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.

An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

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.

TIONS." Although any papers which fit into the general topic area will be considered, highest priority will be given to papers dealing with the management of financial institutions. We would like to see papers which apply developed theory to the problems facing the managers of financial institutions. Papers developing new theory with potential application or those which present actual applications are included in this priority. The intent is to develop the link between theory and practice as much as possible within the general confines of the topic area.

The pivotal role of earnings expectations in equity valuation and therefore in certain areas of business finance is widely recognized, yet there is little theoretical or empirical evidence as to the manner in which investors and other groups actually formulate their estimates of future earnings. The resulting necessity to utilize proxy or indirect measures of expected earnings specified largely according to the predispositions of the investigator has led to numerous difficulties in the testing of cost of capital propositions and models of equity valuation.1 This study is intended to supply a preliminary response to the question of how earnings expectations are determined by appraising the extrapolative component of a limited sample of short-term estimates of earnings per common share. More specifically, the issues are the extent to which the earnings estimates (1) are extrapolative in nature and (2) may be approximated by familiar, naive, extrapolative techniques. In this context, “extrapolative” simply means determined by application of a specified weighting scheme to prior observations in the time series.

Money, conventionally defined as demand deposits and currency held by the nonbank public, has two principal functions. It serves as a medium of exchange and as an asset conferring perfect liquidity on the holder.Savings deposits in commercial banks, savings and loan associations, mutual savings banks, credit unions, and the postal savings system are almost like money. For all practical purposes, they are perfectly liquid assets, or at least considered as such by depositors, and therefore substitutable for asset money. Because interest is paid on savings deposits, and not on demand deposits (except for an implicit return received through checking services provided below cost), it can be reasonably argued that the long-term asset demand for money (money that people expect to hold over six months) is considerably less than it would be in the absence of savings deposits. This does not mean, however, that the sum of currency, demand deposits, and savings deposits measures what the demand for money would be if savings deposits did not exist. Some savings deposits are certainly held in lieu of nonmonetary assets.

Wilbur W. Widicus, Jr., A Quantitative Analysis of the Small Business Investment Company Program, The Journal of Financial and Quantitative Analysis, Vol. 1, No. 1, Proceedings of the First Annual Meeting of the Western Finance Association (Mar., 1966), pp. 81-111

The continuing discussion on the cost of capital and related Issues has tended to focus on the capital market conditions, necessary to guarantee the validity of particular conclusions Works by F Modlgllani and M. H. Miller [4, 5, 6] and J Lintner [2], for example, are developed in this manner. The following discussion is developed from the standpoint of a firm borrowing funds in an uncertain world. An example expressed in terms of an individual borrower begins the analysis. The aim is to suggest a different approach to the capitalization and costing of contractual obligations (debt) than those current in both the theoretical and applied literature. A model is developed which expresses the cost of debt to the borrower as a function of both the expected rate and the promised rate of the debt contract. Using this analytic structure, the relationship between the two rates and the Implications of using either one as the cost of debt to the firm are explored. An hypothesis as to the behavior of the borrower (management and shareholders) provides a third expression for the cost of debt which is suggested to be superior to either alternative.