Knowledge that Transforms

Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset‐liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.

M y assignment is to speak about the regulation of financial futures markets, but in this respect the differences between financial futures and the traditional commodity futures are comparatively minor. Most of what I have to say, therefore, will apply to the regulation of futures markets in general. Towards the end of my remarks I shall say something about the problems that are particular to financial futures.

Richard O. Michaud, Paul L. Davis, Valuation Model Bias and the Scale Structure of Dividend Discount Returns, The Journal of Finance, Vol. 37, No. 2, Papers and Proceedings of the Fortieth Annual Meeting of the American Finance Association, Washington, D.C., December 28-30, 1981 (May, 1982), pp. 563-573

This paper traces the historical developments of the efforts to find simple and accurate methods of approximating an annuity's implicit yield and a bond's yield to maturity. It is shown that the little known history of yield approximations is nevertheless very rich, with contributions dating as far back as the late seventeenth century. It is also shown that the standard textbook approximation formula for the bond's yield to maturity is the least accurate of a large family of formulas, some of which were suggested as early as 1855.

Barr Rosenberg, Andrew Rudd, Factor-Related and Specific Returns of Common Stocks: Serial Correlation and Market Inefficiency, The Journal of Finance, Vol. 37, No. 2, Papers and Proceedings of the Fortieth Annual Meeting of the American Finance Association, Washington, D.C., December 28-30, 1981 (May, 1982), pp. 543-554

Eduardo S. Schwartz, The Pricing of Commodity-Linked Bonds, The Journal of Finance, Vol. 37, No. 2, Papers and Proceedings of the Fortieth Annual Meeting of the American Finance Association, Washington, D.C., December 28-30, 1981 (May, 1982), pp. 525-539

The first aim of this study is to estimate the interest rates paid for motor vehicle loans. The second aim is to identify those potential borrowers most likely to be rationed out of the market by the imposition of rate ceilings. Rate ceilings constrain the rates paid by successful loan applicants to be no greater than the applicable ceiling level. These constraints are dealt with by treating the interest rate paid as a variable truncated at the ceiling level. Assuming the dependent variable is truncated normal, consistent estimates are obtained by employing the maximum likelihood method of Hausman and Wise.

In markets in which sellers know more about product quality than buyers, but cannot convey their superior information either by directly issuing costly signals of the Spence type or by successfully funding the production of information, I suggest another way in which the informational asymmetry problem can be resolved; a third party can produce the necessary information at a cost and use it to price a service consumed by the sellers. Buyers can then observe a seller's choice of service consumption level and be well informed in equilibrium. In this framework I construct a model in which a borrower's choice of insurance coverage signals its default probability to lenders, and explore the properties of the resulting signalling equilibrium in a variety of cases.