitting manuscripts to the publication, and an application for membership in the AFA.

The article presents a miscellany of material including style instructions for those submitting manuscripts, a note addressed to those seeking to use the publication for classroom use, and an application for membership in the American Finance Association.

The article presents miscellaneous about “The Journal of Finance” and finance in general including information about a global directory of finance professors, style instructions for those preparing to submit a manuscript to the Journal, and information about using reprinted material from the Journal for academic classroom use.

The article presents a miscellany of items including information for those seeking permission for classroom use of the periodical’s articles, advertisements for several university positions in finance, and style instructions for those submitting manuscripts.

Although a number of prior papers have argued the benefits to foreign firms of cross-listing their shares in the U.S., the number of foreign firms exiting U.S. capital markets has been increasing. This has occurred despite the difficulties foreign firms face in deregistering from the Securities and Exchange Commission (SEC). This paper examines the reasons underlying this trend. One of our main findings is that the passage of the Sarbanes-Oxley Act has reduced the net benefits of a U.S. listing and registration, particularly for smaller foreign firms with lower trading volume and stronger insider control. [ABSTRACT FROM AUTHOR]

The article presents miscellaneous information, including an announcement for the publication's 2009 annual meeting, to be held in January of 2009 in San Francisco, advertisements for open college faculty positions, and style instructions for those looking to submit manuscripts.

The article reports that the 2009 Annual Meeting of the American Finance Association will be held in San Francisco, California on January 3-5, 2009.

This article presents announcement regarding individuals and events in the finance industry including an obituary for finance Professor Michael J. Barclay at the William E. Simon Graduate School of Business Administration at the University of Rochester in Rochester, New York, the 2008 Annual Meeting with Professor Jeremy Stein from January 4, 2008 to January 6, 2008 in New Orleans, Louisiana, and a joint venture that was agreed upon by the AFA and the Department of Finance at Ohio State University, which will maintain, enhance, and

The article presents a collection of news briefs related to finance in the United States. In 2004 the American Financial Association board authorized a History of Finance project with Stephen Buser named as historian. The 2007 annual meeting of the American Financial Association was held January 5-7 in Chicago, Illinois. Professor Kenneth French was the Program Chair. The American Financial Association and the Department of Finance have entered into a joint venture to maintain and enhance the finance faculty directory on the University's website.

This article presents a list of announcements, meetings, conferences, and research support for the readers of "The Journal of Finance." Announcements include student travel grants for attendance to the 2007 Annual Meeting of the American Finance Association (AFA) at the Hyatt Regency in Chicago, Illinois. Additional announcements include a joint venture between the AFA and the Department of Finance at Ohio State University (OSU), to maintain and enhance the finance faculty directory on the OSU Internet Web site and a History of Finance project with historian Stephen Buser is also announced, which was approved by the AFA Board.

This paper tests whether the "disposition effect," that is the tendency of investors to ride losses and realize gains, induces "underreaction" to news, leading to return predictability. I use data on mutual fund holdings to construct a new measure of reference purchasing prices for individual stocks, and I show that post-announcement price drift is most severe whenever capital gains and the news event have the same sign. The magnitude of the drift depends on the capital gains (losses) experienced by the stock holders on the event date. An event-driven strategy based on this effect yields monthly alphas of over 200 basis points. [ABSTRACT FROM AUTHOR]

This paper examines to what extent credit ratings directly affect capital structure decisions. The paper outlines discrete costs (benefits) associated with firm credit rating level differences and tests whether concerns for these costs (benefits) directly affect debt and equity financing decisions. Firms near a credit rating upgrade or downgrade issue less debt relative to equity than firms not near a change in rating. This behavior is consistent with discrete costs (benefits) of rating changes but is not explained by traditional capital structure theories. The results persist within previous empirical tests of the pecking order and tradeoff capital structure theories [ABSTRACT FROM AUTHOR]

The article presents commentary from M.J. Brennan about a paper written by Nicholas Barberis and Ming Huang (B&H) entitled "Mental Accounting, Loss Aversion, and Individual Stock Returns," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper B&H analyzed the behavior of investors who are concerned about the returns of both their portfolios and the individual stocks that compose them. The author of the current paper observes that this represents a departure from modern portfolio theory. In his view B&H's analysis, while interesting and informative, must be approached with caution.

