Knowledge that Transforms

Stephen J. Brown, Joint Estimation of Factor Sensitivities and Risk Premia for the Arbitrage Pricing Theory: Discussion, The Journal of Finance, Vol. 43, No. 3, Papers and Proceedings of the Forty-Seventh Annual Meeting of the American Finance Association, Chicago, Illinois, December 28-30, 1987 (Jul., 1988), pp. 734-735

Recent research shows that unsuccessful tender offers may affect target share returns for two years past the offer's announcement. This note examines target returns in the interim between the announcement and one year after the offer's withdrawal. Analyzing a recent sample of targets that did not get another bid in the year following a failed tender offer, this study reaches two conclusions. First, all of an offer's premium disappears by the time failure becomes public. Second, excess returns are zero in the post-failure year. An explanation that is based on the causes of the tender offers' failures is presented.

Subsequent to the October 1979 shift in monetary policy in the United States, interest rates in North America not only reached unprecedented levels but also exhibited unprecedented volatility. Using Canadian data, the authors show that anticipated quarterly changes in long-term rates associated with the rational-expectations model have remained small during this post-shift period. The authors examine three sets of recorded forecasts of long-term interest rates in Canada and note their failure to improve upon the no-change prediction. The “perverse” relationship between the slope of the yield curve and the subsequent movement in long-term rates exists in the Canadian data but is of only modest value in a forecasting context. The excess returns on long-term bonds implicit in the recorded forecasts of the level of interest rates vary sharply, yet there is little evidence that forecasters have identified a predictable component of time-varying term premia.