Donald G. Simonson, Comment: The Predictive Content of some Leading Economic Indicators for Future Stock Prices, The Journal of Financial and Quantitative Analysis, Vol. 9, No. 2 (Mar., 1974), pp. 259-261

This research provides improved techniques for analyzing the after-tax risk exposure of taxable institutions holding amortizing instruments such as commercial, real estate, and consumer loans. We derive after-tax duration for amortizing instruments and analyze it for sensitivity to tax rates, coupon, and maturity. Taxable investors who hedge and ignore the effects of taxes on amortizing instruments will underestimate differences in durations on bonds versus amortizing instruments of equal maturities; bond durations increase much faster as tax rates increase. One unexpected result shows that, unlike bond duration, amortizing instrument duration often increases with coupon rate, and sometimes is independent of coupon rate.

Commercial banks have been the subjects of a large body of empirical research employing regression and econometric models and discriminant analysis. The purpose of this paper is to empirically identify and describe relationships, including hedging behavior, between the asset side and the liability/capital side of the balance sheets of a cross-section of large U.S. banks. Canonical correlation analysis is the statistical technique that is employed. Unlike regression analysis which explains the behavior of a single dependent variable as a function of a set of independent variables, canonical correlation analysis relates two sets of variables. In the present case, one set of variables is the composition of the lefthand side of the balance sheet and the other set is the right-hand side. The variables used in this study are asset and liability/capital categories expressed as a proportion of total bank assets (i.e., a percentage breakdown of the balance sheet or a common size statement). These proportions are used in lieu of the more usual financial ratios and no information exogenous to the bank is employed.

PART ONE: Introduction to Bank Management: The Changing Nature of Bank Management Understanding a Bank's Financial Statements A Model for Measuring Returns and Risks in Banking Evaluation of a Bank's Performance PART TWO: Basic Asset, Liability and Capital Decisions: Measuring and Providing Reserves and Liquidity Managing the Security Portfolio Trends in Acquisition and Cost of Bank Funds Capital Planning, Adequacy and Generation Capital Acquisition and Management PART THREE: Managing the Loan Portfolio: The Bank Credit Organization Lending Principles and the Business Borrower Commercial Lending Consumer Lending Special Markets for Bank Loans Part Four: Integrative Bank Financial Decisions: Interest Margin Sensitivity and Management Advanced Alternatives for Measuring and Managing Interest Rate Risk Innovations in Products and Pricing Bank Mergers and Acquisitions International Banking Long Range Planning for Future Performance.