Donald R. Chambers, Willard T. Carleton, Donald W. Waldman, A New Approach to Estimation of the Term Structure of Interest Rates, The Journal of Financial and Quantitative Analysis, Vol. 19, No. 3 (Sep., 1984), pp. 233-252

With the formation of a formal market for the trading of financial futures in October 1975, a renewed interest in the futures contract as an investment vehicle has emerged. The traditional approach was to view investing in futures as a way of off setting potential price risk associated with a given spot position. While these descriptive scenarios (see [3], [6], [10], [12], [13], [14], and [19]) adequately illustrate the traditional hedging strategy, their simplifying assumptions introduce a lack of realism into the investment process. The implication drawn from many of these articles is that, if one is interested in risk reduction, one should simply take the opposite position in the appropriate number of futures contracts to totally offset one's existing spot position.

The purpose of this paper is to analyze the errors made by professional forecasters (analysts) in estimating earnings per share for a large number of firms over a number of years. We have demonstrated in a previous paper that consensus (average) estimates of earnings per share play a key role in share price determination. In this paper, we examine consensus estimates with respect to the following questions: (1) What is the size and pattern of analysts' errors? (2) What is the source of errors? (3) Are some firms more difficult to predict than others? (4) Is there an association between errors in forecasts and divergence of analysts' estimates

The Standard Fixed Payment Mortgage (SFPM) has been the dominant mortgage instrument in the United States for the last 50 years, and for much of this period it has performed well. However, during periods of high and volatile rates of inflation, the SFPM suffers from severe weaknesses. Foremost among these problems, from the standpoint of the borrower, is the tilt in the stream of real mortgage payments toward the initial years of the mortgage. For consumers unconstrained by capital market imperfections, this tilt is unimportant. However, a consumer is typically unable to borrow against expected higher future income, or against the nominal capital gains that accrue to the owner of a house over the life of the mortgage. In addition, common practices of mortgage lenders often limit mortgage payments to some fraction of income at the time of purchase. Together, these liquidity constraints create a mismatch between the time sequence of mortgage payments and income, a mismatch that reduces the number of borrowers who qualify for financing and that limits the value of the house purchased by those who do obtain financing.

Terry E. Dielman, Henry R. Oppenheimer, An Examination of Investor Behavior During Periods of Large Dividend Changes, The Journal of Financial and Quantitative Analysis, Vol. 19, No. 2 (Jun., 1984), pp. 197-216

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Empirical studies of the behavior of stock returns are important for several reasons. First, the nature of stock return behavior is fundamental to the formulation of the concept of “risk” (or “uncertainty”) in various financial theories and models. Second, the measurement of risk depends heavily on properties (such as the stationarity, long-tailedness, finiteness of the second and higher moments, etc.) of empirical stock return distributions. Third, various tests for the empirical validity of financial models [28] and the applications of these models (e.g., to the evaluation of investment performances [21], [22]) rely to a considerable extent on the steadiness over time of stock return distributions and the constancy of systematic risk. Fourth, several important pricing models for stock options, warrants, convertible debentures, and other similar financial instruments usually require explicit estimates of stock return variances [5]; the usefulness of such models depends largely on the adequacy (e.g., the finiteness, accuracy, etc.) and the stationarity of the variance measurements.

The group of issues that falls under the heading of bank capital adequacy has received a great deal of attention from academics, regulators, and bankers in recent years and is likely to continue as a subject for debate for many years to come. Although the traditional questions debated in the literature on capital adequacy are important and remain unresolved, this paper is not directed at them. Instead, the approach here is to examine how bank regulators operating within the existing legal structure of regulation can pursue optimal policies with respect to the regulation of bank capital

Previous analyses of market structures characterized by gradual information dissemination presume the equilibrium price existing after all market participants are informed is independent of the order of information dissemination. In these papers, final market clearing price, given the investors' posterior beliefs, is known a priori and is assumed to equal the price that would exist if data were disseminated simultaneously. We demonstrate that final equilibrium price is dependent, in general, on the order of information dissemination. This implies that, if the dissemination sequence is stochastic, price is unknown prior to the complete dissemination of information, even if the investors' posterior beliefs given the information event are known. We derive a necessary and sufficient condition for equilibrium price to be independent of the dissemination sequence in our economy. Our analysis highlights the importance of the wealth redistribution dynamics inherent in the information dissemination process

In recent articles, Myers, Dill, and Bautista [15] (MDB) and Franks and Hodges [7] (FH) provide valuable contributions to the leasing literature. MDB derive a simple formula for lease valuation in a Modigliani-Miller world with corporate taxes. The paper by FH presents a simpler derivation of the same formula. FH also extend MDB's analysis to consider the empirically significant case of a lessee company currently in a non-tax-paying position, but which expects to resume paying taxes at some (specified) future date. The work of FH is important here in laying bare the economics of leasing. Temporary non-tax-paying lessees joining tax-paying lessors in non-zero-sum contracts; however, their paper leaves the problem as a programming application. This paper explores the difference equations underlying the MDB-FH approach for finding the adjusted present value of the lease contract. It is found that the order of the system of difference equations depends on the treatment of taxation complexities. Also described is a simple procedure for solving these higher-order difference equations to find the appropriate adjusted discount rates to use in MDB's lease valuation formula, extending its application to these more complex tax situations. The paper is set out in six sections