Knowledge that Transforms

This article integrates strategic product market analysis with price-taking asset pricing theory. We demonstrate that a firm's market power can lead to scale-dependent and potentially infinite required returns. Scale dependency, which we relate to risk spillovers between expansionary and existing cash flows, reflects the divergence of incremental from existing required returns. The firm-specific nature of risk spillovers potentially destroys the concept of a common industry "risk class". Our analysis raises important questions regarding the validity of widely used "comparables" methods for determining risk-adjusted discount rates.

This article uses bond market data to empirically test the asset pricing model of Kazemi (1992). According to this model the rate of return on a long-term, pure-discount, default-free bond will be perfectly correlated with changes in the marginal utility of the representative investor. The covariability between financial asset returns and returns on such a bond can therefore serve as a measure of the riskiness of assets. The aim of this study is to determine whether the model can explain cross-sectional differences in the monthly returns of bonds with different maturity dates. We estimate and test the restrictions imposed by the model on returns of default-free bonds, while allowing the conditional distribution of bond returns to be time varying. The model is rejected during the full sample period (1973–1995) and the subperiod (1973–1980) when the Federal Reserve's focus is on interest rates, while the model is not rejected during the subperiod (1981–1995) when the Federal Reserve's focus is on money supply.

This article integrates strategic product market analysis with price-taking asset pricing theory. We demonstrate that a firm's market power can lead to scale-dependent and potentially infinite required returns. Scale dependency, which we relate to risk spillovers between expansionary and existing cash flows, reflects the divergence of incremental from existing required returns. The firm-specific nature of risk spillovers potentially destroys the concept of a common industry “risk class”. Our analysis raises important questions regarding the validity of widely used “comparables” methods for determining risk-adjusted discount rates.

Journal Article Cheap Talk, Fraud, and Adverse Selection in Financial Markets: Some Experimental Evidence Get access Robert Forsythe, Robert Forsythe University of Iowa Search for other works by this author on: Oxford Academic Google Scholar Russell Lundholm, Russell Lundholm University of Michigan Search for other works by this author on: Oxford Academic Google Scholar Thomas Rietz Thomas Rietz University of Iowa Address correspondence and reprints requests to Thomas Rietz, Department of Finance, College of Business Administration, University of Iowa, Iowa City, IA 52242, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 3, July 1999, Pages 481–518, https://doi.org/10.1093/revfin/12.3.0481 Published: 01 June 2015

Analysis of absence of arbitrage normally ignores payoffs in states to which the agent assigns zero probability. We extend the fundamental theorem of asset pricing to the case of “no empty promises” in which the agent cannot promise arbitrarily large payments in some states. There is a superpositive pricing rule that can assign positive price to claims in zero probability states important to the market as well as assigning positive prices to claims in the states of positive probability. With continuous information arrival, no empty promises can be enforced by shutting down the agent's subsequent investments once wealth hits zero.

http://deepblue.lib.umich.edu/bitstream/2027.42/39533/3/wp143.pdf

Weekly returns of stock portfolios exhibit substantial autocorrelation. Analytical studies suggest that nonsynchronous trading is capable of explaining from 5% to 65% of the autocorrelation. The varying importance of nonsynchronous trading in these studies arises primarily from differing assumptions regarding nontrading periods of stocks. We simulate the effects of nonsynchronous trading by sampling stock returns from a return generating process using transactions data to obtain the precise time of each stock's last trade. We find that simulated weekly portfolio returns exhibit autocorrelations that are roughly 25% that of their observed (CRSP) weekly returns.

Journal Article Hedging Long-Term Exposures with Multiple Short-Term Futures Contracts Get access Anthony Neuberger Anthony Neuberger London Business School Address correspondence to Anthony Neuberger, London Business School, Sussex Place, Regents Park, London NW1 4SA, UK, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 3, July 1999, Pages 429–459, https://doi.org/10.1093/revfin/12.3.0429 Published: 01 June 2015

Journal Article Introductory Comments: Bloomfield and O'Hara, and Flood, Huisman, Koedijk, and Mahieu Get access Lawrence R. Glosten Lawrence R. Glosten Columbia University Address correspondence to Lawrence R. Glosten, Columbia Business School, Uris Hall, Room 614, Columbia University, 3022 Broadway, New York, NY 10027, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 12, Issue 1, January 1999, Pages 1–3, https://doi.org/10.1093/rfs/12.1.1 Published: 01 June 2015

This article investigates the long-term equity performance of Japanese firms issuing convertible debt and equity. We find that issuing firms perform poorly (except for equity rights issues) compared to nonissuing firms even though the stock-price reaction to convertible debt and equity issues is not negative for Japanese firms. This underperformance is strongest for firms issuing public convertible debt. In contrast to the United States, poor performance is not concentrated in smaller firms and in firms with a high market-to-book ratio. Simple behavioral explanations advanced for the new issue puzzle in the United States do not seem consistent with the Japanese experience.