Commonly defined, a market is efficient if prices always fully reflect available information. That market might be viewed as consisting of two major segments: an information market and pricing mechanism. The efficiency has been amply documented elsewhere. The information market, however, should be afforded increased attention. In particular, the efficiency of the information market may vary across securities and with respect to particular securities, across time. Stated another way, the degree of imperfection in the information market may vary across securities and across time, resulting in a relative efficiency phenomenon. The presence of such a phenomenon would offer research opportunities yielding a greater understanding of the functioning of the information market and the pricing of securities.

The purposes of this article are two. Some extensions to Mayers’ [1] classical work on portfolio building in the presence of nonmarketable assets are presented. In addition the implications of certain simple forms of taxation and redistribution are investigated.

As the multinational corporation (MNC) becomes the norm rather than the exception, the need to internationalize the tools of domestic financial analysis is apparent. A key question is: What cost-of-capital figure should be used in appraising the profitability of foreign investments? This paper seeks to provide a comprehensive approach to analyze the cost-of-capital question. It begins by extending the weighted cost-of-capital concept to the multinational firm. It then builds on previous research to address the following related topics: national or multinational financial structure norms; the role of parent company guarantees; the costing of various fund sources particularly when exchange risk is present; the impact of tax and regulatory factors; risk and diversification; and joint ventures.

One of the innovative and successful new markets developed in recent years has been the registered exchange for the trading of option contracts. Key innovations provided by the option exchanges include the standardization of some contractual terms and the creation of a central clearing corporation to serve as issuer and obligor of each option contract, thus severing the contractual link between a specific option writer and buyer. These changes have facilitated the trading of existing call options in the secondary market and have provided increased liquidity, continuous public reporting of prices, better information on trading volume and open positions, and reduced transaction costs.

Guilford C. Babcock, Comment: Duration and Bond Portfolio Analysis, The Journal of Financial and Quantitative Analysis, Vol. 13, No. 4, Proceedings of Thirteenth Annual Conference of the Western Finance Association, June 20-26, 1978 (Nov., 1978), pp. 683-685

The rising cost of funds internationally is forcing multinational corporations to pay more attention to effective cash management on a global basis. However, the available literature is preoccupied with cash management in only one currency. This is a serious oversight given the heavy involvement of U.S. firms overseas. In 1970, for example, the ratio of foreign source earnings plus income from abroad (royalties, fees, service charges) to total U.S. corporate after-tax profits was over 25 percent [14]. If export and import activities were included, this statistic would be more impressive yet.

There is still a great deal of doubt whether we can avoid a capital shortage as economic recovery proceeds. In the near term, one sign of an impending capital shortage will be the appearance of bottlenecks in the industrial sector of our economy. Presently the data on capacity and its utilization are seriously defective.The Federal Reserve Board, in order to remedy the deficiency of the data, is improving its series on utilization rates. The new series in general will show that we have substantially less unused capacity than indicated by the old series.My preliminary reading of the improved data, ne ertheless, is that we need not be greatly worried about major bottlenecks well into 1977.Thereafter, the pace of recovery will be a critical factor. If the economy expands very rapidly, we may not have time to put in place enough capacity to avoid shortages. A moderately paced recovery will give us more time to produce the plant and equipment.

The financial experiences of the last two years impel a careful and wide-ranging review of the stability of our major types of financial institutions. That review ought to be followed by actions to redress weaknesses or proclivities that, upon analysis, are judged to contribute an undesirable degree of instability within the financial system.

Richard C. Aspinwall, Discussion: Implications of Recent Banking Developments for Financial Stability, The Journal of Financial and Quantitative Analysis, Vol. 10, No. 4, 1975 Proceedings (Nov., 1975), pp. 611-613

It is not uncommon on occasions such as this to talk about the shortcomings in the theory of Finance, and to emphasize how little progress has been made in answering the basic questions in Finance, despite enormous research efforts. Indeed, it is not uncommon on such occasions to attack our basic "mythodology, " particularly the "Ivory Tower " nature of our assumptions, as the major reasons for our lack of progress. Like a Sunday morning sermon, such talks serve many useful functions. For one, they serve to deflate our professional egos. For another, they serve to remind us that the importance of a contribution as judged by our professional peers (the gold we really work for) is often not closely aligned with its operational importance in the outside world. Also, such talks serve to comfort those just entering the field, by letting them know that there is much left to do because so little has been done. While such talks are not uncommon, this is not what my talk is about. Rather, my discussion centers on the positive progress made in the development of a theory of Finance using the continuous-time mode of analysis. Hearing this in.1975, amidst an economic recession with a baffling new disease called "stagflation " and with our financial markets only beginning to recover from the worst