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

This paper proposes a model that a dealer or investor may employ in determining• The potential investment value of a debt instrument, • The potential gains in net after-tax yield which result from swaps, and• The trade-off, effective, after-tax yield on a municipal vs a taxable corporate bond of the same quality or rating.

This study investigates whether the difference in individual shareholder tax rates between dividend income and capital gain (the dividend tax penalty) affects a firm's choice between distributing funds to shareholders through dividends or share repurchases. The results of this study suggest that, in periods in which the dividend tax penalty increases, firms are more likely to distribute funds to shareholders through share repurchases as opposed to dividends. The results also indicate that the relation between the dividend tax penalty and corporate payout choice is affected by the types of shareholders who own stock in the firm. As tax-disfavored institutional ownership increases and the dividend tax penalty increases, firms are more likely to repurchase shares as opposed to distributing dividends. In contrast, as tax-favored institutional ownership increases and the dividend tax penalty increases, firms are less likely to repurchase shares as opposed to distributing dividends. As senior managerial share ownership increases and the dividend tax penalty increases, firms are more likely to make distributions to shareholders in the form of share repurchases.

According to conventional wisdom, industrial country floating exchange rates contain unit roots. SUR tests on panels of monthly Group of Ten (G-10) log nominal rates reject the null of unit roots for various samples over the current float with significance levels from 0.5% to 15%. On average, in out-of-sample forecasts mean reversion models beat random walks significantly in some forecast periods. For monthly data, the range of expected USD-DEM appreciation rates exceeds 15% per year in the mean reversion model. Mean reversion places strong restrictions on international models: over the sample period, the G-10 had to run monetary policies consistent with stable long-run nominal rates.

This study directly tests the ability of several competing methods to identify market buy and sell orders using intra-day quote and trade prices, and identifies factors that affect the accuracy of the methods. Lee and Ready's (1991) algorithm performs about the same as the tick test, but the performance of both methods is worse than expected. The results show that the use of either algorithm to classify trades can lead to significantly biased estimates of effective spreads and signed volume, but the tick test provides better estimates of effective spreads and signed volume than Lee and Ready's method. I. Introduction The use of intra-day prices in empirical studies of securities markets is increasingly common and studies frequently require trades be identified as buyer or seller initiated. Unfortunately, most data sets do not identify trade direction. Methods have, however, been proposed that allow trade direction to be inferred from adjacent prices and quotes. The accuracy of these methods and the implica? tions for microstructure research are still unresolved issues in large part because trade direction is unobservable in most financial data sets. This study directly tests the ability of several competing methods to iden? tify market buy and sell orders using intra-day quote and trade prices. The tests are conducted using the TORQ database, a unique data set the New York Stock Exchange makes available to researchers that contains information on trades, quotes, and orders. Using the tick tests and Lee and Ready's (LR hereafter) (1991) method to classify trades as buys or sells, and comparing the results to the direction of the actual orders, I directly test the accuracy of the classification algorithms. The tests also identify the factors that affect the accuracy of the clas? sification methods. Additional tests demonstrate that using these algorithms can lead to biased inferences in two of their most common applications: estimating effective spreads and signed volume trading. Test results also show that the tick

Existing research finds little evidence of overinvestment by successfully acquired targets. This paper shows how samples drawn from completed takeovers are biased against finding overinvestment and documents evidence of overinvestment in targets that use a highly lever? aged transaction to avoid a takeover. The evidence also suggests that these restructurings create value by mitigating the targets' overinvestment problems. I. Introduction Jensen's (1986) free cash flow theory implies that some firms become takeover targets because their managers inefficiently allocate free cash flow to unprofitable investments. Empirical studies of completed takeovers by Morck, Shleifer, and Vishny (1988), Bhagat, Shleifer, and Vishny (1990), and Servaes (1994), among others, however, do not support this prediction. Nonetheless, these studies do not mean that free cash flow is unimportant in the market for corporate control. Both Jensen (1986) and Stulz (1990) suggest the threat of a disciplinary takeover can prompt firms to curtail overinvestment of free cash flow. Therefore, the absence of overinvestment in successfully acquired firms does not rule out the possibility that this problem characterizes many takeover targets. It is plausible that the threat of takeover systematically leads overinvesting firms to reduce investment. In this paper, I examine firms that use leveraged restructurings to thwart takeover attempts. Jensen (1986), (1989) argues that increased leverage bonds managers to pay out their excess cash flow instead of overinvesting. I begin with a simple model to show how takeover bids can lead to leveraged restructurings. This model suggests that successful acquisitions will be associated with bidder, but not target, overinvestment. The intuition is simple: a leveraged restructuring commits a firm to paying out its excess cash flow, eliminating the need for a disciplinary takeover. To the extent that these restructurings defeat takeover attempts, studies *Leavey School of Business, Santa Clara University, Santa Clara, CA 95053. An earlier version of this paper was titled, What Role Does Overinvestment Play in the Market for Corporate Control? I am grateful to Rene Stulz, David Mayers, John Persons, and Ralph Walkling for their helpful guidance. Thanks are also due to Jonathan Karpoff (the editor), Henri Servaes (the referee), Yaron Brook, Patric

This paper examines the relation between the market reaction to primary seasoned equity offerings and alternative measures of the profitability of the issuing firm's growth opportunities. While the sample offerings display a positive relation between announcement period prediction errors and several ex ante measures of growth opportunities, this relation is not monotonic and appears to be driven by a small subset of younger, higher growth firms, whose announcement effects are insignificantly different from zero. For the remainder of the sample firms, there is no relation between the estimated profitability of new investment and the market reaction to announced equity offerings. Moreover, announcement effects are nonpositive regardless of how profitable investment opportunities are expected to be. These findings collectively suggest that investment opportunities play, at best, a minor role in explaining the cross-sectional distribution of equity offering announcement effects.

This study examines the hypothesis that in the presence of market frictions, relative put and call prices contain information concerning future returns of the underlying asset. A measure of relative prices is derived from the put-call parity relationship for index options and applied to a three-year sample of OEX option transactions. The results show that the measure of relative index option prices leads the stock market by at least 15 minutes.

Thomas J. Finucane, Black-Scholes Approximations of Call Option Prices With Stochastic Volatilities: A Note, The Journal of Financial and Quantitative Analysis, Vol. 24, No. 4 (Dec., 1989), pp. 527-532

This paper extends the default model of yield spreads for bonds by showing that, in general, they are a complex function of maturity and, in particular, are not always monotonically increasing, contrary to what one traditional view suggests. Our results may help explain the apparently conflicting empirical results found in the literature.