In this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in a pure exchange economy. We examine a world in which asset prices follow a diffusion process, asset markets are dynamically complete, all investors maximize their (state-independent) expected utility of consumption at some future date, and investors have nonrandom exogenous income. We show that it is necessary and sufficient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition. We also examine how the dynamics of asset prices are related to the shape of the representative investor's utility function through the boundary condition. For example, in a constant-volatility economy, the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth.

This paper provides a direct test of the hypothesis that large January returns can be attributed to omitted risk factors. Data from 1926–1991 show that the January return in the smallest decile of NYSE firms dominates the January returns for all other deciles by the first-order stochastic dominance. Similarly, January returns in all deciles (with the exception of ninth and tenth deciles) dominate non-January returns by first-, second-, or third-order stochastic dominance. The presence of stochastic dominance by January returns suggests that the omitted risk factors are not likely to explain the January effect.

Paul H. Malatesta, Rex Thompson, Government Regulation and Structural Change in the Corporate Acquisitions Market: The Impact of the Williams Act, The Journal of Financial and Quantitative Analysis, Vol. 28, No. 3 (Sep., 1993), pp. 363-379

In this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in a pure exchange economy. We examine a world in which asset prices follow a diffusion process, asset markets are dynamically complete, all investors maximize their (state-independent) expected utility of consumption at some future date, and investors have nonrandom exogenous income. We show that it is necessary and sufficient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition. We also examine how the dynamics of asset prices are related to the shape of the representative investor’s utility function through the boundary condition. For example, in a constant-volatility economy, the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth.

Moon H. Song, Ralph A. Walkling, The Impact of Managerial Ownership on Acquisition Attempts and Target Shareholder Wealth, The Journal of Financial and Quantitative Analysis, Vol. 28, No. 4 (Dec., 1993), pp. 439-457

[There is substantial evidence that insider trading is present around corporate announcements and that this insider trading is motivated by private information. Using real estate investment trusts that choose to reappraise themselves as our sample, we establish that the appraisals contain information, but find no market response to the public announcement of this information in these appraisals. We consider two possible explanations for this inconsistency: the first that the appraisal information is not highlighted in earnings reports and hence remains unobserved; and the second that insiders trade on the appraisal information in the time that elapses between the appraisal and its public announcement. We find strong support for the second hypothesis, with insiders buying (selling) after they receive favorable (unfavorable) appraisal news, especially for negative appraisals. We also find that positive (negative) appraisals and net insider buying (selling) elicit significant positive (negative) abnormal returns during the appraisal period.]

Our purpose is to investigate the use of geographical segment disclosures. Specifically, we examine whether equity valuations of U.S. multinationals are affected by geographical segment disclosures mandated by Statement of Financial Accounting Standards No. 14: Financial Reporting for Segments of a Business Enterprise (henceforth SFAS 14). Our results suggest that, when unexpected segmental earnings are large, geographical segment disclosures are used. For the most part, however, we find little evidence that these disclosures affect equity values. This research is motivated by the allegation that geographical segment disclosures are essentially useless. SFAS 14 (paragraph 34) allows considerable discretion in defining reportable segments and firms employ coarse definitions, possibly because of an innate fear of disclosure (Wechsler and Wandycz [1990]) or desire to finesse dumping and international transfer-pricing questions (Balakrishnan, Harris, and Sen [1990]). It is not difficult to find anecdotal evidence of coarse segmental definitions. Caterpillar Industries had reported three geographical segments: U.S., Europe, and Other. In June 1990, the company told analysts that Brazilian operations had entered a deep slump. The stock market reaction to this announcement was minimal. A few days later, however, the company informed analysts that this slump would cause second-quarter profits to be less than half the amount reported for the

[We examine the structure of initial takeover bids and the frequency of observing competing bids and target management resistance. We find the use of cash is not consistently correlated with the frequency of competition or resistance and that the cost of acquiring information about a target is associated with the likelihood of competition and resistance. A high bid premium appears to deter competing offers and is also associated with a lower likelihood of resistance. Finally, target management resistance is associated with an increased likelihood of a competing offer arising and a larger increase in target shareholder wealth between the initial public announcement and outcome dates relative to the not-resisted subsample for both successful and unsuccessful acquisition proposals.]

We examine the structure of initial takeover bids and the frequency of observing competing bids and target management resistance. We find the use of cash is not consistently correlated with the frequency of competition or resistance and that the cost of acquiring information about a target is associated with the likelihood of competition and resistance. A high bid premium appears to deter competing offers and is also associated with a lower likelihood of resistance. Finally, target management resistance is associated with an increased likelihood of a competing offer arising and a larger increase in target shareholder wealth between the initial public announcement and outcome dates relative to the not-resisted subsample for both successful and unsuccessful acquisition proposals.