Knowledge that Transforms

Unequal costs of obtaining and processing information may lead to trading of securities and wealth redistributions among investors. Those investors with easy access to information about a firm may be able to profit from prior knowledge of the information before public release. Public policy making bodies such as the SEC have attempted to alleviate this phenomenon by promoting public disclosure of information through litigation and regulation of the trading activities of insiders. Whether these procedures have been successful in curtailing trading due to privileged information is still open to debate. Academicians have also been concerned with resolving the existence of asymmetrically distributed information and “efficient markets.” In spite of the social and academic importance of this phenomenon, there has been little empirical work in this area. This is primarily due to a lack of a testable theoretical framework explaining investor behavior in securities markets with asymmetric information distribution. The ensuing paper provides a tentative testable theory on trading in markets with asymmetrically distributed information as well as an empirical investigation of this theory.

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.

Ned C. Hill, Bernell K. Stone, Accounting Betas, Systematic Operating Risk, and Financial Leverage: A Risk-Composition Approach to the Determinants of Systematic Risk, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 3 (Sep., 1980), pp. 595-637

Avner Kalay, Signaling, Information Content, and the Reluctance to Cut Dividends, 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. 855-869

Morgan J. Lynge, Jr., J. Kenton Zumwalt, An Empirical Study of the Interest Rate Sensitivity of Commercial Bank Returns: A Multi-Index Approach, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 3 (Sep., 1980), pp. 731-742

Since the early work of Durand (1941), there has been considerable interest in using quantitative models of consumer credit behavior for credit-granting decisions. Most models are based on the concept of “scoring” by use of weights usually determined as statistically significant coefficients of some linear statistical model, frequently the linear discriminant model. It is the purpose of this note, however, to propose maximum likelihood estimation of the logit model as an alternative, and to compare the two models in a “scoring experiment.”

James A. Miles, John R. Ezzell, The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 3 (Sep., 1980), pp. 719-730

Michael J. Brennan, Eduardo S. Schwartz, Analyzing Convertible Bonds, 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. 907-929