Pages: i-v | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00145.x | Cited by: 0
Pages: vi-vi | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00146.x | Cited by: 0
Pages: vii-vii | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00147.x | Cited by: 2
Pages: 773-787 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04036.x | Cited by: 56
SANFORD J. GROSSMAN
Markets have an allocational role; even in the absence of news about payoffs, prices change to facilitate trade and allocate resources to their best use. Allocational price changes create noise in the signal extraction process, and markets where such trading is important are markets in which we may expect to find a failure of informational efficiency. An important source of allocational trading is the use of dynamic trading strategies caused by the incomplete equitization of risks. Incomplete equitization causes trade. Trade implies the inefficiency of passive strategies, thus requiring investors to determine whether price changes are informational or allocational.
Pages: 789-819 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04037.x | Cited by: 982
FRANCIS A. LONGSTAFF, EDUARDO S. SCHWARTZ
We develop a simple approach to valuing risky corporate debt that incorporates both default and interest rate risk. We use this approach to derive simple closedâform valuation expressions for fixed and floating rate debt. The model provides a number of interesting new insights about pricing and hedging corporate debt securities. For example, we find that the correlation between default risk and the interest rate has a significant effect on the properties of the credit spread. Using Moody's corporate bond yield data, we find that credit spreads are negatively related to interest rates and that durations of risky bonds depend on the correlation with interest rates. This empirical evidence is consistent with the implications of the valuation model.
Pages: 821-851 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04038.x | Cited by: 24
ELROY DIMSON, PAUL MARSH
Regulatory authorities set capital requirements to cover the position risk of securities firms and to protect against losses arising from fluctuations in the value of their holdings. The requirements may be set using the comprehensive approach required by the U.S. Securities and Exchange Commission, the buildingâblock approach required by the European Community, or the portfolio approach required by the United Kingdom. We compare these three alternatives using a large sample of U.K. equity trading books. The portfolio approach systematically specifies larger requirements for riskier books, and vice versa. It is more efficient than the buildingâblock approach, and far more efficient than the comprehensive approach.
Pages: 853-873 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04039.x | Cited by: 234
STEPHEN J. BROWN, WILLIAM N. GOETZMANN, STEPHEN A. ROSS
Empirical analysis of rates of return in finance implicitly condition on the security surviving into the sample. We investigate the implications of such conditioning on the time series of rates of return. In general this conditioning induces a spurious relationship between observed return and total risk for those securities that survive to be included in the sample. This result has immediate implications for the equity premium puzzle. We show how these results apply to other outstanding problems of empirical finance. Longâterm autocorrelation studies focus on the statistical relation between successive holding period returns, where the holding period is of possibly extensive duration. If the equity market survives, then we find that average return in the beginning is higher than average return near the end of the time period. For this reason, statistical measures of longâterm dependence are typically biased towards the rejection of a random walk. The result also has implications for event studies. There is a strong association between the magnitude of an earnings announcement and the postannouncement performance of the equity. This might be explained in part as an artefact of the stock price performance of firms in financial distress that survive an earnings announcement. The final example considers stock split studies. In this analysis we implicitly exclude securities whose price on announcement is less than the prior average stock price. We apply our results to this case, and find that the condition that the security forms part of our positive stock split sample suffices to explain the upward trend in eventârelated cumulated excess return in the preannouncement period.
Pages: 875-897 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04040.x | Cited by: 44
M. AMEZIANE LASFER
This study examines the behavior of share prices around the exâdividend dates before and after the introduction of the 1988 Income and Corporation Taxes Act that reduced substantially the tax differential between dividends and capital gains in the United Kingdom. We find that, in the preâ1988 period when the differential taxation of dividends and capital gains is high, exâday returns are positive and significant. In contrast, in the postâ1988 period, exâday returns are, in most cases, negative and insignificant. Further analysis reveals that, while exâday returns are significantly related to dividend yield and to the length of the settlement period, they are not affected by the commonly used measures of transaction costs, such as the bidâask spread and trading volume, or by the day of week, month of the year, type of dividend distribution, or number of days to the actual receipt of the cash dividend. We conclude that taxation affects significantly exâday share prices in the United Kingdom.
Pages: 899-917 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04041.x | Cited by: 164
MICHAEL J. BARCLAY, CLIFFORD W. SMITH
Pages: 919-940 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04042.x | Cited by: 65
NAVEEN KHANNA, ANNETTE B. POULSEN
In this article, we provide evidence concerning the extent to which managers are to blame when their firms become bankrupt. We study a sample of firms that file for Chapter 11 and determine the actions taken by the firms' managers during the threeâyear period before the filing. We compare the sample with a control sample of firms that performed better. We suggest that the comparison provides evidence on the way managers act as their firms sink into financial trouble and whether financial distress is the result of incompetence or excessively selfâserving managerial decisions or due to factors outside of management's control. We find that managers of the Chapter 11 firms and the control firms make very similar decisions and that, on average, neither set of managers is perceived to be taking valueâreducing actions. These results do not change when we control for managerial turnover or managerial ownership. We also find that when managers are replaced in firms that eventually file for Chapter 11 protection, the market does not respond positively, regardless of whether the new managers are from inside or outside the firm. Our findings suggest that when managers are blamed for financial distress, they are serving as scapegoats.
Pages: 941-942 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00148.x | Cited by: 0
Pages: 943-1005 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04043.x | Cited by: 0
Pages: 1007-1008 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04044.x | Cited by: 0
Pages: 1009-1010 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04045.x | Cited by: 0
Pages: 1011-1012 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04046.x | Cited by: 0
Pages: 1013-1024 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04047.x | Cited by: 1
RenĂ© M. Stulz
Pages: 1025-1027 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb04048.x | Cited by: 0
Robert S. Hamada
Pages: 1028-1028 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00149.x | Cited by: 0
Pages: 1029-1030 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00150.x | Cited by: 2
Pages: 1031-1040 | Published: 7/1995 | DOI: 10.1111/j.1540-6261.1995.tb00151.x | Cited by: 0