The article presents commentary from Stephen A. Ross about a paper written by Albert S. Kyle and Wei Xiong (K&X) entitled "Contagion as a Wealth Effect," which appeared in the August, 2001 issue of the "Journal of Finance." In that paper K&X discussed financial contagion within the context of a model that included noise traders, rational traders, and traders who base their decision on fundamentals. The author of the current paper believes some of these agents are a little too narrowly-defined, but overall regards K&X's work as a valuable contribution to the literature.

This paper investigates options market reaction to changes in the instantaneous variance of the underlying asset. There are three main findings. First, options market investors underreact to individual daily changes in instantaneous variance. Second, these same investors overreact to periods of mostly increasing or mostly decreasing daily changes in instantaneous variance. Third, they tend to underreact (overreact) to current daily changes in instantaneous variance that are preceded mostly by daily changes of the opposite (same) sign. The third finding can reconcile the first two and is also consistent with well-established cognitive biases. [ABSTRACT FROM AUTHOR]

Individual investors trade less aggressively on any particular piece of information as more investors observe it. The trades of the new investors observing a piece of information "crowd out" some of the trades of the old investors who observe that same piece of information. This paper shows that when traders are risk averse, these crowding out effects lead the proportions of traders who choose to observe one signal versus another to differ from the proportions that maximize the informativeness of prices. [ABSTRACT FROM AUTHOR]

The report from the managing editor of the "Journal of Finance" is presented. In the year 1992, the acceptance rate for manuscripts submitted was 8.2 percent and the approximate turnaround time was 47 days. The submission and acceptance statistics for manuscripts in various subject areas for 1992 are given, as well as comparative statistics for 1980 to 1992.

This paper analyzes how mutual fund performance relates to past performance. These tests are based on a multiple portfolio benchmark that was formed on the basis of securities characteristics. We find evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns. [ABSTRACT FROM AUTHOR]

This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding tax-based theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided. [ABSTRACT FROM AUTHOR]

The assumption that the market portfolio follows a specified diffusion process implies, in a simple equilibrium framework, that the representative individual must have a certain utility function which is identified in the paper. Not every diffusion process is viable, i.e., can be "endogenized" to be the market portfolio's price process in such an equilibrium model. The paper provides necessary and sufficient conditions for viability which imply that viable diffusion processes constitute a rather restricted family. [ABSTRACT FROM AUTHOR]

This paper examines the optimal structure of financial contracts in an economy subject to two forms of moral hazard. Multiple information problems are shown to generate a role for multiple classes of financial claimants. We then show that economic efficiency is enhanced if the financial structure of the economy consists of both direct and intermediated financial contract markets. Consequently, our results demonstrate a motivation for the complementarity between capital markets and depository financial institutions. [ABSTRACT FROM AUTHOR]

In this paper, we document regularities in trading patterns of individual and institutional investors related to the day of the week. We find a relative increase in trading activity by individuals on Mondays. In addition, there is a tendency for individuals to increase the number of sell transactions relative to buy transactions, which might explain at least part of the weekend effect. [ABSTRACT FROM AUTHOR]

This paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive, while the usual risk aversion makes it more attractive. As temporal risk aversion increases, the equilibrium interest rate decreases and the equity premium increases. This paper also shows a striking and novel result that an increase in time impatience can lead to either a decrease or an increase in the interest rate, depending on the nature of the nonseparability. [ABSTRACT FROM AUTHOR]

