Abstract. This first study of Canadian securities' earnings forecasts published by Institutional Brokers Estimate System (IBES) focuses on changes in the mean earnings per share forecasts of 159 to 188 companies from 1985 to 1987. Cumulative average residuals are used to detect the announcement effects of large earnings forecast revisions. The main results of this study are the following. First, an investor with access to changes of earnings per share forecasts at the beginning of the month of publication could realize abnormal excess returns. Second, trading strategies based on earnings forecasts revisions can also yield abnormal returns, but the magnitude of the revision, the sector of the company, and the month in which the revision is realized must be considered. Third, when financial analysts' forecasts are published, the informational content of large revisions in forecasts has already been discounted by the market. This result is similar to findings of U.S.– and U.K.–based studies. Finally, large forecasts revisions coincide with a period of abnormal returns. However, the information content of the announcement of forecasts changes cannot be established. The gains are larger if the trade is undertaken before the diffusion of the forecast revision to the IBES subscribers. These results do not vary with the model chosen to predict company returns. This does not necessarily indicate the existence of a market inefficiency because information acquisition and analysis costs, as well as transaction costs, may diminish considerably these abnormal trading gains.

ABSTRACT Share price reactions to announcements of 61 private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80% is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is “out‐of‐the‐money” at issuance.

Share price reactions to announcements of sixty-one private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80 percent is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is "out-of-the-money" at issuance.

Abstract. This study extends the growing literature on the deteminants of the variation in the relationship between unexpected earnings and abnormal security returns (the earnings response coefficient). We hypothesize that the firm's default risk as measured by financial leverage would affect the earnings response coefficient. We test this hypothesis by partitioning firms according to (1) the existence of debt in the capital structure (all‐equity versus levered firms) and (2) the level of leverage (low‐leverage versus high‐leverage firms). The results are generally consistent with our hypothesis. Specifically, we find that the earnings response coefficients are larger for all‐equity and low‐leverage firms vis‐à‐vis matched‐levered and high‐leverage firms, even after controlling for the effects of equity beta, persistence, risk premium, and measurement error in unexpected earnings. Our findings are also robust with respect to the choice of earnings measure, either before or after interest charges. Résumé. L'étude s'inscrit dans le prolongement des travaux de plus en plus nombreux portant sur les déterminants de la fluctuation de la relation entre les bénéfices imprévus et les rendements anormaux des titres (le coefficient de réponse des bénéfices). Les auteurs posent l'hypothèse que le risque de non‐paiement de l'entreprise, mesuré en termes de levier financier, influe sur le coefficient de réponse des bénéfices. Les auteurs testent cette hypothèse en classant les entreprises selon 1) l'existence ou non de capitaux empruntés dans la structure du capital (entreprises dont les capitaux sont exclusivement des capitaux propres par rapport aux entreprises dont les capitaux sont en partie empruntés) et 2) l'importance du levier financier (entreprises dont le levier financier est faible par rapport aux entreprises dont l'importance du levier financier est élevée). Dans l'ensemble. les résultats confirment l'hypothèse. De façon plus précise, les coefficients de réponse des bénéfices sont plus élevés pour les entreprises dont les capitaux sont exclusivement des capitaux propres et les entreprises dont le levier financier est faible, par rapport aux entreprises, classées selon la taille et le secteur d'activité, dont les capitaux sont davantage constitués de capitaux empruntés et dont le levier financier est élevé, même lorsque sont contrôlées les répercussions du bêta des capitaux propres, de la persistance, de la prime de risque et de l'erreur de mesure des bénéfices imprévus. Les résultats de leur étude résistent également à l'analyse lorsqu'ils font intervenir le choix de la mesure des bénéfices, avant ou après avoir tenu compte des intérêts débiteurs.

The model of this paper generalizes the classical theory of consumer behavior to the more general case of prices that are not necessarily market-clearing. Suppose that, in addition to the money cost, some sort of search, waiting, or other quasi-fixed "effort cost" is needed to obtain goods. The presence of this quasi-fixed cost element will trigger an inventory policy. A shortage equilibrium occurs when effort costs are such that, in the corresponding inventory policy, the flow of desired consumption does not exceed the available supply flow. Stock hoarding, a critical phenomenon in the economics of shortage, emerges as a natural component of this model. A complete characterization of a stationary shortage equilibrium is given. Comparative statics and welfare analysis are performed. The dynamic transition between steady states is analyzed to give insight into the mechanics of how shortages develop. Copyright 1991 by American Economic Association.

The model of this paper generalizes the classical theory of consumer behavior to the more general case of prices that are not necessarily market-clearing. Suppose that, in addition to the money cost, some sort of search, waiting, or other quasi-fixed "effort-cost" is needed to obtain goods. The presence of this quasi-fixed cost element will trigger an inventory policy. A shortage equilibrium occurs when effort costs are such that, in the corresponding inventory policy, the flow of desired consumption does not exceed the available supply flow. Stock hoarding, a critical phenomenon in the economics of shortage, emerges as a natural component of this model. A complete characterization of a stationary shortage equilibrium is given. Comparative statics and welfare analysis are performed. The dynamic transition between steady states is analyzed to give insight into the mechanics of how shortages develop.

Michael L. Wachter, William L. Wascher, Leveling the Peaks and Troughs of the Demographic Cycle: An Application to School Enrollment Rates: A Reply, The Review of Economics and Statistics, Vol. 73, No. 3 (Aug., 1991), pp. 575-576

This study investigates the stability of long-run log-linear demand functions for narrowly defined monetary aggregates (M1, Monetary Base) in the U.S. during the post World War II period. The hypotheses that the individual time series which appear in such equations (real M1, real Monetary Base, real Personal Income and short-term and long-term nominal interest rates) all have unit roots cannot be rejected. The primary conclusion of this study is that with proper attention to the time series properties of the available data, there exists strong evidence in support of a stable equilibrium demand function for real balances in the post-World War II U.S. economy. The hypothesis of a unitary equilibrium real income elasticity (a velocity function) cannot be rejected. Further, the estimates of equilibrium interest elasticities are approximately -.5 to -.6 for real M1 and -.4 to -.5 for real monetary base. The estimated interest elasticities are significantly different statistically depending on whether long- term or short-term interest rates are used, but the observed differences in these estimates are not of economic significance.