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This thesis examines the rationales behind the adoption of exchange-rate target zones and investigates empirically the effects of such arrangement for a period in the recent history of the free-floating exchange-rate system. It is argued that one of the reasons for the exchange-rate target zones is to mitigate the long-run deviation of the real exchange rate from the purchasing power parity path. The deviation could be caused by the inefficiencies in the foreign-exchange market. In addition, the thesis considers the role of the target zones within the framework of the dynamic inconsistency of monetary policy-making when uncertainties are present, with no inefficiencies in the foreign-exchange market. Discretion by monetary authorities could cause inflation bias; however, when uncertainties are present, there is a trade-off between higher inflation and higher output level. It is shown that the target zones might be used as a bound to the credibility of the monetary authorities in a case when the authorities' discretion would lead to worse outcomes. The effects of a target zone are examined for the period of the 1987-1989 during which the G-3 country monetary authorities adopted an implicit target zone. It is found that market participants appeared to have incorporated the policy effects into their expectations. The long-term depreciation of the dollar exchange rate has been suppressed primarily due to the adjustment of monetary policy. However, the uncertainty associated with the policy contributed to the higher volatility of the exchange rate for some periods, especially when the exchange rate was deviating from the central parity by a larger amount. The empirical results show that under the condition that the monetary authorities fully cooperate in monetary policy making, the intervention policy could have credible effects on the exchange rate.

This thesis presents a valuation model for the default risk of an interest rate swap to a riskless swap dealer. Previous studies evaluated the default risk of an interest rate swap by assuming that swap default probability is independent of interest rate movement. As this assumption is questionable, the present thesis evaluates the swap default risk by endogenously specifying the swap default probability in terms of the value of the firm which, in turn, is contingent on the interest rate. The default risk of a swap is measured in terms of the bid-ask spread of a matched interest rate swap, ignoring transaction costs. The bid-ask spread is computed by combining the default premiums of two separate swaps in a matched interest rate swap: one swap between the swap dealer and the fixed-rate paying end-user, and the other between the swap dealer and the floating-rate paying end-user. The default premium in a swap between the swap dealer and the fixed-rate paying end-user is computed by subtracting the fixed rate of a default-free swap from that of a comparable risky swap. The default premium in a swap between the swap dealer and the floating-rate paying end-user is computed by subtracting the fixed rate of a risky swap from that of a default-free swap. A path-dependent binomial model is used for computing the swap default premium in this thesis. The short-term interest rate is used as the underlying state variable on which the value of an interest rate swap is contingent. For a reasonable set of input values, the model developed in this thesis gives the numerical results which are close to the observed bid-ask spread in the market. It is found that the bid-ask spread is a decreasing function of the firm's cash flows, mean reversion speed of interest rates, and instantaneous term premium, and an increasing function of initial interest rates and interest rate volatility. The numerical results also show that as a firm enters into a swap contract, a wealth transfer occurs between equity holders and debtholders while the total value of the firm still remains the same.

Regions of the U.S. are characterized by considerable economic differences in the magnitude and timing of business cycle fluctuations and the rents and prices of housing. This dissertation seeks to examine such heterogeneity, with the intention of not only understanding the sources of the differences but also providing evidence on general issues in macroeconomics. Chapters II and III quantify the roles of national, industry-specific, and region-specific forces in fluctuations observed in the regions of the U.S. Building on Chapter II's qualitative analysis, Chapter III develops and estimates a detailed statistical model of fluctuations--with the focus on the relative importance of national, region-specific, and industry-specific shocks--in the major regions and industries of the U.S. Specifically, variation among region and industry employment growth rates is decomposed into national, region-, and industry-specific components. Estimates show that, even after controlling for industry mix effects, 40% of the variance of the cyclical innovation to any region's employment growth rate is particular to that region. This measurement indicates that analysis of possible sources of region-specific shocks is an important issue meriting further research. Regional fluctuations provide an as-yet unexplored laboratory for the study of business cycles. Chapter IV examines whether regional variation in housing rents and prices is consistent with the present value model. According to the model, the rent-price ratio will be high in areas in which rent growth is expected to be low in the future. Decennial census data across census tracts permit a simple test of this hypothesis. If investors roughly base valuation on current rent and the expected average rate of rent growth over the next 10 or 20 years, across areas the rent-price ratio in a given census year should be inversely related to actual rent growth over the period between censuses. The estimates yield such an inverse relationship, subject to some limitations. Thus, contrary to previous studies, this chapter's analysis suggests the present value model to be a useful and reasonable formulation of asset pricing.

