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2. Preliminary Program WESTERN FINANCE ASSOCIATION ANNUAL MEETING Las Vegas, Nevada June 9-11. 1974.
- Published
- 1974
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3. COMMENT: EVALUATIVE TECHNIQUES IN CONSUMER FINANCE--EXPERIMENTAL RESULTS AND POLICY IMPLICATIONS FOR FINANCIAL INSTITUTIONS.
- Author
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Nelson, Mark
- Subjects
CONSUMER credit ,BUSINESS forecasting ,CREDIT ,DEBTOR & creditor ,ECONOMIC indicators - Abstract
The article reports on consumer credit and discusses the paper, "Evaluative Techniques in Consumer Finance - Experimental Results and Policy Implications for Financial Institutions" by Vincent P. Apilado, Don C. Warner, and Joel J. Dauten. Apilado and his colleagues attempt to develop methods to attain optimal credit acceptance policies before giving credit to consumers. A sample of 475 good and bad loans was examined to show character and capacity with collateral set up as a separate area. The most important factor found relating to bankruptcies is the ratio of personal assets to personal debt.
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- 1974
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4. COMMENT: ISSUE OF FOREIGN EXCHANGE MANAGEMENT IN U.S. MULTINATIONALS.
- Author
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Kwan, Cheukuen
- Subjects
FOREIGN exchange ,FOREIGN exchange rate risk ,INTERNATIONAL business enterprises ,INDUSTRIAL management - Abstract
The article reports on foreign exchange rates with commentary on the paper, "Issue of Foreign Exchange Management in U.S. Multinationals" by Rita Rodriguez. Rodriguez examines decision making in foreign exchange management through defining foreign exchange risk, the attitudes of management towards foreign exchange risk, and the finance function. Around 50 different multinational corporations in the U.S. were surveyed and interviewed during the research for the paper.
- Published
- 1974
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5. COMMENT: PORTFOLIO PERFORMANCE OF PROPERTY-LIABILITY INSURANCE COMPANIES.
- Author
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Swadener, Paul
- Subjects
INSURANCE companies ,PORTFOLIO performance ,PROPERTY insurance ,PORTFOLIO management (Investments) ,INSURANCE investigators ,INVESTORS - Abstract
Considering Professors Monroe's and Trieschmann's own analysis and methodology, it seems that their conclusion and implications of the results are considerably reduced in scope from those presented in their paper. I would like to discuss this new approach within the broader scope of their work. I will conclude with several points which closely relate to their work but which are not, by their choice, a part of the present paper. [ABSTRACT FROM AUTHOR]
- Published
- 1972
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6. COMMENT: DEPOSIT INSURANCE IN THE UNITED STATES-- EVALUATION AND REFORM.
- Author
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Janssen, Christian T. L.
- Subjects
BANK insurance ,DEPOSIT insurance ,FINANCE ,DEPOSIT banking ,BANKING industry - Abstract
This article presents a comment on the paper "Deposit Insurance in the United States -- Evaluation and Reform." The author discusses some of the proposals that are presented in the paper and offers suggestions related to these policy measures. Some of the concerns that are raised by the author include the complexity of risk assessment and the responsibilities that the Federal Deposit Insurance Corporation and the U.S. Federal Reserve are given in the paper. The author discusses bank failure and the role that large investors play in the success of small banks. The author also offers some policy suggestions of his own.
- Published
- 1972
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7. COMMENT: AN EMPIRICAL TEST OF FINANCIAL RATIO ANALYSIS.
- Author
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Dake, J. L.
- Subjects
RATIO analysis ,BUSINESS failures ,SMALL business ,INDUSTRIAL management ,FINANCIAL ratios ,STRATEGIC planning - Abstract
First, let me say that I enjoyed Professor Edmister's paper and found his inquiry into ratio analysis and multiple discriminant analysis (MDA) for small business financing decisions quite interesting. I would like to break my comments into two basic categories: a) the statistical methods utilized, and b) the policy implications of the findings. [ABSTRACT FROM AUTHOR]
- Published
- 1972
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8. COMMENT: FINANCIAL AND STATISTICAL ANALYSIS FOR COMMERCIAL LOAN EVALUATION: A FRENCH EXPERIENCE.
- Author
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Dufey, Gunter
- Subjects
COMMERCIAL loans ,REPAYMENTS ,CREDIT risk ,FINANCE - Abstract
The article discusses loan evaluation in France with commentary on the paper "Financial and Statistical Analysis for Commercial Loan Evaluation: A French Experience" by Edward I. Altman, Michel Margaine, Michel Schlossur, and Pierre Vernimmen. A troubled sector of France is examined in this paper to aid in the development of a model which determines the credit worthiness of commercial loan applicants. Traditional financial statement analysis and statistical analysis are combined during the research.
- Published
- 1974
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9. COMMENT: DIRECT INVESTMENT, RESEARCH INTENSITY, AND PROFITABILITY.
- Author
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Upson, Roger B.
- Subjects
INVESTMENTS ,FOREIGN investments ,RATE of return ,RESEARCH & development - Abstract
The article discusses direct investment abroad and also comments on the paper, "Direct Investment, Research Intensity, and Profitability" by Alan K. Severn and Martin M. Laurence. The high internal rate of return on investment abroad is examined. The author believes that there is no evidence in Severn and Laurence's paper that explains the high rate of return on foreign investments.
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- 1974
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10. OPTIMAL FINANCIAL STRATEGIES FOR TRUSTEED PENSION PLANS.
