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In a recent article in this Journal, W. F. Sharpe suggests that the model of investment behavior developed by Markowitz, Tobin and others can be extended in order "to construct a market equilibrium theory of asset prices under conditions of risk.'' His analysis, however, stops short of providing such an extension. His main concern is to develop what he calls "the capital market line" and to discuss the relationship between prices of assets and various components of their risk. In this note, we show that models of the form considered by Markowitz and Tobin can explain how asset prices are simultaneously determined by the interactions of investors seeking to maximize utility. In Section II below, we develop a simple modal of two assets. A general model of n assets is developed in the Appendix. [ABSTRACT FROM AUTHOR]

This paper considers criticism of duration analysis by some members of the academic community. Some of the criticisms are well-known limitations of duration and some are just plain errors in their understanding of duration and statistical analysis. Single-term duration as a measure of bond price elasticity and interest rate risk was developed independently by a number of economists and financial analysts, including two Nobel Prize winners in economics, Paul Samuelson and J.R. Hicks. The empirical estimates of the coefficient for duration in confused by their failure to differentiate clearly between cross-section data than for time-series data.

This article provides evidence that a previous conclusion regarding the superiority of maturity as a measure of basis risk rests on errors in both their theory and empirical analysis while the superiority of multi-factor duration models and the non-linearity of the return-duration relation are both true by definition. A review of the analysis made by Professors N. Bulent Gultekin and Richard J. Rogalski was presented to compare it with the results of the current analysis. Contrary to some studies, duration analysis remains a useful tool for bond portfolio management, if not an essential part of a fixed-income manager's tool kit. Gultekin and Rogalski made major errors in deriving the testable implications of the relationship between the single-factor duration of a bond or bond portfolio and the return on the bond or portfolio.

Most state and local governments issue their debt in the form of serial bonds. These bonds are awarded on a competitive basis to the underwriter submitting the lowest "net interest cost"—a specific measure of interest expense. This paper contains a description of a "pseudo-dual' to the programming problem, used by underwriters, to prepare such bids. As such, the problem lends itself easily to a diagrammatic description. A further objective of this paper is to survey many constraints typically imposed on the NIC (net interest cost) problem by issuers. It is pointed out that these constraints usually increase the "net interest cost" so that the use of these constraints is an admission that "net interest cost" by itself is not regarded as the sole criterion of a good bid. [ABSTRACT FROM AUTHOR]

Most serial bond issues are sold competitively on an NIC (net interest cost) basis. The municipality awards the issue to the bidder submitting the lowest NIC. Although it is often acknowledged that NIC is a defective measure of the interest cost and sometimes a costly one to the issuer, an alternative measure, the TIC (true interest cost, effective interest cost, interest cost according to the Canadian method, or the internal rate of return) is often regarded as too computationally difficult to employ. State and local governments are becoming increasingly aware of the internal rate of return or TIC as a measure of interest expense. The use of TIC as a method of awarding bond issues to underwriters is growing very rapidly. This paper contains a simple computer algorithm for calculating optimal bids on a TIC basis. [ABSTRACT FROM AUTHOR]

In this paper we have attempted to show that indifference curves in asset space may be derived geometrically from the indifference curves over the moments E and V often employed in asset analysis. Apart from a bliss point and the possibility of contamination by risk when all assets are risky, these indifference curves share the same properties as those in the theory of consumer choice. Parametric changes in current asset prices permit a geometric derivation of demand and offer curves if elasticities of expectation are zero. If elasticities of expectation are non-zero current prices implicitly enter the investor's utility function. Finally, the theory of asset choice may be viewed as a special case of the theory of demand when the consumer's preferences are variable. [ABSTRACT FROM AUTHOR]

Discusses abstracts of research articles on price and allocation theory, published in the 1968 edition of the periodical 'Journal of Economic Abstracts.' Explanation of why charity increases following a disaster; Problem of maintaining an optimal mode of production in the presence of external economies of scale through market mechanism; Estimation procedure that is designed to handle a system of demand equations.

Presents a series of abstracts on various topics of economics published in the March 1964 issue of the periodical 'Oxford Economic Papers,' vol. 16. Appraisal of short and long term competition from the point of view of businessmen; Overview of limits to a firm's rate of growth; Assessment of various aspects of dynamic equilibrium; Techniques for the structural analysis of the growth of an economy.

This section presents abstracts of research and articles on general economics and methodology used in economics. G. O. Bierwag and M. A. Grove devote their paper Indifference Curves in Asset Analysis to a geometrical demonstration of the transformation that maps indifference curves from the expected value-variance space to the asset space. The paper then proceeds to discuss the properties of indifference curves in the asset space. Meanwhile, A. F. Chalk shows that Bernard Mandeville's principal work, The Fable of the Bees, is representative product of the so-called transitional stage in the development of economic thought. As such, it contains a mixture of liberal and mercantilist elements which preclude its being categorized as either consistently laissez-faire or interventionist in outlook. Turning to economic analysis, C. Schotta examines the problem of selection of variables in formulating theories and hypotheses concerning social and economic behaviors in the paper Values in Economic Analysis: a Methodological Issue. Schotta argues that while considerable precision is utilized in deriving conclusions from economic models, the degree of precision used in selecting the variables included in the model is very much less.

The paper about the liquidity preference and risk aversion with an exponential utility function is critiqued. There is an error in the paper's derivation which accounts for the conclusion. Furthermore, one can demonstrate that plunging, defined as avoidance of a secure asset, depends on the form of the utility function. The search for a risk averse utility function that precludes plunging under all circumstances would seem to be futile. Plunging defined in the more general context as not holding a secure asset can occur for risk averters who face appropriate probability distributions, have appropriate levels of wealth. An equation demonstrates this statement formally.