The study provides evidence regarding the effects of successful tender offers on the number of target and acquiring firm employees. Examination of reported employment numbers reveals that no significant change in combined employment is observed, on average, over the three-year period following offer completion. However, an average 6.6% reduction through the end of the year following completion of the offer is observed in the subsample of offers which are initially met with target management resistance. Subperiod analysis reveals that this result is driven by hostile tender offers completed between 1980 and 1984, which are followed by an average 17.2% decline in employment. Hostile combinations between 1975 and 1979 and both periods' friendly combinations are followed by statistically insignificant average increases in employment. Information contained in firm annual reports and in the Wall Street Journal indicates that the tender offers in the sample are often followed by considerable restructuring activity. Divestitures of both target and acquiring firm operations are common following completion of the tender offers. Restructuring activity in the 1980-1984 subperiod is as likely to involve operations which belonged to the acquiring firm prior to the tender offer as it is to affect target firm operations. Net divestitures of operations over this period are responsible for some of the observed employment decrease; however, an estimated $-$12.2% change remains, on average, after adjusting for divestiture activity.

Essays examine the issue of market efficiency in futures markets. Chapter 1, "Capacity of the Equity Index Futures Arbitrage Industry," is a theoretical modeling exercise that looks into the equilibrium number of firms in an equity index futures arbitrage industry. Assuming perfect competition, the equilibrium number of firms is attained when economic profit is zero for each firm. Under this condition, arbitrage transaction costs are important determinants of the equilibrium. It is shown that the equilibrium number of firms in this industry is inversely related with the variable cost components. Chapter 2, "The Learning Curve Effect in Financial Futures Markets," investigates equity index and fixed income futures markets for evidence of the decreasing average cost of arbitrage in these markets as arbitrageurs gain more experience. Regression analyses, using deviation of observed prices from the cost of carry equilibrium as a proxy measure for the arbitrage average cost and cumulative volume for the amount of experience gained by the participants, produce evidence supporting the hypothesis of the learning curve effect. Choice of the proxy variable is based on the observation that the mispricing as defined should track the average cost of the most efficient arbitrageur. Other variables such as technology that may have an impact on market efficiency is controlled for by "time" as their proxy variable. However, due to colinearity between cumulative volume and time, the evidence needs to be interpreted with caution. The last chapter, "Market Efficiency Dynamics: How the Efficiency in Newly Emerged Futures Markets Evolves," explores the characteristics of evolving market efficiency. Futures markets are chosen because there are several relatively new futures contracts on various types of assets. Diversity of contracts that are active in futures markets offers an excellent chance to cross check the results. Three test methods that are distinguished by measurement of the extent of market efficiency are implemented: the autocorrelation test, the variance ratio test, and the mispricing test. This helps to compensate for any weakness in each test method. Particular attention is paid to the role of trading volume as an important factor for continuing improvement in market efficiency. Other variables that may affect the market efficiency dynamics such as time remaining till contract expiration and market volatilities are controlled for in regression analyses. Evidence is found to support the fact that both cumulative and contemporaneous volumes play important roles in continually improving market efficiency for most futures markets covered. This is interpreted as suggesting the presence of the learning by doing effect in financial markets.

