Knowledge that Transforms

The problems associated with the investment horizon and systematic risk estimation have been investigated in some detail. Jensen [7] has shown that investment horizon has some impact on the estimated systematic risk; Cheng and Deets [1] have raised some questions about Jensen's instantaneous systematic risk estimation method; Lee [9] has derived the relationship between the estimated instantaneous systematic risk and the estimated finite systematic risk; Levhari and Levy [11] have shown that there exist some relationships between the magnitude of estimated systematic risk and the length of investment horizon; based upon Zellner and Montimarquette's [19] time aggregation technique, Lee and Morimune [10] have shown that the investment horizon problem can be treated either as a time aggregation problem or as a specification problem. However, systematic risk estimates in terms of additive and multiplicative rates of return have not been investigated in detail. The purpose of this paper is to employ the time aggregation technique proposed by Zellner and Montimarquette [19] to investigate the impact of time aggregation on systematic risk associated with the market model. It is shown that autocorrelation and variation in market rates of return are two important factors in determining the magnitude of the estimated systematic risk associated with additive as well as multiplicative models.

The mean-variance portfolio model of Markowitz and Tobin has been the most substantive contribution to the theory of individual asset demand under uncertainty, in terms of comparative static results and testable implications. Although subject to a number of criticisms at the axiomatic level, it still stands as the classic portfolio model. The general equilibrium extension of the Tobin-Markowitz model due to Sharpe [14], Lintner [9], and Mossin [11] has led to important propositions about the nature of risk in general equilibrium and its effect on the pricing of assets, and the model has subsequently been subjected to extensive empirical testing. It has been used for a variety of purposes in areas ranging from corporate-finance theory to the debate on the social discount rate.

The Capital Asset Pricing Model (CAPM), an equilibrium model for the price determination of risky assets, was developed by Sharpe [16], Lintner [9, 10] and Treynor [21], following the pioneering work of Markowitz [12, 13] and Tobin [20]. In spite of the tremendous impact of this model on the profession, the CAPM still raises many questions, and is inconsistent with a considerable body of empirical evidence.

Dileep R. Mehta, Edward A. Moses, Benoit Deschamps, Michael C. Walker, The Influence of Dividends, Growth, and Leverage on Share Prices in the Electric Utility Industry: An Econometric Study, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 5 (Dec., 1980), pp. 1163-1196

W. W. Higgins, B. J. Moore, Market Structure Versus Information Costs as Determinants of Underwriters' Spreads on Municipal Bonds, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 1 (Mar., 1980), pp. 85-97

Gabriel A. Hawawini, Ashok Vora, Evidence of Intertemporal Systematic Risks in the Daily Price Movements of NYSE and AMEX Common Stocks, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 2 (Jun., 1980), pp. 331-339

Since the early 1960's the European capital market has witnessed rapid growth as a source of short- and long-term dollar denominated funds to international borrowers and as an alternative investment area to potential lenders. While considerable work has analyzed the determinants of short-term dollar denominated Eurorates (Eurodollar yields), less work has concentrated on the determinants of long-term dollar denominated (Eurobond yields under floating rates and post-capital controls.

Marvin J. Karson, Terrence F. Martell, On the Interpretation of Individual Variables in Multiple Discriminant Analysis, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 1 (Mar., 1980), pp. 211-217

Eli Talmor, A Normative Approach to Bank Capital Adequacy, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 4, Proceedings of 15th Annual Conference of the Western Finance Association, June 19-21, 1980, San Diego, California (Nov., 1980), pp. 785-811

Anthony Saunders, Charles Ward, Richard Woodward, Stochastic Dominance and the Performance of U. K. Unit Trusts, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 2 (Jun., 1980), pp. 323-330