Knowledge that Transforms

This article re‐examines the conclusion of previous studies that price dispersion is extreme in the American whole life insurance market. We take an axiomatic approach to the problem of measuring “price” dispersion in the market for the multiparameter whole life contracts, studying the distribution across contract offers of a price index which is uniquely determined by two conditions. In contrast to the accepted wisdom, we find that the derived measure of price dispersion is only 3.6% and that much of this dispersion can be accounted for by measurement error.

Paper presented at the September l980 meetings of the American Economic and American Finance Associations in Denver, Colorado.

This study measures the effects of the 1970 amendment to the Bank Holding Company (BHC) Act on the profitability and risk of BHCs using capital market data. Differences in abnormal returns and risk among three portfolios of bank shares which differ in their regulatory status are examined in various periods preceding and following the enactment. No significant differences in performance and no change in the relative risk of any pair of portfolios were observed. Thus, the null hypothesis that the nonbank expansion provisions of the 1970 amendment had no effect on BHCs' risk and profitability cannot be rejected.

William Barnett, Edward Offenbacher, Paul Spindt, New Concepts of Aggregated Money, The Journal of Finance, Vol. 36, No. 2, Papers and Proceedings of the Thirty Ninth Annual Meeting American Finance Association, Denver, September 5-7, 1980 (May, 1981), pp. 497-505

The lessons of the leasing literature concerning the impact of leases on the debt capacity of a firm are reviewed and summarized to establish an approach to the analysis of the corporate bond refunding decision. A general proposition regarding financial obligation parity is established, and from that a clear bond refunding decision rule is developed. Previous debates in the literature about appropriate discount rates and about the appropriate cash flows to be discounted for refunding decisions are clarified.