- Author
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Tepper, Irwin
- Subjects
PENSION trusts ,RETIREMENT income ,PENSION trust management ,PENSION trust guaranty insurance ,SOCIAL security ,RISK assessment - Abstract
Since the Second World War the corporate pension trust has become a prominent method of provision for employees' retirement income. The continuing liberalization of pension provisions and pressures to match pension trust liabilities with assets has established pension contributions as a significant component of corporate cash outlays. Asset accumulation in pension trusts has rendered such institutions a major source of capital funds. In recent years, many firms have been hard-pressed to meet their plans' funding requirements. These developments have stimulated a broadly based interest in developing improved management techniques that stress strategic planning. It is fair to say that the financial analysis of pension trusts remains, at this time, relatively simplistic and nonquantitative. This paper is concerned with the development of a model, for deriving optimal financial strategies for corporate pension trusts. The focus is placed upon objectives internal to the corporation; the specific goal is taken to be the minimization of the impact of pension outlays on corporate activity. The objectives of labor and the government are viewed as constraining the decision process. With regard to the latter, the provision of benefit security is taken to be of paramount importance. Dynamic stochastic programming forms the basis for the decision model. [ABSTRACT FROM AUTHOR]
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- 1974
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11. THE INVESTMENT PERFORMANCE OF THE COMMON STOCK PORTFOLIOS OF PROPERTY-LIABILITY INSURANCE COMPANIES.
- Author
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Schlarbaum, Gary G.
- Subjects
INVESTMENTS ,INVESTMENT analysis ,PERFORMANCE evaluation ,STOCKS (Finance) ,CAPITAL assets pricing model ,INSURANCE companies - Abstract
In recent years the problem of evaluating the performance of investment portfolios has received a great deal of attention, largely as the result of developments in the theory of capital-asset pricing, which have led to an improved understanding of the criteria necessary for evaluating investment performance. Concomitant with these theoretical developments, a number of empirical studies have assessed the performance of mutual fund portfolios. As a result, a considerable body of empirical evidence concerning funds' behavior and performance now exists. For example, it is a well-known fact that on average mutual funds have not been able to outperform the "market." This evidence has also been utilized to infer that capital markets are very efficient since the performance of mutual funds, which have the resources to employ able security analysts, has not been superior to that of randomly selected investments. However, the available empirical evidence concerning the performance of the investment portfolios of other institutional investors is much less extensive. The primary purpose of this paper is to provide such evidence for the common stock portfolios of stock property-liability insurance companies over the period 1958-1967. This group of firms possessed more than $34 billion in total assets at the end of 1967, and held approximately two percent of the corporate stock outstanding at that time. The plan of the paper is as follows. The framework used to evaluate investment performance is set forth in Section I. The basic methodology involves a comparison of the returns earned by the insurance company portfolios with those earned by randomly selected portfolios of equivalent risk. Estimates of risk and return parameters for the common stock portfolios of a sample of 20 property-liability companies are presented in Section II. The investment performance of these portfolios is analyzed in Section III. The results are summarized and the conclusions are presented in... [ABSTRACT FROM AUTHOR]
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- 1974
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12. THE IMPERFECT-MARKETS MODEL OF COMMERCIAL BANK FINANCIAL MANAGEMENT.
- Author
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Pringle, John J.
- Subjects
BANK management ,FINANCIAL management ,FINANCIAL institutions ,BUSINESS finance ,FINANCIAL services industry ,SAVINGS - Abstract
This paper examines a conceptual framework for normative models of financial management in commercial banks. Since the bank is viewed as a financial intermediary, it is argued that the appropriate conceptual framework for bank financial management models is one that focuses on imperfections in the markets in which the bank operates. The theory of business finance has developed largely under an assumption of perfect financial markets. Such an assumption seems appropriate and justified in the case of nonfinancial firms. Financial intermediaries, however, would have no reason to exist if financial markets were perfect. A basic function of financial intermediaries is to exploit market imperfections and, in so doing, to alter yield relationships between lenders and borrowers. By their actions, intermediaries provide a higher return to lenders and a lower cost to borrowers than would be possible with direct finance, and savings and investment are brought into equilibrium at a higher level. In order to deal theoretically with financial intermediaries, it is necessary to drop the assumption of perfect financial markets and to incorporate market imperfections explicitly. A model that focuses on the bank lending decision is presented below. The model is illustrative only, and its principal purpose is to demonstrate an approach to explicit treatment of market imperfections that, at the same time, is consistent with the theory of finance for firms in general as developed under the perfect-markets assumption. Major assumptions of the analysis are that (1) the bank is a private wealth-maximizing economic unit, (2) future events are uncertain, (3) investors are risk averse, (4) financial markets are imperfect, and (5) optimality is defined in terms of the interests of shareholders rather than those of depositors and the monetary system. The optimal loan policy of the bank is found to be a function of excess returns available in the loan market and to be independent of the... [ABSTRACT FROM AUTHOR]
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- 1974
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13. COMMENT: NATURAL BEHAVIOR TOWARD RISK AND THE QUESTION OF VALUE DETERMINATION.
- Author
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Herzog, John P.
- Subjects
ASSETS (Accounting) ,RISK ,BUSINESS valuation ,VALUATION ,PORTFOLIO management (Investments) ,UTILITY functions - Abstract
The article presents comments of the author on the paper "Natural Behavior Toward Risk and the Question of Value Determination," by Blaine Huntsman. The author states that Huntsman's paper is a welcome addition to the increasing literature on portfolio theory. He explains that traditional mean-variance analysis, despite its simplicity and its ability to explain portfolio diversification, has come under rising attack, for both the theoretical faults underlying the technique and for its failure to recognize that investors manifestly prefer returns that are positively skewed to those that are not.
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- 1973
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14. COMMENT: FINANCIAL CHARACTERISTICS OF MERGED FIRMS: A MULTIVARIATE ANALYSIS.
