The properties and characteristics of financial ratios have received considerable attention in recent years with interest primarily focused on determining the predictive ability of financial ratios and related financial data. Principal areas of investigation have included the prediction of corporate bond ratings [13, 20, 23, 34], and the anticipation of financial impairment [1, 2, 3, 5, 6, 7, 18, 19, 29, 32, 33, 35]. Related studies have examined the characteristics of merged firms [25, 28], the differencesin financial ratio averages among industries [9, 10], whether firms seek to adjust their financial ratios toward industry averages [15], the relationship between accounting-determined and market-determined risk measures [4, 8, 24], and the influence of financial ratios on analysts' judgments about impending bankruptcy [14, 17]. The general conclusion to emerge from these various research efforts is that a number of financial ratios have predictive and descriptive utility when properly employed.

Charles W. Noland, Assessing Hedonic Indexes for Housing, The Journal of Financial and Quantitative Analysis, Vol. 14, No. 4, Proceedings of 14th Annual Conference of the Western Finance Association, June 21-23, 1979 (Nov., 1979), pp. 783-800

This paper is concerned with empirical measurement, analysis, and comparison of the returns expected by investors in U. S., German, French and Japanese equity markets. The expedited return to equity is a pivotal concept in capital market theory because of the concern of this theory with analyzing relationships between expected returns to the general market and expected returns to individual securities. Because the expected equity returns are not directly observable, the approach almost uniformly taken in the empirical testing of capital market theory is to make additional behavioral assumptions beyond those contained in the basic theory that enable it to be translated into an analysis of market relationships among ex-post returns. Empirical tests then become tests of both the basic theory and the appended assumptions. A new approach to the empirical testing of capital market relationships is to develop empirical approximations to the returns expected in the equity market, and to employ these expectational measures to directly test capital market relationships. This paper formulates and examines this approach. Empirical approximations of the expected equity return for a representative group of major international stock exchanges are formulated, estimated, and analyzed, leading to a direct test of the International Asset Pricing model in its original form.

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In an earlier paper [1] a model of securities markets was introduced which implies that the ratio of transaction volume to price change is greater for transactions on which price rises than for those on which price falls. Examination of individual transactions data for a sample of corporate bonds showed that price changes and transaction volumes for those securities appears to behave in a manner consistent with the theory. However, the paper raised the question of whether the same is true for stocks. The positive dependence on share price of broker commissions for stocks could easily eliminate, or even reverse the sign of, the predicted positive difference between the absolute values of slopes of buyers' and sellers' reservation demand functions; and it is this difference which leads the model to predict the inequality of the ratios of volume to price change on upticks and downticks. This note records the results of tests of the model with stock data, using volumes and price changes pertaining both to individual transactions and to trading days. The tests indicate that the ratios of volume to price change exhibit the predicted relationship, when one of the two possible measures of volume is employed.

Models of return generation for securities are potentially important for a number of reasons, including their possible utility in normative portfolio construction. Multi-index models of the process are frequently suggested as an alternative to the familiar single-index models, but, while the multi-index models are intuitively appealing, their empirical superiority remains largely undemonstrated. This paper examines the extent to which three multi-index models succeed in eliminating dependence in the return residuals for a portfolio of common stocks. The relevance of this research lies in the promise that, while obviously requiring additional inputs to determine the efficient set of portfolios, multi-index models may succeed in identifying a more accurate set of efficient portfolios.

Professor Jennings, in his recent article [2], developed a model to estimate convertible bond premiums. The model incorporates the capital asset pricing model to evaluate convertible bonds. The purpose of this comment is not to criticize the general development of the model but to point out flaws in its implementation which influence Jennings' empirical results.

Over the past fifteen years we have seen an enormous increase in the theoretical and empirical literature in the field of finance. This outpouring of academic research has had a substantial impact on the content of finance courses including the introductory course. However, the changes in content at the introductory level appear to me to have been evolutionary rather than revolutionary. Textbooks contain more analytical and theoretical material, but this material is provided within traditional structures. The contents of the chapters have changed but not the titles of chapters nor the sequencing. With minor changes in wording I would guess that course outlines of today appear little different from those of ten years ago. I am not particularly disturbed by these observations, but I believe it is time to take a close look at what we are doing to our students, and I would like to explore the possibilities of a more coherent approach to the introductory course.

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Ronald W. Melicher, Financial Factors which Influence Beta Variations within an Homogeneous Industry Environment, The Journal of Financial and Quantitative Analysis, Vol. 9, No. 2 (Mar., 1974), pp. 231-241