Knowledge that Transforms

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An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.

This paper models the unobservable rate of return on money balances (r) as depending directly on the transactions velocity of money (ν). Approximating this relationship linearly, the efficient markets hyphothesis (EMH) is shown to imply that first differences of the log of ν should either be random or should show negative first-order serial correlation at most. The empirical evidence presented below is consistent with the EMH.

Louis O. Scott, The Stationarity of the Conditional Mean of Real Rates of Return on Common Stocks: An Empirical Investigation, The Journal of Financial and Quantitative Analysis, Vol. 19, No. 2 (Jun., 1984), pp. 217-230

Richard H. Bernhard, Risk-Adjusted Values, Timing of Uncertainty Resolution, and the Measurement of Project Worth, The Journal of Financial and Quantitative Analysis, Vol. 19, No. 1 (Mar., 1984), pp. 83-99

This paper reexamines the empirical relation between inflation and interest rates concentrating on the tax effect proposed by Darby and Feldstein. Using the random walk intercept model, relative responses of taxable yields and tax-exempt yields to expected inflation are estimated. The results show that for the sample period 1953–1982, the nominal yields on Treasury bills rise at a rate greater than one-for-one with expected inflation, while the nominal yields on default-free municipal bonds rise approximately one-for-one with expected inflation. Thus, the tax-adjusted Fisher hypothesis by Darby and Feldstein is empirically supported. The components of Treasury bills are also extracted and their variances are compared. It is shown that variation of expected inflation is not overwhelmingly larger than that of the after-tax real rate. Therefore, on an after-tax basis, changes in the real rate explain a substantial portion of changes in the nominal rate of interest.

Since Bowlin's [4] original article on the topic was published, a considerable literature on corporate bond refunding has developed. Most of that literature has concentrated on the question of how to measure the benefit to a company's shareholders of exercising the call provision associated with an outstanding debt issue (see [3], [12], [21], [26], [27], [29], and [31]). Among the related concerns have been the matters of whether there are valuation advantages to the deliberate issuance of discount—including “zero coupon”—bonds (see [9], [22], and [28]), and whether there can be profitable opportunities for refunding prior to maturity debt instruments that were issued at par but later trade at a discount (see [1], [2], [13], [15], [17], [18], and [23]).

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.