- Author
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Monroe, Robert J.
- Published
- 1973
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15. COMMENT: THE DEMAND FOR LIQUID ASSET BALANCES BY U.S. MANUFACTURING CORPORATIONS: 1959-1970.
- Author
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Rao, Cherukuri U.
- Subjects
LIQUID assets ,UNITED States manufacturing industries ,DEMAND function ,CASH management ,WORKING capital - Abstract
The article presents comments of the author on the paper "The Demand For Liquid Asset Balances by U.S. Manufacturing Corporations: 1959-1970," by Richard G. Marcis and V. Kerry Smith. The author states that the paper presented by Marcis and Smith, analyzing the determinants of the demand for cash and short-term Treasury obligations held by U. S. manufacturing corporations, is praiseworthy. He states that the authors have made an interesting application of a seemingly unrelated regression technique developed by scholar Arnold Zeilner in estimating demand functions jointly for each of the liquid assets of corporations belonging to nine asset size categories.
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- 1973
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16. COMMENT: SOME EVIDENCE ON THE EFFECT OF COMPANY SIZE ON THE COST OF EQUITY CAPITAL.
- Author
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Goudzwaard, Maurice B.
- Subjects
BUSINESS size ,CAPITAL costs ,SIZE of industries ,HYPOTHESIS ,RATE of return ,CAPITAL market - Abstract
The article presents comments of the author on the paper "Some Evidence on the Effect of Company Size on the Cost of Equity Capital," by W.W. Alberts and S.H. Archer. The article states that the authors provide a valuable addition to the understanding of capital markets and how resources are allocated to firms of different asset sizes. Their hypothesis is that the cost of equity capital to smaller firms is higher than it is to larger industrial firms. They test their hypothesis by analyzing the variability of returns of 658 industrial firms and attempt to determine whether variability of return is inversely related to asset size.
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- 1973
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17. A Subregional Distribution of Bank Deposits: Implications as to Flow of Funds Analysis.
- Author
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Martin, Preston
- Subjects
FLOW of funds ,BANK deposits ,BANKING industry ,URBAN growth - Abstract
A conference paper is presented that examines the distribution of bank deposits in the U.S. and the implications this has for the flow of funds analysis. A study was conducted in southern California in an attempt to examine how the funds from this region moved throughout the surrounding area. The author was interested in examining the validity of the growth center concept. The author's findings support the idea of a funds flow; however, he suggests that further analysis is needed.
- Published
- 1966
18. PROCEEDINGS OF WESTERN FINANCE ASSOCIATION MEETING, AUGUST 23-25, 1972.
- Published
- 1973
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19. SYSTEMATIC RISK AND THE HORIZON PROBLEM.
- Author
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Cheng, Pao L. and Deets, M. King
- Subjects
SECURITIES ,RISK ,MARKET equilibrium ,CAPITAL ,RATE of return ,STOCK transfer - Abstract
In so far as the concept of systematic risk is predicated on the Sharpe-Lintner theory of capital market equilibrium [5, 4], the time-horizon of systematic risk must conform with the time-horizon of market equilibrium. Since it has been suggested that market equilibrium is instantaneous [3, p. 188], it would follow that systematic risk should also be instantaneous. This paper is, therefore, concerned with the evaluation and measurement of instantaneous risk. Although Jensen [3] has made a similar attempt in a much larger study, we have reason to believe it is not satisfactory. We shall then begin in Section I by discussing Jensen's approach to the horizon problem. In Section II, an alternative procedure of evaluating systematic risk is suggested. Section III concludes the paper by comparing estimates of instantaneous risks based upon weekly returns of 30 Dow-Jones stocks. The motivation behind the paper is obvious. A correct formulation of instantaneous systematic risk is not only a logical extension of the capital market equilibrium theory but is also a yardstick for measuring portfolio performance in terms of risk and return. [ABSTRACT FROM AUTHOR]
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- 1973
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20. COMMENT-- THE CAPITAL GROWTH MODEL: AN EMPIRICAL INVESTIGATION.
- Author
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Gonzalez, Nestor
- Subjects
MATHEMATICAL models of capital ,MONTE Carlo method ,RATE of return ,ASSETS (Accounting) ,INVESTMENTS ,SECURITIES ,SECURITIES trading - Abstract
The article presents comments from the author on the paper "The Capital Growth Model: An Empirical Investigation," by James L. Bicksler and Edward Thorp. The author explains that because this comment should be essentially addressed to Bicksler's and Thorp's own research and results, he does not consider those pages that contain authors' interpretation of prior studies. He states that Bicksler and Thorp examine the short-run properties of the optimal growth model using the Monte Carlo simulation.
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- 1973
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21. SOME EVIDENCE ON THE EFFECT OF COMPANY SIZE ON THE COST OF EQUITY CAPITAL.
- Author
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Alberts, W. W. and Archer, S. H.
- Subjects
CAPITAL costs ,SMALL business ,SIZE of industries ,BUSINESS enterprises ,RATE of return ,HYPOTHESIS - Abstract
The article presents evidence on the effect of company size on the cost of equity capital. The authors state that the goal of the paper presented is to carry out tests of the general hypothesis, urged by scholars F.M. Scherer and J.F. Weston and E.F. Brigham, that the cost-of-equity capital of small industrial corporations is greater than that of large industrial corporations. They explain that the paper denotes this cost as k
e and defines it as the expected rate of return on the stock of a company when the current price of the stock is in equilibrium.- Published
- 1973
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22. OPTIMAL MANAGEMENT OF BANK RESERVES.
- Author
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Brown Jr., George F.
