Knowledge that Transforms

The thrust of current deposit insurance reform--risk-based insurance premiums and capital requirements--is an effort to price deposit insurance more fairly. Fairly pricing deposit insurance eliminates inequitable wealth transfers, but it does not lead to an efficient equilibrium. This paper shows that an alternative charter policy results in an efficient separating equilibrium. The analysis in this paper provides support for the deposit insurance reform proposal in the recent (1993) National Commission on Financial Institution Reform, Recovery and Enforcement (NCFIRRE) report to the President and Congress, and for Merton and Bodie's (1993) proposal.

We analyze the optimal design of debt maturity, coupon payments, and dividend payout restrictions under asymmetric information. We show that, if the asymmetry of information is concentrated around long-term cash flows, firms finance with coupon-bearing long-term debt that partially restricts dividend payments. If the asymmetry of information is concentrated around near-term cash flows and there exists considerable refinancing risk, firms finance with coupon-bearing long-term debt that does not restrict dividend payments. Finally, if the asymmetry of information is uniformly distributed across dates, firms finance with short-term debt.

This article establishes efficient lattice algorithms for pricing American interest-sensitive claims in the Heath, Jarrow, Morton paradigm, under the assumption that the volatility structure of forward rates is restricted to a class that permits a Markovian representation of the term structure. The class of volatilities that permits this representation is quite large and imposes no severe restrictions on the structure for the spot rate volatility. The algorithm exploits the Markovian property of the term structure and permits the efficient computation of all types of interest rate claims. Specific examples are provided.

M. Ameziane Lasfer, Ex-Day Behavior: Tax or Short-Term Trading Effects, The Journal of Finance, Vol. 50, No. 3, Papers and Proceedings Fifty-Fifth Annual Meeting, American Finance, Association, Washington, D.C., January 6-8, 1995 (Jul., 1995), pp. 875-897

We examine the performance of common stock recommendations made by prominent money managers at Barron's Annual Roundtable from 1968 to 1991. To avoid survivorship bias, we examine the performance of recommendations by all the participants. The buy recommendations earn significant abnormal returns of 1.91% from the recommendation day to the publication day, a period of about 14 days. However, the abnormal returns are essentially zero for one to three year post-publication day holding periods. Thus, an individual investing according to the Roundtable recommendations published in Barron's would not benefit from the advice.

Starting with Ingersoll (1977b), the academic literature has repeatedly sought to explain why convertible bonds are called late. The findings here demonstrate there is no call delay to explain. This paper finds that most convertible bonds, given their call protection, are called as soon as possible. For those that are not, there are significant cash flow advantages to delaying. The median call delay for all convertible bonds is less than four months. If a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period, the median call period is less than a month.

This paper tests the expectations hypothesis in the term structure of volatilities in foreign exchange options. In particular, it addresses whether long-dated volatility quotes are consistent with expected future short-dated volatility quotes, assuming rational expectations. For options observed daily from December 1, 1989 to August 31, 1992 on dollar exchange rates against the pound, mark, yen, and Swiss franc, we are unable to reject the expectations hypothesis in the great majority of cases. The current spread between long- and short-dated volatility rates proves to be a significant predictor of the direction of future short-dated rates.

Financial risk management : fixed income and foreign exchange , Financial risk management : fixed income and foreign exchange , کتابخانه دیجیتال و فن آوری اطلاعات دانشگاه امام صادق(ع)