Knowledge that Transforms

Following a report of a possible seasonal in Australian share prices [Praetz (1973)], a study was made of the behaviour of share returns using different data and methodology to that of the original report. The test included forecasts of the seasonal using Box and Jenkins methods. Although the results indicate some evidence of a seasonal, it is shown that this is not prima facie evidence of market inefficiency. It is suggested that a more likely explanation is related to the structure of the economy, e.g., changing opportunity cost of money through the year.

In this paper, two possible premiums for delayed risks are presented and compared. It is shown that one of them possesses some properties usually considered desirable for ‘roulette gambles’ while the other definition does not meet the same requirements. Finally, the response of both premiums to increased wealth is discussed. The analysis of this problem sheds some light on the basic difference between delayed risks and roulette gambles.

This paper tests prediction of returns on stocks using a direct estimate of the minimum variance zero beta portfolio z. The composition of this portfolio is implicit in Black's paper on capital market equilibrium in the absence of riskless borrowing or lending. Portfolios of stocks drawn from the same industries are used to estimate z. The predictions of Black's equilibrium return equation are compared with those of cross-sectional regressions of return on risk.

This paper examines the ‘accuracy’ of information and its effect on social welfare. Information is defined to be more accurate than the existing information if individuals are willing to revise their subjective, homogeneous beliefs based on the new information. In a pure exchange economy where individuals may differ in endowments and tastes, it is shown that, for all utility functions satisfying risk aversion and non-satiation, the receipt of more accurate information does not increase social welfare (in terms of ex-ante Pareto-optimality) even when such information production is costless. This represents a more rigorous analysis on several issues that are not clear in the Marshall (1974) paper. Using the HARA class of utility functions, this paper also addresses the relationship between information and borrowing and lending, and the effect of information on the risk-free rate of interest.

In this paper, the portfolio and the liquidity planning problems are unified and analyzed in one model. Stochastic cash demands have a significant impact on both the composition of an individual's optimal portfolio and the pricing of capital assets in market equilibrium. The derived capital asset pricing model with cash demands and liquidation costs shows that both the market price of risk and the systematic risk of an asset are affected by the aggregate cash demands and liquidity risk. The modified model does not require that all investors hold an identical risky portfolio as implied by the Sharpe-Lintner-Mossin model. Furthermore, it provides a possible explanation for the noted discrepancies between the empirical evidence and the prediction of the traditional capital asset pricing model.

This paper attempts to clarify the apparent conflict between the recent contribution of Stiglitz and Smith (S-S) and the established Modigliani-Miller (M-M) leverage theorem. The two approaches differ in their treatment of asset creation. Whereas M-M restrict their discussion to a given set of competitive asset markets, S-S consider the addition of an extra asset to the original systems.

Internal control, Internal control system, Decision making, SAS No. 1

Cost information, Cost report, Timing, Expected value of information