The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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To Pay or Not to Pay Dividend*
Published: 05/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03564.x
NILS H. HAKANSSON
Changes in the Financial Market: Welfare and Price Effects and the Basic Theorems of Value Conservation
Published: 09/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03592.x
NILS H. HAKANSSON
This paper analyzes the impact, on both welfare and equilibrium prices, of changes in the financial market in a general equilibrium, two‐period context. Previous papers have focussed on the “securities effect,” tending to essentially ignore the equally important “endowment effect” that arises when market structure changes are implemented. Two forms of endowment neutrality and market structure changes which either preserve, expand, or shift allocational feasibility differentiate the main theorems, which are based on arbitrary preferences and beliefs and substantially extend and modify extant results; in particular, earlier statements identified with value conservation are sharply moderated. Very roughly, the paper yields the following implications for some of the more common changes in the market: nonsynergistic corporate spinoffs and the opening of option markets have, on balance, strongly positive welfare effects; nonsynergistic mergers tend to have strong negative welfare effects, while the welfare effects of alternative risky debt structures tend to be ambiguous. All of the preceding, however, may under plausible conditions be redistributive.
Gains from International Diversification: 1968–85 Returns on Portfolios of Stocks and Bonds
Published: 07/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb04581.x
ROBERT R. GRAUER, NILS H. HAKANSSON
This paper applies the multi‐period investment model to a universe of international securities on the basis of the simple probability assessment approach. Our principal findings are: 1) the gains from including non‐U.S. asset categories in the universe were remarkably large (in some cases statistically significant), especially for the highly risk‐averse strategies, 2) the gains from removing the no leverage constraint were more substantial than they were in the absence of non‐U.S. securities, and 3) there is strong evidence of market segmentation in that the optimal levels of investment in U.S. securities were mostly zero in the presence of the non‐U.S. asset categories.
On the Feasibility of Automated Market Making by a Programmed Specialist
Published: 03/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb04934.x
NILS H. HAKANSSON, AVRAHAM BEJA, JIVENDRA KALE
Securities trading is accomplished through the execution of orders. Admissible orders (e.g., market orders, limit orders) give rise to discontinuous aggregate demand functions, composed of many “steps.” Demand smoothing, or the balancing of excesses due to such discontinuities via intervention, is one of the most basic functions that could be assigned to a “specialist.” When the specialist's “affirmative obligation” is fully specified, his or her activity can in principle be automated. This paper is an attempt to assess, via simulation, some of the ramifications of using a “programmed specialist,” whose automated market making is limited to demand smoothing. A number of alternative rules of operation are simulated. Several of the rules performed well, especially the extremely simple rule that calls for the (computerized) specialist to minimize new absolute share holdings in each security at each trading point via “total” (as opposed to “local”) demand smoothing. Our results indicate that the underlying costs of demand smoothing are on the order of a fraction of a penny per share traded even in relatively thin markets.
Sufficient and Necessary Conditions for Information to have Social Value in Pure Exchange
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03610.x
NILS H. HAKANSSON, J. GREGORY KUNKEL, JAMES A. OHLSON
This paper extends, corrects, and unifies earlier statements concerning the social value of public information as well as the no‐trading conditions in pure exchange. Sufficient and necessary conditions are provided for both the single‐period and two‐period cases in a postsignal trading model. The social value of information is shown to be closely linked to the allocational efficiency of the market, the degree of homogeneity of prior beliefs, and of information structures, the time‐additivity of preferences, and the efficiency of endowments. We conclude that the case in favor of public information is much stronger than previously suggested.