examining the reasonableness and accuracy of investment advice. Topics such as earnings estimates, security analysts recommendations, and recommendations for selecting mutual funds have been studied extensively. However, almost no attention has been paid to examining advice about the asset allocation decision (the allocation of funds across broad classes of assets). This is surprising because the asset allocation decision has been recognized as a major determinant of return and risk and because of this, advice on the optional allocation decision is provided by most brokerage firms and investment advisors Given the importance of the asset allocation decision we anticipate that the rationality of asset allocation advice will be extensively examined. The purpose of the article is two fold. First, we will examine modern portfolio theory to see what we can learn about the general characteristics of advice that are necessary for consistency with theory. Second, we will examine the advice of some specific investment advisors to see if their advice is consistent with rational behavior. We proceed in three steps. We first review some of the basic tenets of MPT, discuss alternative formulations of the problem, and examine which formulation is appropriate and

In this paper we present a method for valuing American and European put and call options on debt securities. Although no exhange-traded options of this type currently exist in the United States, the Chicago Board Options Exchange plans to introduce option contracts on several government bonds, and the Chicago Board of Trade petitioned the Commodities Futures Trading Commission to allow the trading of options on the Ginny Mae futures contract. In addition to pricing put and call options, the model developed here can be applied to the valuation of other securities such as callable bonds and bank loan commitments.

One of the major problems in finance is that of combining the separate costs of debt and equity into an appropriate cutoff rate for new investment; this problem is particularly acute when the firm is changing its capital structure. Solutions to this problem which have been proposed include various types of both marginal costing and average costing.

In testing hypotheses, researchers are almost always faced with the problem of isolating the effect of certain variables. This is a particularly acute problem in the social sciences, where the absence of an experimental environment means that researchers must resort to statistical methods of adjustment.

Several studies have investigated the reaction of the stock market to a firm's changing its method of accounting for external reporting purposes. By contrast, this study investigates the reaction of proper subsets of the stock market to changes in accounting methods–specifically, the reaction of the set of investors in the common stock of the firm which has changed its accounting measurement rules.

In their paper Messrs. Reilly and Slaughter set out two questions, namely:1. Prior to the introduction of technological advance in the securities market was there any difference in the market making between the NYSE and OTC on a sample of 30 stocks?2. Following that introduction what was the effect on the market making of these securities listed on the NYSE?The authors clearly stated the basic economic theory that underlies this exchange of assets and the price setting mechanism, and then concentrated on the empirical study. Their findings are inconsistent with their a priori expectations. This empirical study is well done; the methodology is sound and well presented. However, the authors appear to have overlooked one vital aspect of this type of study, i.e., institutional effects. I shall concentrate upon this area.

To sign option trades as buys and sells, researchers often employ stock trade classification rules including the quote, the Lee and Ready (1991), the Ellis, Michaely, and O'Hara (2000), and the tick methods. Using a proprietary CBOE dataset that reports trade direction, we find that these four rules sign correctly 83%, 80%, 77%, and 59% of all classifiable trades, respectively. These rates are based on separate classifiable samples because each of the four rules fails to classify some trades (e.g., the quote rulecannot classify midspread trades). Outside-quote and reversed-quote trades are highly misclassified by all four rules. The probability of such trades is related to trading frequency, trade size, moneyness, and maturity. Underlying asset price changes around the time of the trade improve classification precision. We find that the components of index option complex trades not executed on the Retail Automated Execution System are misclassified almost 50% of the time by any method. The elimination of these trades (15% of the sample) results in a success rate of over 87% for the quote rule.

This paper aims to develop and compare bounds on the pricing formulas for European type discrete Asian options. The lower bound is found by conditioning the maturity payment of the Asian option by the geometric average and the bound derived can be expressed as a portfolio of delayed payment European call options. Several exercise price-dependent upper bounds are derived. Like the lower bound, one of the upper bounds is expressed as a portfolio of delayed payment European call options. Through a numerical analysis, we conclude that more information is gained from the readily calculated bounds than from the usually applied pricing approximations. From the closed-form solutions of the bounds, hedging positions are finally derived.

J. Michael Pinegar, R. Ravichandran, U.S. Investors' Perceptions of Corporate Control in Mexico: Evidence from Sibling ADRs, The Journal of Financial and Quantitative Analysis, Vol. 38, No. 1 (Mar., 2003), pp. 213-230

David J. Denis, Atulya Sarin, Is the Market Surprised by Poor Earnings Realizations Following Seasoned Equity Offerings?, The Journal of Financial and Quantitative Analysis, Vol. 36, No. 2, Special Issue on International Corporate Governance (Jun., 2001), pp. 169-193