Abstract ABSTRACT: This note reports on one method currently available to insurance companies and those with insurance subsidiaries for "managing earnings," illustrates it for Sears Roebuck and Co., and concludes that Sears' management has not taken advantage of all of the income-smoothing possibilities provided by the generally accepted accounting principles for insurance companies.

Many papers have examined the of the foreign exchange markets during the current float and during the previous adjustable peg period.' An efficient market is one in which the current price fully reflects all relevant available information concerning the evolution of the system from the conditions prevailing at time t to those that will occur at t+l. The research strategy underlying this set of papers is as follows: If the markets can be shown to be efficient, then the market is setting current rates in a rational manner, given the publicly available information. The unduly fluctuations in the exchange rate2 do not result from the activities of irrational speculators, but result either from the large random shocks that impinge upon the economy or from the erratic behavior of the goverments in affecting the rate of exchange. The types of tests used to evaluate the efficiency of the foreign exchange market have been carried over from the stock market literature; and their results are ambiguous and confusing. Kohlhagen summed up the state of recent research:

Beta coefficients were initially defined by Sharpe [11] as the slope term in the simple linear regression function where the rate of return on a market index was the independent variable and a security's rate of return was the dependent variable. As indicated by Brenner and Smidt [4], accurate estimation of beta coefficients is important for at least two reasons. First, they are important for understanding risk-return relationships in capital market theory. Second, they are important for use in making investment decisions. Some confusion has appeared, however, in recent research regarding both the optimal estimation interval and the intertemporal stability of beta coefficients. The purpose of this paper is to examine this confusion and present new evidence on the estimation and stability of beta.

[Puzzle 1: Was Judge Hand correct in his celebrated judicial opinion that Alcoa's monopoly in "virgin" aluminum provided indirect control over "secondary" production? Answer: Estimates based on three models suggest that the "procompetitive" effect of recycling was largely offset by a reduction in virgin production in anticipation of future conversion into secondary. Thus, Hand's judgment appears sound. Puzzle 2: Is it in Alcoa's own interests to suppress recycling of scrap aluminum if feasible? Answer: If current users show that they value the future use of the product by selling scrap to merchants, then Alcoa is likely to value the recycling market also. If users discard scrap which is subsequently scavenged, then Alcoa is likely to be harmed by such activity.]