Pages: 323-346 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02312.x | Cited by: 128
PHOEBUS J. DHRYMES, IRWIN FRIEND, N. BULENT GULTEKIN
This paper demonstrates that the Roll and Ross (RR) and other previously published tests of the APT are subject to several basic limitations. There is a general nonequivalence of factor analyzing small groups of securities and factor analyzing a group of securities sufficiently large for the APT model to hold. It is found that as one increases the number of securities, the number of “factors” determined increases. This increase in the number of “factors” with larger groups of securities cannot readily be explained by a distinction between “priced” and “nonpriced” risk factors as it is impermissible to carry out tests on whether a given “risk factor is priced” using factor analytic procedures.
Pages: 347-350 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02313.x | Cited by: 40
RICHARD ROLL, STEPHEN A. ROSS
Pages: 351-376 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02314.x | Cited by: 34
THOMAS S. Y. HO
This paper deals with the producer's optimal use of commodity futures in hedging. The framework for analysis is an intertemporal consumption and investment model. The producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval. During the period, he faces both price and output uncertainties. In applying stochastic dynamic programming methods, this paper shows the effect of these risks on his consumption behavior. Further, the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions. Finally, implications of these results on the futures markets are discussed.
Pages: 377-392 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02315.x | Cited by: 54
MICHAEL THEOBALD, VERA PRICE
The greater availability of daily data in the U.S. has led to a number of studies of the seasonality of daily stock (index) returns. While the studies recognized the potential impacts of nontrading and price‐adjustment delays in general, no formal analyses of such impacts were presented; in this paper analytic results are presented for the articulation between these phenomena. The implications of the analysis are discussed and shown to be consistent with a sample of U.K. index data. A modified form of the negative weekend effect is found to be present in the U.K. data analyzed.
Pages: 393-406 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02316.x | Cited by: 22
JAMES V. JORDAN
This study is a refinement and an extension of an earlier study by McCulloch of tax effects in the regression equation for term structure estimation. This study includes tests for tax effects and heteroskedasticity, a reconsideration of the need for an instrumental variable, and a search for the capital gains tax rate in addition to the ordinary‐income tax rate. There are two major findings: (1) statistically significant tax‐induced bias in the non‐tax‐adjusted equation and (2) evidence that the capital gains tax is misspecified in the tax‐adjusted equation.
Pages: 407-424 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02317.x | Cited by: 8
A microeconomic model of bank demand for borrowed reserves from the Federal Reserve is developed based upon constrained cost minimization. The derived demand function was found to correspond to behavior appropriate to the unknown switchpoint switching regression problem. When estimated, parameters generally conformed to theoretical expectations. The model was also tested for existence of switching regression behavior against a model similar to Goldfeld and Kane . Significance exceeded 99% in all cases. With the advent of reserve intermediate targeting, it appears especially necessary to reinvestigate the behavior determining this important source of reserves.
Pages: 425-442 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02318.x | Cited by: 10
In a multiperiod pure exchange world with investors displaying HARA‐preferences, conditions for period‐by‐period application of one‐period asset pricing models are derived first. The future investment opportunity set may be uncertain, provided that in every period a specific market portfolio variable depending on preferences is known as of the preceding date. This variable need not be completely deterministic.
Pages: 443-455 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02319.x | Cited by: 46
ROBERT GESKE, RICHARD ROLL
Empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the Black‐Scholes European formula. Such “biases” have been found related to the exercise price, the time to maturity, and the variance. We argue here that the American option variant of the Black‐Scholes formula has the potential to explain the first two biases and may partly explain the third. It can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods. The expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings.
Pages: 457-476 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02320.x | Cited by: 73
L. D. BOOTH, D. J. JOHNSTON
With some simple assumptions the ex‐dividend day price drop and the associated dividend can be used to measure the market's marginal tax rate. Previous research has estimated the implied tax rate for the U.S. This paper extends the analysis to Canada, where the tax treatment of dividends and capital gains is completely different from that in the U.S. The paper also presents estimates from 1970–80 to include four distinct periods when the tax treatment was different. Hence, we include an implied test of market efficiency as well as those for the “relevance” of taxes and the existence of tax based dividend clienteles.