- Subjects
BANK reserves ,MATHEMATICAL optimization ,DYNAMIC programming ,BANKING industry - Abstract
A central question of many previous monetary studies has been the determination of the effects of various forces upon the actual supply of money in the economy. One of a number of competing monetary supply hypotheses (Brunner and Meltzer) has focused on the relationship between bank reserves and deposit creation. This theoretical structure was first suggested in earlier works by Phillips and Crick. Recent studies of similar nature, including those of Mellon and Orr, Morrison, and Brown and Lloyd, have employed the techniques of inventory theory to examine the factors influencing bank credit expansion. Similar inventory treatments of other cash balance and portfolio adjustment models are presented in the works of Baumol, Eppen and Fama, Lloyd, and Chitre. In the present paper, the effects of various forces on the optimal expansion of credit and the holding of reserves are investigated using the techniques of dynamic programming (see, for example, Bellman and Dreyfus). Discussed in the paper are the effects on bank credit expansion of uncertainty about reserve losses, various types of penalty costs, costs of adjustment, uncertain future interest rates, and of various institutional structures under which the bank must operate. This latter topic is important because of the Federal Reserve policy change of September 1968. Prior to that time, required reserves and actual reserves were computed over the same reserve period. Since that time, however, the required reserves in any period are known with certainty at the beginning of the period and depend upon deposit levels two periods earlier. For purposes of mathematical convenience, this latter structure is treated here as a one-period lag. [ABSTRACT FROM AUTHOR]
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- 1972
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23. THE COST OF BANK LOANS.
- Author
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Stone, Bernell K.
- Subjects
BANK loans ,LOAN costs ,ECONOMIC aspects of decision making ,COST effectiveness ,BANKING industry ,PRICING - Abstract
The interdependence of loan cost and tangible bank activity is an aspect of the cost of bank debt that has not been treated in the literature. Understanding this interdependence is important for banks in pricing their services, especially as banks adopt more flexible pricing policies. This understanding is crucial for a firm in establishing the true cost of bank borrowing, in comparing bank borrowing with other sources of funds, and in evaluating the firm's banks. It is also important for understanding the firm-bank relationship in general and the cost of capital in particular. This paper investigates this interdependence and determines the effective cost of bank borrowing as a function of useful loan size when banks: (1) impose compensating balance restrictions in addition to interest charges in obtaining compensation for loans, (2) allow the firm to earn credits on average net collected balances in the firm's account that can be applied to payment for tangible bank services, (3) allow the same balances that earn credits for tangible services to be used to satisfy the compensating balance requirements associated with borrowing, and (4) impose constraints on the percentage of charges for tangible services that can be paid for by cash payments. Conditions 1 to 4 and the necessity of providing for transaction balances are typical of most firms. This paper (1) defines the concept of both the effective interest rate and the effective rate of compensating balances, and (2) derives the effective cost of bank borrowing as a function of useful loan size at a given bank. We find that the marginal effective loan cost versus useful loan size is a step function of three steps at a single bank and is a step function of many steps for a firm with many banks. [ABSTRACT FROM AUTHOR]
- Published
- 1972
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24. DESCRIPTIVE THEORIES OF FINANCIAL INSTITUTIONS UNDER UNCERTAINTY.
- Author
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Pyle, David H.
- Subjects
FINANCIAL institutions ,FINANCIAL services industry ,LIABILITIES (Accounting) ,UNCERTAINTY ,FINANCIAL security ,ECONOMIC sectors - Abstract
This paper is a selective review of the received theory of financial institutions with some suggestions regarding future research on this topic. The major emphasis is placed on the positive economic theory of these firms. Financial institutions are considered to be firms that supply financial securities and contracts held as assets by other sectors of the economy and that use the proceeds of these sales to finance the purchase of financial securities and contracts which are the liabilities of other economic units. The theory discussed here is stripped of much of the regulatory and legal framework surrounding financial institutions. The primary reason for so limiting the scope of this paper is a conviction that a reasonably complete model of a simple financial institution is a necessary precursor to useful models of the positive economic behavior of financial institutions in any specific legal, regulatory, and operational framework. While recognizing that no tractable model of a financial institution is likely to be so general as to avoid the problem of model specificity, I take the view that many of the questions asked in the literature would be better answered in less specific models, i.e., in models capable of explaining additional important aspects of the behavior of the financial institution in question. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
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25. ON GEOMETRIC AND ARITHMETIC PORTFOLIO PERFORMANCE INDEXES.
- Author
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Rothstein, Marvin
- Subjects
STOCK price indexes ,PORTFOLIO performance ,FINANCIAL markets ,ECONOMIC indicators ,SECURITIES ,PRICES - Abstract
The literature of index numbers contains much discussion of the relative merits of geometric and arithmetic averages of prices and quantities. The controversy on this subject dates from the middle of the nineteenth century and is fully described by Crowe [2]. In recent times both types of averages have been applied to security price relatives to measure the performance of groups of securities over time. The purpose of this paper is to demonstrate the properties of these security indexes and to show the relationships between them and an index based upon a more general type of average called the power mean. The concluding section of this paper contains the proof of an interesting and important limit property which provides the conceptual link between geometric and arithmetic security indexes. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
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26. COMMENT: A MODEL OF CAPITAL ASSET RISK.
- Author
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Hopewell, Michael H.
- Subjects
CAPITAL assets pricing model ,SECURITIES trading ,MATHEMATICAL models of finance ,MATHEMATICAL models of capital ,MATHEMATICAL models of investments ,RISK assessment - Abstract
Before I comment in detail on the paper presented by Professors Pettit and Westerfield, I will attempt to place their effort in perspective. Although I will not review the literature comprehensively, I will highlight some recent developments in the capital asset pricing literature. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
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27. COMMENT: THE STRANGE JOURNEY OF MONETARY INDICATORS.