This paper values a contingent claim to discrete stochastic cash flows generated by a Poisson arrival process with a randomly varying intensity parameter. In the most general case, both the size and the arrival intensity of cash flows may correlate with state variables in a continuous time economy. Assuming the conditions of an intertemporal capital asset pricing model, solutions for the value of the contingent claim can be found using various techniques. The paper suggests immediate applications to the valuation of insurance contracts, the decision to build a firm with unknown future investment opportunities, and the pricing of mortgage-backed securities. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to provide a test of a state-dependent multinomial model of intertemporal changes in the term structure of interest rates. The theoretical background for the model comes from Ho and Lee (1986). The current paper extends their model in several significant ways. First, we perform diagnostic tests on the data to demonstrate that the empirical results reject a binomial model in favor of a trinomial one. After theoretically deriving the appropriate trinomial model, the current paper extends their model to allow for state-dependent shifts which are determined by the set of ex ante observable state variables. The methodology for the study utilizes OLS regressions to identify the exogenous explanatory variables which drive the hypothesized trinomial process of term structure evolution. The empirical tests indicate that the set of state variables explains a significant portion of the variability in the shifts of the term structure over time. The model also identifies and quantifies a set of variables which impact on changes in the term structure of interest rates. [ABSTRACT FROM AUTHOR]

This paper develops a consumption-oriented model of asset prices in a multigood economy that is, in principle, testable even when aggregate consumption of goods and their market prices are only partially observable. Previous studies show that, when there are m consumption goods, equilibrium expected excess returns on securities are functions of their covariances with m + 1 variables-aggregate consumption expenditure and market prices of consumption goods. Without making any further assumptions, the present model shows that a similar equilibrium relationship can be expressed in terms of covariances of asset returns with the following m + 1 variables: market prices of k consumption goods and aggregate consumption of m + 1 - k goods. Because the author's result provides researchers with some flexibility in choosing the set of m + 1 variables that measure riskiness of securities, it should lead to more powerful tests of the model. [ABSTRACT FROM AUTHOR]

This paper derives an arbitrage-free interest rate movements model (AR model). This model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free. We then show that the AR model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates. This paper also studies the behavior and the economics of the model. Our approach can be used to price a broad range of interest rate contingent claims, including bond options and callable bonds. [ABSTRACT FROM AUTHOR]

This note updates Mishkin's empirical work through 1984, confirming his original findings and demonstrating that using period-average interest rates does not produce Makin's result. I also show that lagged money surprises have a significant positive impact on rates, a possibility that Mishkin did not investigate. The next section briefly reviews the efficient markets methodology used in Mishkin, comparing it to the specification found in Makin. Then regressions updating Mishkin's results and incorporating Makin's dependent variable are presented. The paper concludes with an attempt to account for the difference in the two paper's results.
Mishkin's result of a significant positive correlation of unexpected money growth and interest rate surprises is found to still hold after adding the years 1977 through 1984 to the sample. The result "passes" several Chow tests, indicating a degree of temporal stability, and is shown not to depend on whether the interest rate is measured at the end of the quarter or as a period average as Makin claimed. I conjecture that Makin's result is due to an inappropriate restriction in his specification and offer some brief evidence suggesting that this is the case. [ABSTRACT FROM AUTHOR]

This paper analyzes the market for financial assets in a production and exchange economy with several realized outputs and a single unobservable source of nondiversifiable risk. The paper demonstrates that, for a large class of diffusion outputs and preferences, optimizing consumers first estimate the realizations of the unobservable factor and then use these estimates to determine portfolio and consumption rules. Moreover, the explicit consideration of this unobservable productivity factor affects equilibrium demands and prices. The equilibrium spot rate of interest emerges as the "best estimate" of the unobservable factor, and multiperiod default-free bonds arise as the optimal hedge for the unobservable changes of the stochastic investment opportunity set. [ABSTRACT FROM AUTHOR]

This paper analyzes an economy in which investors operate under partial information about technology-relevant state variables. It is shown that for Gaussian information structures under incomplete observations, the consumer's problem can be transformed into an equivalent program with a completely observed state: the conditional expectation of the underlying unobservable state variables. A consequence of this transformation is that classic results in finance remain valid under an appropriate reinterpretation of the state variables. [ABSTRACT FROM AUTHOR]

