The Journal of Finance

The Puzzle of Financial Leverage Clienteles

Published: 12/01/1985   |   DOI: 10.1111/j.1540-6261.1985.tb02394.x

ODED SARIG, JAMES SCOTT

Empirically, it appears that common stock of publicly traded corporations with high‐debt ratios tends to be held by investors with relatively low marginal taxes while the stock in companies with little debt is held by investors in high‐tax brackets. A number of authors have argued that in an equilibrium similar to the one described by Miller [8], these clienteles should exist. We argue that standard portfolio theory does not imply financial leverage clienteles for publicly traded firms. We explain the empirical relationship between investor tax rates and leverage ratios by the existence of dividend clienteles and a positive relationship between dividend yield and leverage ratios.

Some Empirical Estimates of the Risk Structure of Interest Rates

Published: 12/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb02657.x

ODED SARIG, ARTHUR WARGA

This paper investigates the risk structure of interest rates using pure discount bonds. The most striking feature of our estimates of default‐risk premia is the resemblance of their time profile to the theoretical time profile obtained by Merton (1974).

The Information Value of Bond Ratings

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00311

Doron Kliger, Oded Sarig

We test whether bond ratings contain pricing‐relevant information by examining security price reactions to Moody's refinement of its rating system, which was not accompanied by any fundamental change in issuers' risks, was not preceded by any announcement, and was carried simultaneously for all bonds. We find that rating information does not affect firm value, but that debt value increases (decreases) and equity value falls (rises) when Moody's announces better‐ (worse‐) than‐expected ratings. We also find that when Moody's announces better‐ (worse‐) than‐expected ratings, the volatilities implied by prices of options on the fine‐rated issuers' shares decline (rise).

Dividend Surprises Inferred from Option and Stock Prices

Published: 09/01/1992   |   DOI: 10.1111/j.1540-6261.1992.tb04675.x

SASSON BAE‐YOSEF, ODED H. SARIG

This paper introduces a new method to measure the unexpected component of dividend announcements. While measures used previously were based on various arbitrary models of dividend expectations, our suggested method compares the reaction of stock and option prices to dividend announcements. Our measure is compared to commonly used model‐based measures, to a Box‐Jenkins time‐series‐based measure, and to a Value‐Line Investor Survey‐based measure of dividend surprises. The new measure is more highly correlated with the market's reaction to the announcements than are alternative measures of dividend surprises. The new measure is also shown to be insensitive to the extent to which the options used to identify unexpected dividend announcements are in‐ or out‐of‐the‐money.

Real Interest Rates and Inflation: An Ex‐Ante Empirical Analysis

Published: 03/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb05207.x

SHMUEL KANDEL, AHARON R. OFER, ODED SARIG

We develop a method of measuring ex‐ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex‐ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.