This thesis presents a valuation framework for the premiums and discounts of closed-end country funds. Previous studies focused on domestic closed-end funds, and have usually conducted annual cross-section regressions on levels of premiums and discounts. In this study, however, I look into the specific phenomenon of the coexistence of premiums and discounts on country funds, and try to explain the puzzle at all frequencies including weekly, monthly, quarterly, and annual observations. Market-level factors including U.S. and foreign market returns, and exchange rate changes are found to be the most significant variables to explain weekly and monthly changes in premiums and discounts. While U.S. market returns are positively related to the premium and discount change, local market return coefficient estimates are both significantly positive and negative. However, changes in U.S. domestic closed-end fund discount index are not significantly related to changes in country fund premiums and discounts. The net capital inflows into foreign countries, which proxy for informed foreign investors' sentiment toward the local market, are negatively related to the premium change in country funds, consistent with the investment sentiment hypothesis. The net capital inflow into the U.S., a proxy for informed foreign investors' sentiment toward the U.S. market, positively affect fund premiums, also consistent with the hypothesis. The annual regression coefficient estimate associated with past performance is positively related to fund premiums. However, we have mixed quarterly evidence on the performance, expenses and tax liability hypotheses. The coefficient estimates of other traditional variables are found to be consistent with the hypotheses. The investment restriction and country-type dummies are also consistent with the hypothesized coefficient signs. Based on the most significant parameter estimates, higher transaction costs in foreign markets and lower transaction costs in the U.S. market decrease premiums. For the supply side effect from subsequent fund IPOs, the first subsequent fund increases premium, but the second and/or third subsequent fund decreases premium. This result may provide some fads-, diversification gains- and/or market integration-related evidence.

The anomalous systematic pattern of stock price effects associated with various forms of security issues are well documented. Whereas numerous theories have been put forth to rationalize these empirical findings, our understanding of the determinants generating the observed market response is limited. The issue is compounded as the competing theories of capital acquisition are not mutually exclusive, and their respective market implications are not clearly separable. This paper provides insight into the observed market response by examining how an equity issue alters the division of firm value between existing security classes. To accomplish this objective, the potential redistribution effects are isolated under a perfect capital market assumption. By construction, the competing market effects implied by the asymmetric information, agency relationships, bankruptcy costs and tax based models of capital acquisition are removed from the analysis. An option pricing framework as suggested by Black and Scholes (1973), Galai and Masulis (1976), and Merton (1973,1974) provides the required equilibrium pricing model. Observable market parameters are used to model the wealth effects associated with 85 seasoned equity issues made by industrial firms between 1978 and 1987. On average, the sample exhibits a simulated $-$2.30% stock price effect, a 2.73% bond price effect, and a $-$.201% reduction in bondholder risk premium. The associated market response includes a statistically significant $-$2.62% stock price effect, a.940% bond price effect, and a $-$.184% reduction in bondholder risk premium. Whereas the positive bond and adverse stock price effects documented in this paper are consistent with the redistribution hypothesis, the cross-sectional variation in stock price effects is invariant to issue size, leverage, time to maturity, and bondholder risk premium. In contrast, 11.98% of the cross-sectional variation in bond price effects can be explained by issue size and bondholder risk premium.

This research studies the differential effects of a fixed dollar co-payment and a fixed percentage co-insurance rate on the utilization and cost of prescription drugs. The research presents a theoretical framework and sheds light on the policy debate over whether co-payment or co-insurance is more effective in containing prescription drug use and cost. This study uses a prescription claims data file established by a national health insurance company in the US. One observation (averaged data for 1988 and 1989) per employer group, together with other related information, such as employee, employer and market characteristics, were used for analysis. The study sample includes 517 employer groups (89%) which use a 20% co-insurance, and 64 employer groups (11%) which use a $5 co-payment, for the outpatient prescriptions covered. Utilization and cost of prescriptions are modeled as a linear function of physician office visits, the form of the cost-sharing method, the effective price to the patient, and other related factors. Results show, ceteris paribus, a fixed dollar co-payment, relative to a fixed percentage co-insurance rate, is associated with: (1) a 21% lower drug utilization rate; (2) a 27% lower unit cost of prescriptions; (3) a 43% lower total drug expenditures per insured person; (4) a 59% lower employer drug cost per insured person; and (5) a 21% lower employee-shared cost per insured person.

Source: Dissertation Abstracts International, Volume: 36-06, Section: A, page: 3899.

