This paper examines the relationships among capital regulation, deposit insurance, and the optimal bank interest margin. In a model where loan losses are the source of uncertainty, changes in capital regulation or deposit insurance premiums have direct effects on the bank's interest margin. An increase in bank capital requirement or in deposit insurance premiums results in a reduced interest margin under nonincreasing risk aversion. Comparative static analysis also explores the relation between asset quality and interest margin. It is shown that a mean-preserving spread of the distribution of loan losses results in a reduced margin.

For many years, the stock option has been an investment device used primarily by speculators and some “sophisticated” investors. During the past few years, much more attention has been paid to options by mutual funds, insurance companies, and conservative investors who previously showed little concern for this investment alternative. The opening of the Chicago Board of Trade's exchange for the trading of options will lead to even wider interest in the area.

This paper examines the validity of two widely used methods for forming conditional predicted portfolio returns. The first method relies on a one-period, mean-variance theory of equilibrium expected return, sometimes referred to as the “capital asset pricing model” (CAPM). The second method is based upon a proposal by Markowitz [14] and is called the [market model] (MM).

A considerable amount of scholarly attention has been focused on the area of banking structure. There have been a number of studies of banking costs under differing market structures, with the goal of defining an economically “optimal” banking structure. A second major body of research has been directed at identifying the impact of given market structures on performance variables. Finally, a third group of analyses has sought an explanation of the process by which a specific structural phenomenon in banking develops and matures. It is within this third broad category of banking structure research that the results reported in this paper may be classified.

A belief frequently expressed by observers of the stock market is that groups of institutions tend to trade in the same way at the same time. Two expressions of this belief follow:Frequently reference is made to the ‘impact’ of institutional investors on the stock market. Apparently it is worrisome to the observers of the markets to find that we tend to buy and sell somewhat in unison.

R. Richardson Pettit, Randolph Westerfield, A Model of Capital Asset Risk, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 2, Supplement: Outlook for the Securities Industry (Mar., 1972), pp. 1649-1668

William R. Sloane, Arnold Reisman, Stock Evaluation Theory: Classification, Reconciliation, and General Model, The Journal of Financial and Quantitative Analysis, Vol. 3, No. 2 (Jun., 1968), pp. 171-204

We compare reactions in the prices and trading patterns of common stocks and closed-end funds (CEFs), securities with substantially different investor clienteles, to the Sept. 11, 2001 terrorist attacks. When the market reopened 6 days later, retail investors sold and there were sharp price declines, even in assets with net institutional buying. In the subsequent 2 weeks, price reversals were substantially security specific and thus not simply due to improved systematic sentiment. Consistent with microstructure theory, comparisons between CEFs and common stocks show the speed of these reversals depended significantly on the relative quality and availability of information about fundamental values.

Prior research has examined the firm-level performance implications of “busy” boards. Firm-level analysis, however, masks important heterogeneity in the time constraints and expertise of individual busy directors. We develop and validate shareholder voting as a proxy for shareholders’ satisfaction. Our director-specific tests provide compelling evidence that the potential costs of busy directors outweigh their benefits. At the same time, we uncover new sources of heterogeneity among busy directors. For example, the downsides are more pronounced for directors who sit on boards where fiscal year ends cluster in the same month. Our analysis highlights the role of shareholder voting in board composition research.

We propose a link between market structure and the resulting market characteristics—tick size, bid-ask spreads, quote clustering, and market depth. We analyze transactions data of stocks traded on the London Stock Exchange, a dealer market. We conclude that market charateristics are endogenous to the market structure. The London dealer market does not have a mandated tick size, and it exhibits higher spreads, higher quote clusterings, and higher market depth than the NYSE auction market. Clustering of trade prices is similar in London and New York.