- Author
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Jordan, Jerry L.
- Subjects
ECONOMIC indicators ,MONETARY policy ,BUSINESS cycles ,ECONOMIC policy ,PUBLIC finance ,ECONOMICS - Abstract
This article presents a comment on the article "The Strange Journey of Monetary Indicators." The author discusses the role that monetary policy plays as well as the role of policy makers. The author believes that if one follows the logic set forth in the paper someone might draw the conclusion that policy makers serve a limited purpose and that economic indicators, if closely watched, provide all the necessary information to understand how an economy is functioning. The author defends the role that policy makers play and notes that they have a significant impact in terms of promoting measures aimed at economic stabilization.
- Published
- 1972
- Full Text
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28. RISK AND THE VALUE OF SECURITIES.
- Author
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Robichek, Alexander A.
- Subjects
RISK assessment ,VALUATION of corporations ,RISK aversion ,FINANCIAL risk management ,RETURN on assets ,ASSET management - Abstract
This article focuses on risk and valuation within the securities markets. The author attempts to position the problem of risk and security valuation into perspective. Risk relates to the possibility that actual returns may vary from expected returns. This paper contends that risk and valuation are inseparable. Several topics are discussed, including a mathematical formula detailing the term structure of interest rates that are a result of the equilibrium conditions in the capital markets, the risk-premium approach, and the expectation-variance portfolio approach.
- Published
- 1969
- Full Text
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29. A CROSS-SECTION ANALYSIS OF DEMAND DEPOSIT VARIABILITY.
- Author
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Murphy, Neil B.
- Subjects
BANK deposits ,BANK assets ,MONEY supply ,ASSET management accounts ,BANKING industry ,ECONOMISTS - Abstract
Commercial bank portfolio models developed by Hester [6], Porter [11], and Kane and Malkiel [7], among others, relate the structure of an asset portfolio to variation in the level of deposits. Similarly, in a recent application of linear programming to asset management, Cohen and Hammer [3] specify a liquidity constraint based upon deposit fluctuations. However, there have been few empirical studies of the determinants of demand deposit fluctuations. The purpose of this paper is to extend the work of Gramley [4], Rangarajan [12], and Wilkerson [14] on the determinants of deposit variability. In this paper, the analysis will be confined to demand deposit variability. [ABSTRACT FROM AUTHOR]
- Published
- 1968
- Full Text
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30. A TIME-STATE-PREFERENCE MODEL OF SECURITY VALUATION.
- Author
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Myers, Stewart C.
- Subjects
MARKET value ,RATE of return ,SECURITIES ,ECONOMIC equilibrium ,UNCERTAINTY ,VALUATION - Abstract
Determining the market values of streams of future returns is a task common to many sorts of economic analysis. The literature on this subject is extensive at all levels of abstraction. However, most work has not taken uncertainty into account in a meaningful way. This paper presents a model of security valuation in which uncertainty takes the central role. The model is based on the requirements for equilibrium in a world in which uncertainty is described by a set of possible event-sequences, or states of nature. This "time-statepreference" framework is a generalized version of that used in articles by Arrow, Debreu, and Hirshleifer, as well as in several more recent studies. The valuation formulas presented here are, of course, imperfect. They cannot be represented as handy empirical tools. On the theoretical front, moreover, new results and new problems seem always to arrive band in band. Although the problems are duly noted, the time-state-preference model will be defended as a plausible approximation and a useful analytical tool. The paper is organized as follows. The basic time-state-preference model is derived in Section II. This requires careful statement, of the assumed market characteristics and the constraints on investors' strategies: although the general characteristics of the formulas obtained are intuitively appealing, their precise form is sensitive to the range of trading opportunities open to investors. The Kuhn-Tucker conditions are used to obtain the necessary conditions for equilibrium. In Section III, the special case discussed by other authors is related to my more general model. Some implications are considered in Section IV. Finally, I consider the possible effects of "the interdependence of investors' strategies," which arise whenever the value of a security to an investor depends on other investors' beliefs and market strategies. This interdependence leads to price uncertainty, which greatly complicates the necessary conditions for... [ABSTRACT FROM AUTHOR]
- Published
- 1968
- Full Text
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31. Discussion.
- Author
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Shelton, John P.
- Subjects
STOCK repurchasing ,DIVIDENDS ,CORPORATE finance ,FINANCIAL management - Abstract
The article presents commentary on the report "Stockholder Distribution Decisions: Share Repurchases or Dividends," by Donald H. Woods and Eugene F. Brigham, included within the issue. The significance of the report towards the advancement of attention to corporate "de-financing" is lauded. However, criticism is also provided concerning the authors' unbalanced emphasis of the advantages of stock repurchasing over dividend payments.
- Published
- 1966
- Full Text
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32. COMMENT: THE RE-POLITICIZATION OF THE FED.
- Author
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Mann, Maurice
- Subjects
MONETARY policy ,FEDERAL Reserve monetary policy - Abstract
The article reports on the political activity of the U.S. Federal Reserve Board and discusses the paper, "The Re-Politicization of the Fed" by Edward J. Kane. Kane states that the Fed chairman, Arthur Burns has made the Fed more influenced by politics. However, the author feels that this was necessary for the Fed to create effective monetary and economic policies. He also does not feel that Kane supports his claims that monetary policy during this period became counterproductive due to the politicization.
- Published
- 1974
- Full Text
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33. COMMENT: SYSTEMATIC INTEREST-RATE RISK IN A TWO-INDEX MODEL OF RETURNS.
- Author
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Korkie, Bob M.