The importance of skewness and kurtosis in the return generating process is assessed by examining the out-of-sample forecasting power of three different Exponential GARCH models that assume the conditional errors are generated by a normal distribution, a generalized error distribution, and a nonparametric distribution. These models are selected because they incorporate the time-series properties of security returns and each of these distributions allows for various degrees of conditional skewness and kurtosis.

This study deals with the descriptive and empirical factors influencing the choice of assets by commerical banks in Nigeria. Bank portfolio behavior was viewed within the context of allocating a given amount of wealth (total deposits) between earning assets (investments, loans and advances) and non-earning assets (required liquidity ratio).

There are numerous instances when the stock of non-public (closely held) companies must be valued. Because the stocks do not trade in a market, their "fair market value" is difficult to determine. Often, Certified (Professional) appraisers are called upon to value the stock. The appraisers themselves apply any of several valuation techniques.

An objective of both economic structural and accounting time-series literature has been to understand the economic factors driving the systematic properties of corporate earnings. The purpose of this dissertation is twofold: (1) to help explain why these research areas are unable to find the same economic factors consistently significant across studies within their respective disciplines; and (2) to investigate economic factors previously omitted in time-series research and the economic factors that have a substantive effect on corporate earnings.

The primary purpose of this dissertation is to investigate selected capital structure theories through the study of the effect of preferred stock issuances on the wealth of common shareholders. These theories include the tax hypothesis of Modigliani and Miller (1963), the asymmetric information hypothesis of Myers and Majluf (1984), the signalling hypotheses of Ross (1977), and the growth hypothesis of Heinkel and Zechner (1990). The secondary purpose is to examine the importance of various features of preferred stock. These features include convertibility, callability, and whether the dividend rate is fixed or adjustable. The hypotheses are tested by estimating the wealth effect of the preferred stock issue announcement on the common shareholders and separating the alternative explanations by relating the wealth effect to the characteristics of the issuer and the issue.

When there is informational asymmetry between managers and outside investors, managers can use dividend announcements to send signals about a firm's real prospects to outside investors. As dividends need not be directly related to a firm's earnings prospects, dividend signals are indirect messages from managers.

Source: Dissertation Abstracts International, Volume: 40-02, Section: A, page: 0986.

Source: Dissertation Abstracts International, Volume: 40-06, Section: A, page: 3438.

Source: Dissertation Abstracts International, Volume: 36-06, Section: A, page: 3896.

The study tested three types of models, i.e. financial, macroeconomic, and the combined financial-macroeconomic model (FINMAC), an aggregation of the expanded Gordon model and the IS-LM model. This was done to determine the impact of certain financial and macroeconomic variables on stock prices using the S & P composite, industrial, utility, financial, and transportation stock price indices. The models were tested in two ways: first, in five sub-periods and second for the entire 1968-1988 period.

The windfall of oil revenues that flooded the Venezuelan economy, during the decade of the seventies, provided government officials with the financial means to stimulate the process of development and enhance the well-being of future generations. In spite of that wealth, Venezuela is now-a-days showing an alarming negative trend in its rate of growth, accompanied by higher levels of unemployment, poverty and income inequality.

Source: Dissertation Abstracts International, Volume: 39-06, Section: A, page: 3722.

This study examines the return rates and portfolio characteristics of eighteen diversified pooled equity real estate funds from 1983 through 1988 using regression analysis and paired comparisons of funds. The purpose of the study is to determine the importance of portfolio characteristics to total return, appreciation return, and income return.

The purpose of this study is to construct a general credit-limit algorithm that is consistent with the firm's goal of wealth maximization under funds constraints. Specifically, the net present value (NPV) technique is employed to build a foundation for the model because its acceptability is well established in capital budgeting theory. While it is not a novel approach in receivables management, it is rarely used to specify credit-limits. Yet, the application of NPV in the derivation of a credit-limit algorithm is conducive to satisfying the requisite that credit-limit decisions and accept/reject decisions are concurrent credit-granting considerations. Moreover, by incorporating mathematical programming procedures, funds limitations can be considered to ensure the resources of the firm are not incorrectly invested in receivables "loans". Therefore, it is a fundamental contention that the credit-granting decision must be approached not only on the basis of individual accounts, but also from the standpoint of receivables in aggregate.

