Ettore F. Infante, Jerome L. Stein; Optimal Growth with Robust Feedback Control12, The Review of Economic Studies, Volume 40, Issue 1, 1 January 1973, Page

In so far as the concept of systematic risk is predicated on the Sharpe-Lintner theory of capital market equilibrium [5, 4], the time-horizon of systematic risk must conform with the time-horizon of market equilibrium. Since it has been suggested that market equilibrium is instantaneous [3, p. 188], it would follow that systematic risk should also be instantaneous. This paper is, therefore, concerned with the evaluation and measurement of instantaneous risk. Although Jensen [3] has made a similar attempt in a much larger study, we have reason to believe it is not satisfactory. We shall then begin in Section I by discussing Jensen's approach to the horizon problem. In Section II, an alternative procedure of evaluating systematic risk is suggested. Section III concludes the paper by comparing estimates of instantaneous risks based upon weekly returns of 30 Dow-Jones stocks. The motivation behind the paper is obvious. A correct formulation of instantaneous systematic risk is not only a logical extension of the capital market equilibrium theory but is also a yardstick for measuring portfolio performance in terms of risk and return.

The field of investment analysis provides an example of a situation in which individuals or corporations make inferences and decisions in the face of uncertainty about future events. The uncertainty concerns future security prices and related variables, and it is necessary to take account of this uncertainty when modeling inferential or decision-making problems relating to investment analysis. Since probability can be thought of as the mathematical language of uncertainty, formal models for decision making under uncertainty require probabilistic inputs. In financial decision making, this is illustrated by the models that have been developed for the portfolio selection problem; such models generally require the assessment of probability distributions (or at least some summary measures of probability distributions) for future prices or returns of the securities that are being considered for inclusion in the portfolio (e.g., see Markowitz [11] and Sharpe [19]).

This article empirically examines the motivations that management of a firm might pursue in making accounting changes. The 100 sample firms selected for the study were stratified according to whether or not they had received at least one consistency qualification during the ten-year period of 1959-68. Implicit in the use of size as the variable in the testing of the foregoing hypothesis is the assumption that larger firms have their financial performance subject to greater scrutiny in the financial press. Such an assumption seems realistic in view of the fact that larger firms generally have more stock outstanding and more stockholders, thus making news about those companies of interest to more persons. Data on industry classification were gathered so that it could be determined whether this characteristic had any effect on the number of consistency qualifications received. Firms receiving at least one consistency qualification were found to differ from firms that received no such qualifications with respect to both size and auditor.

Abstract This article presents information on a study to examine the reliability of published predictions of future earnings. Reliability was examined by comparing predicted earnings with actual earnings for the same period. Reliability in this study was based on the degree of agreement between predicted earnings and actual earnings. Therefore, "reliability" was not used in the sense of declaring predicted earnings reliable or unreliable, but was used in the sense of the degree of closeness to being right. The study was restricted to examining the reliability of earnings predictions that could be included in the annual financial statements. Therefore, the first data requirement was that the earnings predictions be published in the Wall Street Journal within such a time period that the predictions could also be in the annual financial statements for the previous year. The Securities and Exchange Commission requires that annual reports of listed companies be issued no later than 120 days after the end of a firm's fiscal year.

Abstract The article presents a solution for allocating reciprocal earnings and a procedure for selecting an accounting method for the indirect and multiple ownership of firms. Preparing consolidated statements for complicated inter-ownership situations can be difficult. Thus, it is curious that the textbook presentations of allocating reciprocal earnings are, at best, incomplete and, at worst, conceptually wrong. That the final allocation adds to the same sum as the original set of earnings does not prove the correctness of the procedure. Perhaps the simplest explanation would be to describe the intermediate quantity for a given company as the net income that is reported on its income statement when it properly accounts for its investments in other corporations' securities. Each company's net income includes its own operating results counted several times--once as its own operating results and again as the investment income from other companies whose stock is mutually held. For both allocating earnings and choosing the right accounting method, the matrix-based procedures are straightforward conceptually, easy to prove correct and lead to an interpretation of the underlying problem when the procedures are initially inoperable for allocating earnings.

Abstract The article comments on professor Ronald V. Hartley's article on linear programming models of a joint cost problem considered in managerial accounting textbooks. Unfortunately, linear programming models do not readily admit demand functions into their structure. The result is that the optimal production schedule arising from such a model is conditional on a particular set of prices and that the demand function must be accommodated in a separate analysis which Hartley calls a "price-demand analysis." The question is how the effect on profit of such overproduction can be represented in the decision model. Hartley notes another case that cannot be completely accommodated by a linear model. It is the case in which all or part of the excess production will be taken by the market if the price on all units of that product is lowered. This paper recommends reformulation of the joint cost problem as a nonlinear programming problem in which a demand function is given explicit representation. The nonlinear model simultaneously determines the optimal price and output policies, and its application is less likely to lead to confusion and error.

Abstract This article presents information on Inventory Valuation. The rule for valuing inventory by lower of cost or market is given in Statement 6 of Chapter 4 of Accounting Research Bulletin No. 43. As used in the phrase "lower of cost or market," the term "market" means current replacement cost by purchase or by reproduction, as the case may be except that, Market should not exceed the net realizable value i.e., estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and Market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin.

Abstract The article assesses the feasibility and desirability of adopting a report issued by the Study Group on Introductory Accounting titled "A New Introduction to Accounting." An analysis of the recommended modules and topics reveals that many of the subject-matter suggestions are not really innovative. Consequently, any discussion of the feasibility and desirability of adopting the Study Group's recommendations can be limited to the specific suggestions that would require significant revision of the traditional first-year accounting curriculum. Given the imposed school-calendar and classroom-time constraints, it appears that only the first three innovations listed in the article can be feasibly adopted. If much less time is devoted to the discussion of bookkeeping procedures, the instructor should be able to greatly increase the emphasis placed on the use of accounting data in resource allocation decisions. If it is conceded that non-accounting majors do not need exposure to such topics as closing entries, trial balances, work sheets, and special journals, then it must be concluded that at least 80%of the class benefits by the shift in emphasis.