This paper examines the variance of hourly market returns during 1964-89. Results indicate that return volatility falls from the opening hour until early afternoon and rises thereafter, and is significantly greater for intraday versus overnight periods. Market variance is also shown to change significantly over time, rising after NASDAQ began in 1971, rising after trading in stock options began in 1973, falling after fixed commissions were eliminated in 1975, rising after trading in stock index futures was introduced in 1982, and falling after margin requirements for stock index futures became larger in 1988.

This paper considers the Arbitrage Pricing Theory when investors have incomplete information on the parameters generating asset returns. Each asset in the economy may have a different amount of information available on it. Bayesian investors use their prior beliefs in conjunction with the total available information to assign an expected return and a set of factor betas to each asset. The assigned expected returns are shown to be linear in their associated factor betas. However, the factor betas and prices of assets differ from those under complete information. Specifically, risky assets with high (low) information are priced relatively higher (lower). On the other hand, factor betas of high (low) information assets are relatively lower (higher). The analysis has econometric implications for testing the APT. In this paper's framework, maximum likelihood estimates of factor betas, which are based on normality assumptions, are too high (low) for high (low) information assets. In addition, sequentially increasing the sample size by adding new securities to a factor analysis procedure can result in the detection of apparent additional priced factors when they do not really exist.

This paper develops an equilibrium factor pricing theory when investors have heterogeneous beliefs about asset payoffs generated by the Ross linear factor model. Investors receive private information about the unknown parameters of the payoff process. They use this private information and equilibrium prices to predict asset payoffs. The paper develops a closed form price function for a noisy rational expectations equilibrium and relates it to the general solution. Even though we allow for a large number of investors, diversity of beliefs and parameter uncertainty both persist in equilibrium. We show that investors' beliefs about expected payoffs are approximately linear in the asset's betas, thus establishing the APT. As investors prefer to hold high information assets in equilibrium, the relative weight of these assets in the APT pricing bound is higher. The reverse is true for low information assets.

Generally, utilities issue straight fixed-rate preferreds, industrials issue convertible fixed-rate preferreds, and financials issue adjustable-rate preferreds. The corresponding announcement-period common stock abnormal returns are economically insignificant for utilities, negative and significant at the 0.05 level for industrials, and positive and significant at the 0.10 level for financials. Information effects explain the cross-sectional results for industrial firms, but tax benefits and/or regulatory conditions are more likely explanations of the results documented for financial corporations and utilities. Returns to preferred stockholders support neither the wealth redistribution- hypothesis nor the price-pressure hypothesis.

This study examines the relation between the change in operating performance of firms which merge and whether the acquiring firm offered cash or stock as the method-of-payment. We examine how operating performance changed for a sample of 413 combinations. The results indicate that the change in performance of the merged firms is significantly larger for cases in which the acquiring company offered cash as compared to stock offers. The results are not sensitive to whether the combination involved a tender offer or a negotiated merger, to offer size, industry relatedness between the bidder's and the target's businesses or bidder leverage.

Preface Introduction Investing Decisions: Changes in Organizational Structure Investing Decisions: Changes in Ownership Structure Financing Decisions and Capital Structure Financial Policy Operating Decisions: Earnings and Forecasts The Market for Corporate Control Defense Tactics in the Market for Corporate Control Management Compensation and the Managerial Labor Market Management Response to Investor Decisions Bibliography Index

We investigate the relation between outside director compensation and the investment opportunities of firms. The sample of cases is drawn from the period 1996 to 2001. We find that elements of outside director compensation are significantly related to the investment opportunity set. Firms with more investment opportunities pay a higher level of compensation to their outside directors than firms with fewer investment opportunities. In addition to paying more total compensation, firms with greater investment opportunities compensate directors more heavily with stock-based forms of compensation than with cash. The result is consistent with the hypothesis that board compensation policy is designed to: (1) attract directors whose marginal productivity interacts with the investment opportunities of the firm to produce the maximal gain, and (2) mitigate agency problems. We also document a positive relation between total compensation of outside directors and firm size. A separate analysis indicates the results are economically significant. We conclude that firms pay more and emphasize incentive-based compensation to motivate outside directors to act in the interests of shareholders when the costs of monitoring are high.

‘Antitakeover’ amendments are amendments to a corporation's charter that impede the ability of an ‘outsider’ to gain control of the firm. A number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them. This paper employs event-time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them. The results indicate that the announcement of such amendments is associated with a positive revaluation of stock price. Contrary to the concerns of their critics, we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective.

Numerous studies have examined the impact of security issuance upon the value of pre-existing debt and equity but the focus has largely been on changes in equity value. We examine changes in senior unsecured debt risk premiums that accompany new junior debt issues. Additionally, we test several hypotheses regarding the potential impacts of junior debt issues. Extant theory suggests senior debt value may be threatened under certain conditions by the issuance of junior debt. Our results indicate that when junior debt replaces bank debt, senior default risk premiums experience abnormal declines. The result is broadly consistent with the elevation of the senior unsecured debt by way of the elimination of a separate and more senior class of debt claimants. In contrast, we also find that larger junior bond issues are associated with abnormal increases in senior risk premiums, broadly consistent with issue size being correlated with negative information about firm cash flows. We find strong evidence of interaction effects. For example, replacement of bank debt results in greater changes in default risk premiums the larger the issue size. We also find lower credit ratings magnify other effects. For example, if the junior debt issued matures before the outstanding senior unsecured bond, senior risk premiums experience abnormal increases for lower rated debt.