This dissertation is an investigation of the nature of voluntary corporate restructuring during the period 1971 through 1987. Voluntary restructurings are those types of reorganization where management provides the impetus for the change. In contrast, involuntary restructurings, for example hostile tender offers and leveraged buyouts, are those where an outside party takes an active interest in acquiring the firm. In the sample investigated, it is found that the wealth effect of voluntary restructuring is approximately seven times that of involuntary restructuring.

Expansion of bank powers is currently an important and highly debated issue. Bankers, financial economists, regulators, and politicians argue that, for banks to survive and compete successfully today and in the future, banks must have greater powers in the areas of insurance, securities, and real estate.

This paper reexamines data on major industrial countries to investigate the dynamic interaction between money supply shocks and the real exchange rate. Specifically, this paper shows the relationship of observed comovements between money supply, industrial production index, interest rates, prices and real exchange rates to existing theories of real exchange rate determination. Using Vector Autoregression modeling technique alternative Granger causal orderings are fitted to the data in order to test validity of the different exchange rate models. The results of this study support the theory that the effect of money supply shocks is transitory and not permanent so there is no gain or loss in a country's competitiveness.

Source: Dissertation Abstracts International, Volume: 37-01, Section: A, page: 0493.

A laboratory study which examines the usefulness of different information presentation formats in predicting bond rating changes was conducted. The study utilizes tabular displays, bar-graphs, and Chernoff faces. A well-known psychological test of field dependence, the Group Embedded Figures Test (GEFT), is incorporated in the experiment to control for this possible confounding influence on subjects' performance. An analysis of subjects' data utilization and decision strategies is also presented.

Although taxes have been indicated as a motive behind mergers, to date there has been limited research analyzing specifically the source of the purported tax motive to merger and the value of tax attributes in mergers. The purpose of this dissertation is twofold: (1) to analyze merger-related tax provisions in place for the sample time period and develop a model of the value of tax characteristics in mergers; and (2) to provide empirical evidence on the value of tax attributes. The empirical examination focuses on whether certain tax attributes influence the tax status chosen for a merger and whether takeover gains are associated with tax attributes.

This study reviews the literature concerned with the apparent historical negative relationship between stock returns and inflation. Seven possible explanations for the negative relationship are compared and tested. These include the rational expectations based explanations of Fama and of Geske and Roll, the risk-premium explanation, a tax-related explanation and two portfolio adjustment explanations, one derived from monetarist theory and the other from Tobin. The irrational investor hypothesis of Modigliani and Cohn is also examined. Testing methodology includes Box-Jenkins ARIMA techniques with transfer functions.

This study presents the theoretical and empirical foundations of a proposed alternative revenue source to finance K-12 education in the state of Florida. It provides the philosophical perspectives of public funding of education in the context of presenting the need for government support of educational services. The problem that the state has been experiencing in the lack of adequate and stable funding source for K-12 education is then introduced. The study then moves on to discuss possible alternatives to the existing revenue source. Using the pre-determined level of state K-12 expenditures, a household income tax is introduced as a possible alternative. The proposed tax is evaluated in terms of the "net direct benefits" received by the various income groups. The impact of the tax by region along with other district characteristics is examined to detect its compliance with the state funding program. Net benefits derived by households with schoolage children are estimated using various proxies to predict the impact of the tax. The second part of the study draws implications from applying a discrete choice statistical model to a state survey in order to assess the willingness of the voting public to support the proposed tax structure. The political economy of the public's perception of the state fiscal problem and the need to solve it through the proposed new structure is explored. The conclusion draws implications for adopting such a tax, especially when it is specifically earmarked for state K-12 education.

Jensen's free cash flow theory produces numerous merger-related predictions. Existing empirical evidence is consistent with many of the predictions of the free cash flow theory, though little has been done to test this theory. This dissertation contributes to the understanding of the role that free cash flow plays in acquisitions. Different measures of free cash flow are investigated.

This study extends the existing research on the use of financial statement variables to predict one-year-ahead earnings changes. A principal component analysis was conducted on 61 financial statement variables in an attempt to describe the dimensionality of the variables and facilitate the development of parsimonious earnings prediction models. This study finds that the 61 variables embody a much richer array of information than suggested by previous research. The variables could not be described by a small number of principal components.