- Subjects
INTEREST rate risk ,RATE of return ,MATHEMATICAL models ,CAPITAL assets pricing model ,PRICE inflation - Abstract
The article reports on interest rate risk and discusses the paper "Systematic Interest-Rate Risk in a Two-Index Model of Returns," by Bernell K. Stone. Stone extends the single-factor market model into a two-index model so that he can improve the explanation of the stochastic process which creates security returns. The creation of the two-factor market model is so that the components of systematic or covariance risk not explained by the single model can be examined. The factors of Stone's model are the return on an equity index and the return on a bond index.
- Published
- 1974
- Full Text
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34. COMMENT: A CANONICAL ANALYSIS OF BANK PERFORMANCE.
- Author
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Choudhary, Santosh K.
- Subjects
BANKING industry ,PERFORMANCE evaluation ,PROFITABILITY ,CANONICAL correlation (Statistics) - Abstract
The article discusses the evaluation of bank performance and comments on the paper, "A Canonical Analysis of Bank Performance" by Donald R. Fraser, Wallace Phillips Jr., and Peter S. Rose. The author reports on the statistical aspects of the multivariate canonical analysis conducted by Fraser and his colleagues. The canonical analysis reduces the problematic dimensions of examining the relationship between the components of performance and determinants in commercial banks in Texas. Also, the correlation coefficients have their variances kept constant through this analysis.
- Published
- 1974
- Full Text
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35. COMMENT: THE PREDICTIVE CONTENT OF SOME LEADING ECONOMIC INDICATORS FOR FUTURE STOCK PRICES.
- Author
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Simonson, Donald G.
- Subjects
STOCK price indexes ,STOCK price forecasting ,ECONOMIC indicators - Abstract
The article reports on economic indicators for future stock prices and discusses the paper, "The Predictive Content of Some Leading Economic Indicators for Future Stock Prices" by Bryan Heathcotte and Vincent P. Apilado. Heathcotte and Apilado found, through empirical research, that there isn't a single economic indicator that can consistently be relied upon for stock price forecasting so a combination of quality indicators is needed to enable a cumulative look at market behavior. They used the "1966 Short List" of leading indicators of business cycles published by the National Bureau of Economic Research in their study.
- Published
- 1974
- Full Text
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36. Depreciation and Reported Profits.
- Author
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Brigham, Eugene F.
- Subjects
DEPRECIABLE assets ,CORPORATE taxes ,CORPORATE accounting ,CORPORATE profits ,DEPRECIATION - Abstract
A conference paper is presented that examines depreciation and reported profits. The author discusses how firms approach the depreciation of assets in terms of taxation and accounting. The author points out that different approaches impact profits and stockholders in different ways. Advances in computer technology have allowed companies to run simulations in order to determine the best course of action for their company.
- Published
- 1966
37. The Influence of Developments--The Capital Markets on Funds Acquisition by the Firm.
- Author
-
Anderson, Leslie P.
- Subjects
CAPITAL market ,CORPORATE finance ,FINANCIAL institutions ,MONEY market - Abstract
A conference paper is presented examines capital markets. The author discusses the impact that changing market conditions have on the cost and availability of capital for firms. The author also examines the impact that changing conditions have on firms who experience different levels of risk. The author's findings indicate that younger firms need to be aware of changing conditions and plan accordingly in order to be able raise necessary funds.
- Published
- 1966
38. COMMENT: STOCK MARKET REFORMS.
- Author
-
Reilly, Frank K.
- Subjects
STOCK exchanges ,CORPORATE finance ,ECONOMIC reform ,INSTITUTIONAL market ,COMPETITION - Abstract
The article reports on the reform of stock exchanges in the U.S. and comments on other papers on the topic. He states that institutional trading has grown and has shown shortcomings in the equity market. The U.S. Securities and Exchange Committee then reformed the minimum commission rate structure of the equity market. This has created a fully competitive financial market.
- Published
- 1974
- Full Text
- View/download PDF
39. EXTRA-MARKET COMPONENTS OF COVARIANCE IN SECURITY RETURNS.
- Author
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Rosenberg, Barr
- Subjects
SECURITIES ,RATE of return ,SECURITIES industry ,FINANCIAL statements ,INVESTMENT analysis ,BETA (Finance) - Abstract
This study is concerned with the multiple-factor model of security returns, with its implications for a single-factor, market-index model applied to the same securities, and with statistical methods of estimating the parameters of a multiple-factor model and thereby operationalizing it. This part of the paper sets out the approach. The sequel will present the empirical results. The results show that there are highly significant extra-market components of covariance among security returns; moreover, these risk components are such that the loadings of individual security returns on the factors are determined by observable characteristics of the firm: income statement and balance sheet data, industry membership, and historical behavior of returns on the security. The results also show that the conventional security beta is a function of these same characteristics. [ABSTRACT FROM AUTHOR]
- Published
- 1974
- Full Text
- View/download PDF
40. CREDIT POLICY IN LENDING INSTITUTIONS.
- Author
-
Edmister, Robert O. and Schlarbaum, Gary G.
