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

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This paper studies the relationship between real interest rates and housing using a microeconomic approach. The primary impact of interest rates is on the demand side. The partial equilibrium, comparative static model of demand behavior presented is based on intertemporal preference maximization subject to a multiperiod income constraint. The model is always in terms of real prices and interest rates and operates in discrete time. Consumer preferences are represente by a smooth utility function which depends on two kinds of goods, housing and other nondurables. This study is couched in a neoclassical framework with all markets assumed perfect unless otherwise specified. With this approach the theory of housing and interest rates becomes part of standard consumer theory, rather than being based on inappropriate present value considerations

Russell J. Fuller, Sang-Hoon Kim, Inter-Temporal Correlation of Cash Flows and the Risk of Multi-Period Investment Projects, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 5 (Dec., 1980), pp. 1149-1162

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Bradford Cornell, The Denomination of Foreign Trade Contracts Once Again, 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. 933-944

Where rates of return are perfectly correlated, risk reduction through diversification cannot be achieved. Where rates of return are less than perfectly correlated, however, then, to the extent that these interrelationships can be known, modern portfolio theory provides a framework in which risk reduction through diversification can be achieved. Markowitz was the first to give rigorous content to the concept of portfolio diversification [14], and to introduce a formulation for treating portfolio selection as a mathematical optimization problem. In order to facilitate application of his own covariance approach, Markowitz first suggested [15, pp. 96–101], and Sharpe later developed a market model formulation according to which it is assumed that the rates of return on various securities “are related only through common relationships with some basic underlying factor” [18, p. 281]. More than 25 years have passed since Markowitz introduced his original formulation, and the literature dealing with the portfolio selection problem that he identified has grown considerably since then. Unfortunately, many problems remain which prevent full and effective implementation of this framework for investment analysis.

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.