There is substantial anecdotal and academic evidence that informed trading occurs prior to informationally important events to exploit the subsequent change in stock price. However, almost all of the previous research examines only stock market activity. Despite the lack of research on the presence of informed trading in the options market prior to informational events, there are many reasons why informed traders would prefer the options market to the stock market. If informed traders prefer the options market to the stock market, we should observe price changes in the options market leading price changes in the stock market.

This study examines the impact of alternative distribution channels on policyowners' costs and profitability of ordinary life insurers. Using performance data and company characteristics for a sample of forty-five ordinary life insurers, step-wise regression analysis was applied to examine the relationship between alternative distribution channels and life insurer profitability and policyowners' costs. The results from this study do not support any specific relationship between life insurer profits or policyowners' costs and the type of distribution channel employed by a life insurer.

The purpose of this study is to examine how three factors, risk aversion, investment horizon, and information structure affect the variability of asset prices within an increasingly uncertain market environment. The laboratory research methodology that is employed avoids the use of strong stationarity assumptions which have been made in recent empirical variability studies. In addition, the laboratory methodology provides greater control over the numerous nonindependent factors which impact upon actual market prices.

Heterogeneity of valuation for a firm implies an upwardly sloped supply curve for a firm's stock. This has several implications for mergers and acquisitions. Firms with greater heterogeneity are expected to have more steeply sloped supply curves. It is therefore expected that as heterogeneity increases, a target firm's shareholders must be offered a greater premium to induce them to sell.

The budget reform literature assumes that those who can change the nature of budget deliberations can influence budget outcomes. Learning what factors influence the nature of budget deliberations is therefore important both to those who want to design more effective, responsive and efficient deliberation processes and to those who want to affect specific budget outcomes.

Source: Dissertation Abstracts International, Volume: 37-07, Section: A, page: 4505.

The effect of federal revenue assistance to state and local governments on their respective fiscal decisions is analyzed in an original, neoclassical economic model. This model more accurately describes the incentive structure facing each recipient government constituency. From this model, implications are derived which are descriptive of empirically observed behavior by state and local governments receiving federal grants.

This study reports the results of an investigation of security price formation and financial events using actual trades performed by a special segment of institutional investors. The data consists of the identity of the traders, the purchase and sale dates, and the price and volume of each merger-related and leveraged buyout (LBO)-related transaction made by the 25 largest mutual and 25 largest stock life insurance companies during 1984-1988. The insurance company annual statement provided through the State Insurance Commissioner's office discloses the details concerning each trade. This study is the first of its kind in the finance literature and provides further insight into the trading activities of a special class of informed investors around significant corporate restructuring announcements. Approximately 2,200 merger and LBO-related transactions representing almost $3.5 billion and involving 619 restructurings are identified. The life insurance sample appears to exhibit a superior performance in the selection and timing of target company transactions. About 90\% of the trades are profitable, generating a return premium of around 10\% over a random target selection strategy. In addition, average sale transactions are performed close to the maximum price during the event period as indicated by a Price Efficiency Ratio of 93%. Mutual firms, however, appear to outperform stock firms. Realized returns for mutuals are 38% (103% annualized); stock firms earn 23% (57% annualized). An optimal firm size appears to emerge at the $10 billion to \$20 billion asset level, and $1 billion to \$4 billion equity level.

This study examines the relationship between the performance of portfolios formed according to the Value Line timeliness ranks and the firm size, the share price, and the earnings to price (E/P) ratio stock return anomalies. The primary issue examined is to determine if the same unobserved factors that are believed to be responsible for the stock return anomalies are also responsible for the abnormal returns earned by portfolios formed according to the Value Line ranks. The results from this study indicate that the performance of the Value Line portfolios cannot be attributed to the factors that are responsible for the anomalies.

