David C. Mauer, Lemma W. Senbet, The Effect of the Secondary Market on the Pricing of Initial Public Offerings: Theory and Evidence, The Journal of Financial and Quantitative Analysis, Vol. 27, No. 1 (Mar., 1992), pp. 55-79

Journal Article Two-Period Financial Contracts with Private Information and Costly State Verification Get access David C. Webb David C. Webb London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 107, Issue 3, August 1992, Pages 1113–1123, https://doi.org/10.2307/2118378 Published: 01 August 1992

This paper shows that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time. The key mechanism is a thin market externality that reduces the supply of jobs when the duration of unemployment increases. The paper develops an overlapping-generations model of search equilibrium and shows that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.

The authors estimate and compare a variety of continuous-time models of the short-term riskless rate using the Generalized Method of Moments. The authors find that the most successful models in capturing the dynamics of the short-term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well-known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility. They show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk. Coauthors are Andrew Karolyi, Francis A. Longstaff, and Anthony B. Sanders.

Thomas D. Dowdell, Suresh Govindaraj, Prem C. Jain, The Tylenol Incident, Ensuing Regulation, and Stock Prices, The Journal of Financial and Quantitative Analysis, Vol. 27, No. 2 (Jun., 1992), pp. 283-301

Current literature stresses that efficient funds do not exist when asset returns are continuously distributed. This paper shows that the existence of efficient funds can be restored if security returns are generated by a linear factor model.

A key question concerning affirmative action is whether the labor-market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market. The authors argue that this depends on how the policy affects employers' beliefs about the productivity of minority workers. They study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments. The authors prove that, even when identifiable groups are equally endowed ex ante, affirmative action can bring about a situation in which employers (correctly) perceive the groups to be unequally productive, ex post. Copyright 1993 by American Economic Association.

The deterioration of the U.S. merchandise trade deficit in the 1980's fell mostly on durable goods. Using a representative-agent model, we show that the key distinction between the trade balance in nondurables and durables is the role of intertemporal prices in the latter. A decrease in intertemporal prices associated, for example, with an exchange-rate overvaluation should therefore be expected to worsen the trade balance in durables more than in nondurables. This interpretation of the compositional changes of the U.S. trade balance is supported by our econometric findings.

Abstract In the last two decades of accounting research, many studies have investigated the relation between accounting variables and risk-adjusted security returns. The earliest studies (e.g., Ball and Brown 1968) used simple, nonparametric methods and focused mainly on the question of whether accounting earnings are associated with residual equity returns. Subsequent studies made methodological refinements in both the measurement and the statistical techniques. One important statistical refinement was the "unexpected earnings response regression model" (UERRM), a linear statistical model that uses the unexpected earnings variable as a regressor to explain risk-adjusted returns.' The UERRM has become well-known, and many recent studies (e.g., Cornell and Landsman 1989, 686; Daley et al. 1988, 580; Doran et al. 1988, 392; Landsman and Damodaran 1989, 107; McNichols 1989, 15) have used some form of it as a "benchmark" model, against which to compare more complicated models. In one paradigm (so popular that it has become almost standard practice), various accounting variables are added to the UERRM, and their "incremental information content" is assessed by testing the statistical significance of their coefficients. The inferences derived from this procedure are, of course, conditional on the degree to which the UERRM is correctly specified. A critical problem caused by using a misspecified UERRM is that its least squares estimator can lead to erroneous inferences in the research design. Despite the UERRM's popularity, researchers have expressed concerns regarding its specification. For example, Lev (1989) recently surveyed a large number of research papers that used some form of an UERRM and found that for the most part R2s were low and often bordered on "the negligible." His table 1, which includes statistics from 19 studies, indicates that most reported R²s are less than 10 percent. Although low R²s are not proof of major specification problems, Lev does suggest that they are a cause for concern and may be the result of specification problems. Investigation of multiple specification problems is an important aspect of the present study because the various specification issues are interrelated. For example, nonnormality can be associated with nonlinearity, which, in turn, can be associated with heteroscedasticity or variation in the coefficients (Judge et al. 1985, 455, 814, 839). Thus, ad hoc tests for a single specification problem can be misleading and can fail to identify the fundamental problems. To our knowledge, no studies have comprehensively and formally evaluated the specification of the cross-sectional, ordinary least squares model that relates unexpected earnings to risk-adjusted security returns. Therefore, the purpose of this study is to test such a model systematically and empirically for specification problems Specifically, this study tests for nonlinearity, heteroscedasticity, residual nonnormality, omitted variables, and interfirm systematic and random coefficient variation. Also, when appropriate, adjusted R²-statistics are included to indicate the degree of misspecification information that is not directly observable from the tests themselves. A high degree of generality is obtained by using three samples of earnings forecasts as proxies for expected earnings. These were obtained from IBES financial analyst consensus forecasts, Value Line financial analyst forecasts, and COMPUSTAT-based time-series forecasts. Daily and monthly security returns are considered for short and long event-windows, respectively. In addition, one study recently published in The Accounting Review (Cornell and Landsman 1989) is replicated. The findings from all of the samples and the replication indicate that the specification error is large enough to affect conclusions regarding economic relationships. For example, in the replication, the specification problems are shown to lead to substantial instability in inferences from the model.