- Subjects
CREDIT control ,CREDIT ratings ,FINANCIAL institutions ,ACQUISITION of property ,CAPITAL market ,CREDIT departments - Abstract
Decision rules for credit investigation and policy have been discussed by Mehta for sequential processes in a credit system. Others have analyzed decision rules for credit scoring functions and have suggested sequential arrangements for analysts and functions. In this paper, however, we take a broader perspective and appraise the value of credit analysis for a large class of loans, such as consumer, residential real estate, or commercial loans. We are thus able to use statistics readily available and the estimated quality of credit applicants to describe the relationship between credit function profitability and the accuracy and extent of credit analysis being performed. With estimates of current performance, the model is then used to evaluate proposed methods of analysis and market opportunities. The first section of the paper formulates the credit-granting problem in terms of the net present value of loan repayments and the expected number of good and bad loans. Methods of analysis are evaluated in the second section, and the conceptual framework developed in the first two sections is applied to a consumer loan example in the third section. Some summary comments are presented in the final section. [ABSTRACT FROM AUTHOR]
- Published
- 1974
- Full Text
- View/download PDF
41. THE INTERDEPENDENT STRUCTURE OF SECURITY RETURNS.
- Author
-
Simkowitz, Michael A. and Logue, Dennis E.
- Subjects
SECURITIES ,RATE of return ,EQUATIONS ,CAPITAL assets pricing model ,MARKETS ,CORPORATIONS ,SECURITIES trading - Abstract
In this paper the traditional capital asset pricing model is reformulated as a system of simultaneous equations in which returns on similar securities are treated as endogenous variables and in which pertinent financial data for particular firms and a market factor are treated as exogenous variables. Such a system is estimated, and serious questions are raised concerning the tenability of the simple linear model so often used to explain capital asset prices under uncertainty. This paper offers a robust test of the capital asset pricing model (e.g., Sharpe [12] and [13] and Fama [3]) assumption which asserts that all of the inter- dependencies among security returns are accounted for solely by the relationship between a single security and a common market index. Also, it examines the relationship of security returns and corporate operating data to determine the extent to which the beta of the capital asset pricing model is simply a summary, surrogate measure for them. The proposed test is based on a simultaneous equation model. Two goals are sought through this research which, first, serves as a direct test of important implications of the capital asset pricing model and which, second, will provide approximations of the magnitude and direction of any biases that may exist in estimates of beta obtained from single index models. [ABSTRACT FROM AUTHOR]
- Published
- 1973
- Full Text
- View/download PDF
42. THE VARIATION OF THE RETURN ON STOCKS IN PERIODS OF INFLATION.
- Author
-
Oudet, Bruno A.
- Subjects
EFFECT of inflation on investments ,STOCKS (Finance) ,RATE of return ,DEBT-to-equity ratio ,STOCK prices ,PRICE inflation - Abstract
The bear market of the late sixties amidst inflation has led to growing concern over the validity of the proposition that stocks provide a good hedge against inflation. Conflicting arguments have been raised on both sides of the issue but a synthesis has as yet failed to emerge. The gains resulting from a careful assessment of the various propositions are obvious. If stock prices are adversely affected by inflation, the financial analyst must search for other hedges against the erosion of the purchasing power of money, while the economist must note that inflation has a depressing effect on economic growth through the rise of the cost of capital. This paper attempts to advance the assessment of variations in the returns on stock investments during periods of inflation. The analysis is carried out in three steps. First, the principal arguments used to explain variations of stock prices in periods of inflation are reviewed in the framework of the traditional stock-valuation model. Empirical evidence is then presented showing the behavior of stock returns in recent inflations. Finally, a simultaneous two-equation model that permits one to estimate the effect on stock returns of the variables involved is specified. The reduced-form equations ultimately estimated clearly show that inflation had a negative effect on stock returns in the last two decades. [ABSTRACT FROM AUTHOR]
- Published
- 1973
- Full Text
- View/download PDF
43. THE OPTIMAL LEVEL OF FORWARD EXCHANGE TRANSACTIONS.
- Author
-
Folks Jr., William R.
- Subjects
FOREIGN exchange futures ,FINANCIAL instruments ,FINANCIAL futures ,SPECULATION ,ASSET-liability management ,CONVERTIBLE securities - Abstract
The article considers the problem of determining the optimal level of forward exchange purchases. The author states that the basic model of the paper is that of a transactor who is to receive at a specified time in the future a fixed quantity of domestic funds and a fixed quantity of foreign funds. He explains that it is also assumed that there exists a forward market in foreign exchange in which one unit of foreign currency can be bought and sold at a given and known forward rate, the domestic currency price of one unit of foreign currency.
- Published
- 1973
- Full Text
- View/download PDF
44. EFFICIENT ALGORITHMS FOR CONDUCTING STOCHASTIC DOMINANCE TESTS ON LARGE NUMBERS OF PORTFOLIOS.
- Author
-
Porter, R. Burr, Wart, James R., and Ferguson, Donald L.
- Subjects
PORTFOLIO management (Investments) ,STOCHASTIC processes ,PROBABILITY theory ,EMPIRICAL research ,MATHEMATICAL models ,ANALYSIS of variance - Abstract
Recent theoretical and empirical work in portfolio theory has exhibited a natural evolution from the two-moment EV model popularized by Markowitz through the higher moment models to selection on the basis of the entire probability function. This latter approach, referred to as the Stochastic Dominance (SD) approach to portfolio selection, has been shown to be theoretically superior to all of the "moment methods" and has been the focus of an increasing volume of empirical work. In comparison with the EV model, however, the SD approach has one potentially significant deficiency from the standpoint of empirical testing. With a given set of portfolios to evaluate, the computer processor time required for the determination of the EV efficient set is quite short. One can calculate and sort means and variances on several hundred portfolios in a matter of seconds. In contrast, the processor time required for the determination of the SD efficient set for the same number of portfolios can be prohibitive. The purpose of this paper is to examine the factors responsible for the relatively time-consuming nature of empirical tests of SD efficiency and to present the major results of our search for efficient algorithms for conducting SD tests. Section I briefly examines the time-consuming nature of the tests for SD efficiency. Section II presents and evaluates; our most efficient algorithms for obtaining true SD efficiency results. Section lit examines an approach that yields approximate SD efficiency results with further reductions in required processor time. [ABSTRACT FROM AUTHOR]
- Published
- 1973
- Full Text
- View/download PDF
45. OPTIMAL REINSURANCE.
- Author
-
Lippman, Steven A.