This dissertation offers and tests a theory regarding the source of asymmetric cross-correlation in size-based portfolio returns and variances. This 'information transfer' theory states that large firm portfolio returns may 'lead' those of small firm portfolios because large firm stock prices contain 'better quality' information versus small firm stocks, and are thus used as information signals by investors in smaller firm stocks. The theory is contrasted against the transaction cost theory, as offered by Cohen, et al. (1980, 1983) and Mech (1990), which states that cross-correlations in portfolio returns obtain because of differential transaction costs among size-based portfolios.

The evidence of a negative price response generally associated with the initial announcement of seasoned common stock offerings demands a more explicit rationale for why management would undertake an action that serves to lower current shareholder wealth. Although adverse selection appears to be the prevailing explanation for this price response, it is not evident that overvaluation should suffice as an explanation for both the equity-offering decision and the pecking-order financing preference. The purpose of this study is to explore the validity of overvaluation apart from the issue of pecking-order as an explanation for this decision and the corresponding price response. Particular emphasis is put upon the market's interpretation of the equity offering and the characteristics associated with management, the firm, and the offering used by the market to arrive at this interpretation.

This dissertation provides an investigation of the earnings surprise associated with the quarterly earnings announcement. The examination of a wide variety of forecast models allows insight into the ability of these models to capture the earnings expectations of the market.

The major problem examined is the return to the acquiring firm that results from merger activity. The design holds the time period and sample constant in order to focus on the measurement of returns using three different models. They are the Larson-Gonedes exchange ratio model (LGERM), the simple market model (SMM), and the mean adjusted return model (MARM).

The interrelationships between the common stock and stock option markets are investigated in detail through the analysis of price changes and their interrelationships. Data on call option and underlying stock prices are obtained from the Berkeley Options data base for the time period January 1983 through September 1985. Two fundamental issues are investigated in a general analysis of returns rather than a specific analysis of price reactions to information events. The first analysis provides an indication of the lead/lag relationships between the two security markets through the similarity or dissimilarity of the return patterns. Observed stock returns and stock returns implied from call options prices, along with differences between these two series, are investigated for return seasonalities. Dummy variable regressions allow calculation of F statistics that test for differences in returns across trading days and intraday time intervals. Results indicate that there are significant differences in return patterns between observed and implied stock prices. Overnight implied stock returns are slightly larger and do not exhibit the negative weekend effect found in observed stock prices, and observed returns are larger than implied returns early in the trading day. The second issue addressed is that of intermarket efficiency: are profits associated with the lead/lag, relationships identified in the first analysis? Two trading strategies are tested, one assuming that implied stock prices lead observed stock prices and one assuming observed stock prices lead implied stock prices. Several execution lag/holding period combinations provide results indicating that positive profits exist only to the overnight holding periods for the rule that assumes stock price lead implied stock prices. The results of both analyses are consistent with the conjecture that the stock market leads the option market.

This dissertation empirically tests two valuation models for call currency options: (1) an extant adaptation of the Black-Scholes-Merton option pricing model applicable to underlying securities with price relatives described by geometric Brownian motion such that return variance is time invariant, and (2) an adaptation (developed herein) of the Cox-Ross/Emanuel-MacBeth option pricing model applicable to underlying securities with price relatives described by a constant elasticity of variance diffusion process such that return variance is time variant. Tests are conducted on an ex-ante basis to determine which model more accurately predicts observed currency option prices. Transactions data supplied by the Philadelphia Stock Exchange are utilized in these tests.

This dissertation presents a study of the nature of the formation of expectations for, and empirical patterns of, the Deutsche Mark/dollar and Yen/dollar exchange rates for the time period of July 1976 to June 1986. A discussion of the interdependent characteristics of monetary policy formation and institutional aspects of the central banks of the United States, West Germany, and Japan follows, with the purpose of characterizing policy interaction effects on formation of expectations in the 1976-1980 and 1980-85 subperiods--prior to, and after, the inception of significant changes in monetary policies in each of the three countries.

The major question this study examines is whether international acquisitions show different patterns of returns to participating firms than purely domestic events do. The research design holds the time period and sample constant, focusing on the measurement of returns using two models and three estimation periods. The models are a domestic market model (DMM) and an international market model (IMM). The estimation periods are a pre-event, pooled pre and post-event, and separate post-event period.