Risk measures, Market-determined risk, Accounting-determined risk, Association study

Christopher B. Barry, Effects of Uncertain and Nonstationary Parameters Upon Capital Market Equilibrium Conditions, The Journal of Financial and Quantitative Analysis, Vol. 13, No. 3 (Sep., 1978), pp. 419-433

issue of this Journal, Bierman 2 and Hass (BH) construct a steam roller for the purpose of cracking a nut.BH's paper is essentially an attempt to use subjective probabilities to set yields on new bond issues.I am concerned primarily with the first two-thirds of their paper (pp.757-67), which, in my view, contains a number of statements that are seriously misleading.The first section of this comment will briefly summarize those portions of pp.757-67 of their paper.The second section contains the comment itself, plus a few observations on the final portion of their paper. I.(1) Assuming a risk-neutral buyer of debt issues and given what they call the "probability of survival" (P), BH show how to obtain the "required" yield on a new risky perpetuity (their equation 4, p. 759).They use a perpetuity in order to avoid, at the outset, the complications created by the fact that (risky) borrowers must also, in every case, make not only interest payments but also payments on principal.They then state as their conclusions to this initial section of their paper that: Deceased, formerly University of North Carolina, Chapel Hill.The

The finance literature has devoted considerable attention to the study of yields, yield spreads, and rating classification for fixed income securities. In the corporate market, authors such as Hickman [6], Johnson [7], Sloane [9], and Van Home [12] have investigated the behavior of yields and yield spreads over time. Johnson found that the yield differential, defined as the corporate yield minus the equal maturity Treasury rate, was unrelated to maturity. Van Home found that this differential widened during recessionary periods; he interpreted this to reflect either a higher default probability or greater investor risk aversion. In his important paper published in 1959, Lawrence Fisher [4] employed cross-sectional data at five points in time to relate corporate yield spreads to four key variables which serve as proxies for default and marketability risks. Pogue and Soldofsky [8] extended Fisher's approach to explain not corporate bond yield spreads but rather bond ratings. As explanatory variables, Pogue and Soldofsky chose several measures of the firm's income and debt capacity.

The new ‘supershare’ securities proposed by Hakansson (1977, 1976) are subject to the same sort of rickless-hedge combinations as are other forms of secondary securities such as stock options. In consequence, the prices of supershares must, even in the absence of distributional assumptions, obey certain pricing relationships with each other and with the underlying primary security. When the primary security is assumed in addition to follow a geometric Brownian motion process, exact supershare valuation formulae of the Black-Scholes (1973) type are obtained. The ‘hedge portfolio algebra’ of Garman (1976) is employed to make the analysis concise.

Since early 1956 Citizens Utilities Company has had two classes of common stock which are virtually identical in all respects except dividend payout. One class pays only stock dividends, the other class pays only cash dividends, and the corporate charter requires that the dividends per share on the two classes be of equivalent value. Under an I.R.S. ruling granted to Citizens Utilities in 1955 and a ‘grandfather clause’ in the 1969 Tax Reform Act, the stock dividends are not taxable as ordinary income. (No other publicly held firm has such a ruling and, in general, the 1969 Act made stock dividends of this type taxable.) Given these circumstances, the price-dividend history of the Citizens Utilities shares provides a view of the effects of alternative payout policies which, to an exceptional degree, is free of confounding factors. Close examination of this history implies that, if anything, claims to cash dividends have commanded a slight premium in the market over claims to equal amounts (before taxes) of capital gains.

central objective of this paper is to present a series expansion of nonlinear estimators in order to facilitate an analysis of the distributions of such estimators. Where the estimator under consideration is a maximum likelihood estimator, the method provides somewhat more information, as well as higher order approximations to the distributions of the nonlinear estimators than does the usual theory which demonstrates asymptotic normality. The method is also useful for a wide class of estimators including those defined only implicitly by the estimating procedure. Approximations to the distributions of the nonlinear estimators can be obtained in many cases even when the moments do not exist. In any event, it is to be hoped that the analytic procedures discussed in this paper will simplify the analysis of specific cases and will shed more light on the general formulation of nonlinear estimation problems. The remainder of this paper is in four sections. The first section presents the basic theory and analyzes the asymptotic distributions of nonlinear estimators in correctly specified models. This is followed in the second section by a brief discussion of a number of interesting examples. The third section compares the approach outlined in this paper with the traditional maximum likelihood and general nonlinear series expansions. In the fourth section the approximate asymptotic distribution of the regression residuals is derived. The general statement of the model to be considered in the following sections is given by:

A number of empirical studies would seem to cast doubt upon the neo-classical view of the supply side of an economy. Estimates of Cobb-Douglas production functions and the apparent procyclical movement of real wages would seem to contradict the assumption of diminishing returns to labor and the implication of neo-classical theory that factors of production are paid the value of their marginal product.' Recently, Lucas (1970) and Sargent and Wallace (1974) have outlined a theory that could reconcile these statistical results with a basically neo-classical view of supply relationships; essentially, they suggest that these paradoxical empirical observations are the result of specification error, of aggregating labor and wages over straight-time and overtime work shifts. This paper reports an attempt to evaluate empirically both the allegations against the neo-classical view and the Lucas-SargentWallace response within the context of the Canadian economy. In the first section, evidence concerning the diminishing returns to aggregate Canadian labor and the cyclical behavior of average real Canadian wages is presented. In the second, the effect of disaggregating labor is discussed. Conclusions will be found in the last section.

The bank financial management process involves assets, liabilities, and factors external to the bank and thus is multivariate. Because variables such as deposits, loans, or interest rates are often related with a time lag to another variable such as investments, the process is also dynamic. Although the research work of Aigner [1], Aigner and Bryan [2], Anderson and Burger [3], Bryan [6], Bryan and Carleton [7], Fraser and Rose [10], Hester and Pierce [13], and Melnik [14] has dealt with the multivariate aspect of the process, the consideration of dynamic properties in empirical work has been limited.