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

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Despite apparent implications of normative portfolio theory for portfolios that incorporate a wide variety of marketable security forms, most of the literature concerned with application or empirical testing of the theory has considered portfolios composed only of common stocks, cash, and the proverbial riskless bond. However, nonequity securities constitute a significant component of investors' total financial wealth, and broadly diversified securities portfolios are commonplace. The objectives of this paper are to examine the risk characteristics of 19 classes of long-term marketable securities, ranging from U.S. government bonds to speculative common stocks, and to explore some implications of these characteristics for diversification of actual securities portfolios. The first section presents some risk measures for these security classes which are derived from ex post holding period return data for the 18 years, 1951–1968. This section includes an appraisal of the efficacy of alternative approaches to the generation of the matrix of interrelationships among the returns of broad types of securities. The second section utilizes the ex post risk measures to explore the composition of minimum risk portfolios consisting of two types of marketable securities, and the final section considers the question of appropriate media for the efficient diversification of common stock portfolios.

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It has been a pleasure and a worthwhile experience to serve as President of the Western Finance Association (WFA) and to have had the opportunity to work with its officers and committee chairmen over this past year. In the brief history of the Association, our organization has come a long way in becoming firmly established due to the strong interest of its members and to the dedicated support of its officers and working committees. I wish to take a few moments to publicly acknowledge the services of a few who have given vital support to the activities of the Association during the past twelve months.

A recent study by Larner [11] concluded that the managerial revolution analyzed earlier by Berle and Means [4] was close to completion because a large percentage of the nation's 200 largest nonfinancial corporations was controlled by nonowner managers. This finding makes more significant any substantial differences in financial performance that may exist between owner-controlled and manager-controlled firms, and it increases the potential impact of numerous related theories; for example, see Berle [3], Donaldson [5], Gordon [6, 7 ], Mason [14], Monsen and Downs [16], Williamson [21], and others.