- Subjects
REINSURANCE ,RISK management in business ,INSURANCE exchanges ,INSURANCE companies ,LOSS control ,RISK - Abstract
Most insurance companies are involved in reinsurance activities. For the majority, reinsurance means laying-off portions of the risk that they have assumed in the primary insurance market. A few other companies assume these laid-off risks. Our concern is with the former companies; that is, those seeking to cede a portion of their risk. Essentially three types of reinsurance are generally available. (A description of each type is given in Section II.) This paper compares these three types of reinsurance and determines which one most successfully reduces risk. We show that excess of loss reinsurance is preferable — from the viewpoint of the ceder — to both pro rata quota share and sliding quota share. Specifically, we show that if the expected liability ceded is the same for all three types of reinsurance and if any reasonable measure of risk is employed, then excess of loss has less risk than both pro rata quota share and sliding quota share. It is also shown that sliding quota share has smaller variance than pro rata quota share. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
- View/download PDF
46. EQUILIBRIUM IN THE PRICING OF CAPITAL ASSETS, RISK-BEARING DEBT INSTRUMENTS, AND THE QUESTION OF OPTIMAL CAPITAL STRUCTURE: A REPLY.
- Author
-
Haugen, Robert A. and Pappas, James L.
- Subjects
ECONOMIC equilibrium ,CAPITAL assets pricing model ,CORPORATE finance ,CAPITAL costs - Abstract
This article presents a response to comments made on the paper "Equilibrium in the Pricing of Capital Assets, Risk-Bearing Debt Instruments and the Question of Optimal Capital Structure." The authors note that while their original proof for the capital asset pricing model was incomplete; the proof offered in the comment raised some confusion. They attempt to clear up this confusion by presenting a modified valuation model.
- Published
- 1972
- Full Text
- View/download PDF
47. NOTE ON 'OPTIMAL GROWTH PORTFOLIOS WHEN YIELDS ARE SERIALLY CORRELATED'
- Author
-
Ziemba, William T.
- Subjects
PORTFOLIO management (Investments) ,BUSINESS mathematics ,EQUATIONS ,INVESTMENTS - Abstract
This article presents a note on the paper "Optimal Growth Portfolios When Yields are Serially Correlated." The author offers a solution to finding the optimal amount of money to invest in a given investment opportunity when there is an optimal myopic policy. The author provides several equations that help in this determination process.
- Published
- 1972
- Full Text
- View/download PDF
48. MARGIN LEVELS AND THE BEHAVIOR OF FUTURES PRICES.
- Author
-
Bear, Robert M.
- Subjects
FUTURES ,COMMODITY futures ,MARGINS (Futures trading) ,FINANCIAL markets ,PROBLEM solving ,PRICES - Abstract
This paper will demonstrate that different margin levels are associated with the price behavior differences of certain commodity futures. In 1959, Harry Roberts suggested the methodology of rational subgrouping as a means of testing random versus systematic price changes. His methodological suggestion has had only limited testing in security markets and no direct application to domestic futures markets. This paper uses margin levels as a basis for rational subgrouping of selected commodity futures. Evidence supports the argument that, when a series of price changes is grouped according to margin levels and these levels are analyzed separately, nonrandom characteristics that tend to be offsetting in the aggregate series become evident. The nonrandom behavior observed is consistent with the hypothesis that, in certain periods, margin levels have been set too high to attract a volume of speculative services necessary for the maintenance of market balance. The first section presents the market model and a description of the institutional framework of margin levels and the technique of rational subgrouping. A hypothesis regarding the relationship between margin levels and price behavior is set forth in the next section. The results of serial correlation and run analysis follow. It is shown that either of these tests used separately would lead to incomplete or inaccurate interpretation of the behavior of the underlying series. The characteristics of the distributions of daily price changes are examined next with the intention of discriminating between a Gaussian nonstationary hypothesis and a stable Paretian hypothesis. Application of the Kolmogorov-Smirnov test indicates that neither hypothesis is consistent with the data, but stable Paretian is a closer approximation. The final section is concerned with economic interpretations of the results and is followed by a brief summary of findings. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
- View/download PDF
49. RANDOM WALK AND FORWARD EXCHANGE RATES: A SPECTRAL ANALYSIS.
- Author
-
Upson, Roger B.
- Subjects
FOREIGN exchange market ,FOREIGN exchange futures ,RANDOM walks ,MONEY market ,ECONOMIC trends ,BREAK-even analysis - Abstract
This paper examines the random-walk hypothesis in the forward exchange market by applying spectral analysis to the three-month forward rates for dollars against sterling in the period 1961-1967. [ABSTRACT FROM AUTHOR]
- Published
- 1972
- Full Text
- View/download PDF
50. COMMENT: THE CORPORATE DIVIDEND-SAVING DECISION.
- Author
-
Cohen, Jacob
- Subjects
DIVIDENDS ,STOCKHOLDER wealth ,CORPORATE finance ,SAVINGS ,DIVIDEND yield ,CORPORATE profits - Abstract
This article presents a comment on the paper "The Corporate Dividend-Saving Decision." The author questions the idea that dividends are residuals, stating that if this were the case they would be explained by the corporation's budget identity. The author discusses the multiple variable approach that is taken and addresses the notion of optimization of investments. He also examines the idea that shareholders prefer dividends over retained earnings. Each of the models that is presented in the paper are also discussed from a validity standpoint.
- Published
- 1972
- Full Text
- View/download PDF
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