Knowledge that Transforms

The last decade has witnessed significant advancements in capital theory and its application to corporate finance, investment policy, and portfolio analysis. More recently a growing body of empirical work has undertaken the task of systematically testing the positive implications of the theory. The study of risk has occupied a central position in this endeavor as it provides the link between the various branches of finance theory. The purpose of this paper is to investigate the empirical determinants of equity risk through the analysis of the firm's underlying characteristics, specifically, the firm's size, its financial leverage, and its dividend record. Section I summarizes the literature, Section II provides the theoretical framework, Section III describes the empirical model and the data, Section IV presents the statistical results, Section V analyzes the effect of excluded variables, and Section VI provides a summary and conclusions. I. Empirical Literature on Risk The following survey is not exhaustive; it intends to trace the direction

Hot markets, which refer to instances when stocks increase their offering prices to a level greater than average market premiums, have been overlooked in recent academic literature. Thus, this research examines factors which may aid in the prediction of hot issue markets. A sample of unseasoned stock issues offered between January 1, 1960 and October 31, 1970 is compiled, noting the stock's original offering price and their first two months' ending bids. In order to understand overall market performance during this time, data was also collected from the daily Standard & Poor 500 (SP the correlation between new issue premiums and aftermarket performance; the association between the number of monthly new offerings and simultaneous new issue premiums; and finally the correlation between new issue premiums and past market performance. Several implications for investors, issuers, and researchers are presented, as are directions for future research. The findings indicate that a level of predictability exists within the first month's residuals, which has implications for the timing of offerings and new issue purchases. A higher offering price, when compared to a cold issue market's efficient prices, may be obtained by issuers during that first month's issuance. (AKP)