Pages: 477-491 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02321.x | Cited by: 24
CHRISTOPHER B. BARRY, LAURA T. STARKS
This paper addresses the investor's decision to employ multiple managers for the management of investment funds. Under conditions such that specialization of managers and diversification among managers are not motives for the use of multiple managers, the paper shows that risk sharing considerations may be sufficient. A model is developed in which the decision to use multiple managers is explicitly treated, and conditions are studied such that an increase or decrease in the number of managers would be desirable. Under some conditions, a multiple manager solution is preferred over a single manager solution.
Pages: 493-502 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02322.x | Cited by: 25
THEODORE E. DAY
This paper develops the relation between the real rate of return on the stock market and changes in the price level using a multiperiod economy with production. The observed relation between real ex post stock returns and inflation is shown to be consistent with equilibrium in an economy with rational investors. The relation between expected real returns and expected inflation is shown to depend on the form of the economy's production function and on the form of investor preferences. When the production function exhibits stochastic constant returns to scale, the model explains the negative relation between expected real returns and expected inflation which has frequently been observed in empirical studies.
Pages: 503-517 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02323.x | Cited by: 145
GORDON J. ALEXANDER, P. GEORGE BENSON, JOAN M. KAMPMEYER
While there has been an abundance of empirical research on the subject of mergers and acquisitions, little research exists on a closely related topic—voluntary corporate selloffs. This study examines the effect on shareholder wealth of the announcement by management of an investment decision to voluntarily sell part of its operations to another firm. Positive abnormal returns are found to occur on the announcement date. However, it is found that such selloffs generally occur after a period of abnormally negative returns, suggesting the announcement is preceded by the release of negative information about the firm.
Pages: 519-525 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02324.x | Cited by: 90
STYLIANOS PERRAKIS, PETER J. RYAN
Upper and lower bounds are derived for call options traded at discrete intervals. These bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being “non‐negative beta.” The development of the bounds relies on the single‐price law and arbitrage arguments. Both single‐period and multiperiod results are produced, and put option bounds follow by extension. The bounds exist as equilibrium values given a consensus on stock price distribution; they are also valid for empirical studies, being adjustable for dividends and commissions.
Pages: 527-534 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02325.x | Cited by: 14
WILLIAM H. JEAN
In this paper a systematic procedure is developed to determine necessary conditions for all degrees of stochastic dominance. The previously known necessary conditions are specified as to which degrees of dominance they belong, and two new necessary conditions, a ranking of harmonic means and a ranking of algebraic combinations of the first three moments, are derived.
Pages: 535-539 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02326.x | Cited by: 3
DUANE STOCK, EDWARD L. SCHREMS
The behavior of different components of municipal bond yields may have a significant impact upon bond price behavior. Specifically, demand premiums created by banks may stabilize bond yields in some maturity ranges but not in others; for example, short‐term municipals may be stabilized but not long‐term. This research implies that bank demand behavior may create demand premiums that stabilize prices of short‐term municipal bonds relative to those of Treasury bonds of like maturity. While this implication is inconsistent with the residual theory of bank demand, it is consistent with the tax‐shield theory attributed to Hendershott and Koch [3, 4].
Pages: 541-550 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02327.x | Cited by: 10
RICHARD D. MacMINN
Pages: 551-556 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02328.x | Cited by: 25
EDWIN J. ELTON, MARTIN J. GRUBER, JOEL RENTZLER
Pages: 557-561 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02329.x | Cited by: 26
Pages: 563-563 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02330.x | Cited by: 0
ENRIQUE R. ARZAC, MATITYAHU MARCUS
Pages: 565-572 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02331.x | Cited by: 0
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Pages: 573-573 | Published: 6/1984 | DOI: 10.1111/j.1540-6261.1984.tb02332.x | Cited by: 0