This 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%. This paper extends previous work by providing evidence of the extent of bias from thin trading and price adjustment delays for OLS betas estimated using daily data. Further, the effectiveness of the Scholes-Williams, Dimson, FRJ, and CHMSW techniques for adjusting beta estimates for the bias created by thin trading and trading delays is investigated using a new approach which employs actual data and allows for the construction of portfolios with known true betas. This paper is divided into four parts. The next section discusses the data and methodology. Then the following two sections present the results and discuss limitations of the study. The final section provides a summary. [ABSTRACT FROM AUTHOR]

This paper relates the value of additional information to asset prices in a pure exchange setting. The price structure of interest revolves around a "pricing-hypothesis": the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy. Two basic results are developed. First, if the incremental information is useless then the pricing-hypothesis applies. Second, if the pricing hypothesis is assumed valid, then the information is valuable in a weak sense. The results are also considered in the context of empirical research. The case is made for viewing statistical tests of association between prices and signals as tests of the social value of information. [ABSTRACT FROM AUTHOR]

This paper modifies the Black-Scholes option pricing model to include the effects of transaction costs and different borrowing and lending rates. The paper demonstrates that these market imperfections tend to offset each other yielding a bounded range of prices for each option. The paper also shows that under some conditions the option pricing hedge may be society's lowest cost financial intermediary. [ABSTRACT FROM AUTHOR]

This 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. [ABSTRACT FROM AUTHOR]

This paper, utilizing dealer's "trading book" information, presents some empirical evidence supporting the validity of a dealer pricing model. It shows that much of the transaction prices variation may be explained by the specialist's optimal determination of his bid and ask quotes. Furthermore, it demonstrates that the dealer's bid-ask spread is an important explanatory variable in the observed transaction return. Finally, it indicates that the dealer's inventory level may affect his quotes and thus the transaction prices and order arrivals. The paper provides insights into the relationship between transaction prices and equilibrium prices, which will permit more extensive use of transaction data in empirical investigations. It also provides a better understanding of optimal dealer pricing strategies, suggesting that the proposed empirical model may be used to evaluate a dealer's trading performance. [ABSTRACT FROM AUTHOR]

The effect of personal taxation on stock prices remains controversial. While some researchers have found evidence of a tax effect in the stock market, others have found evidence to the contrary. This paper provides additional empirical evidence on the effect of the differential taxation of dividends and capital gains on stock prices by analyzing stock price changes around the 1971 Canadian Tax Reform and its subsequent amendments in 1977. The results show that changes in the taxation of cash dividends and capital gains affected high-yield and low-yield stocks listed on the Toronto Stock Exchange (TSE) differently. Section I of the paper describes the tax changes. The method used to analyze the tax effect is described in Section II. Section III reports the results, and conclusions are presented in Section IV. [ABSTRACT FROM AUTHOR]

This paper by Kane, Rosenthal and Ljung follows the work of Fama (1975) in examining the adjustment of nominal interest rates to expected inflation. In that piece, Fama presented evidence that was not inconsistent with the joint hypothesis that the real pre-tax rate of interest is constant and nominal interest rates incorporate rational expectations about future inflation. One of the criticisms raised by Nelson and Schwert (1977), among others, about Fama's work has been the low power of his tests. The authors, in this paper, attempt to provide a more powerful test of the Fisher hypothesis using data from six countries, including the U.S. Their main contribution is to shed some light on whether nominal interest rates have fully adjusted to reflect expected inflation for countries other than the U.S. While this provides us with a greater quantity of evidence, the main shortcomings of the paper is that the authors could have provided us with better quality evidence. [ABSTRACT FROM AUTHOR]

Presents the author's message as the departing managing editor of the 'Journal of Finance.' Appreciation for the authors who have published works in the journal; Data on total number of manuscripts received by the journal. [ABSTRACT FROM AUTHOR]