Allan C. Eberhart, William F. Maxwell and Akhtar R. Siddique Volume 4, Number 1, First Quarter 2006 We examine a sample of 8,313 cases, between 1951 and 2001, where firms unexpectedly increase their research and development expenditures (R&D) by a significant amount. We find consistent evidence that our sample firms are undervalued following their R&D… Read more
Articles
Great Moments in Financial Economics: IV. The Fundamental Theorem (Part I)
Mark Rubinstein Volume 3, Number 4, Fourth Quarter 2005 This is the fourth in a series of articles in this Journal examining the historical origins of key ideas in the history of financial economics. The fundamental theorem asserts: there are no arbitrage opportunities if and only if state-prices exist. Like Newton’s laws of motion, though… Read more
Decomposing and Managing Multivariate Risks: The Case of Variable Annuities
Thomas S. Y. Ho and Blessing Mudavanhu Volume 3, Number 4, Fourth Quarter 2005 The market of variable annuities has grown tremendously in recent years and has become a significant part of our capital markets. These equity and interest rate structured products offer a broad range of guarantees, whose risks are typically borne by the… Read more
Reduced Form vs. Structural Models of Credit Risk: A Case Study of Three Models
Navneet Arora, Jeffrey R. Bohn and Fanlin Zhu Volume 3, Number 4, Fourth Quarter In this paper, we empirically compare two structural models (basic Merton and Vasicek- Kealhofer (VK)) and one reduced-form model (Hull-White (HW)) of credit risk. We propose here that two useful purposes for credit models are default discrimination and relative value analysis… Read more
Default Correlation in Reduced-Form Models
Fan Yu Volume 3, Number 4, Fourth Quarter 2005 Reduced-form models have proven to be a useful tool for analyzing the dynamics of credit spreads. However, some have recently questioned their ability to match the level of empirical default correlation. The key concern appears to be the assumption that defaults are independent conditional on the… Read more
Revisiting the Slope of the Credit Curve
David Lando and Allan Mortensen Volume 3, Number 4, Fourth Quarter 2005 The term structure of interest rates contains information about the market’s expectations of the direction of future interest rates. Similarly, the term structure of credit spreads contains information about the market’s perception of future credit spreads. The term structure of credit spreads is… Read more
Investment Banker Directors and Affiliated Analysts’ Forecasts
Murali Jagannathana and Srinivasan Krishnamurthy Volume 3, Number 3, Third Quarter 2005 Equity research analysts of investment banks have been subjected to significant regulatory scrutiny and enforcement action in recent years. Specifically, two major issues have attracted legal attention: (1) whether analysts favorably bias their forecasts to secure investment-banking business, and (2) whether selective disclosure… Read more
NASDAQ-100 Index Futures: Intraday Momentum or Reversal?
Susana Yu, Joel Rentzler and Avner Wolf Volume 3, Number 3, Third Quarter 2005 This paper explores the intraday behavior of the NASDAQ-100 futures index for momentum and reversals. A multiple regression model simultaneously (1) relates today’s intraday returns to yesterday’s and last night’s returns, and (2) estimates how the relationship changes with the signs… Read more
Regulation Fair Disclosure and Volatility: An Intraday Analysis
Robert B. Mendelson, Rajneesh Sharma and Daniel G. Weaver Volume 3, Number 3, Third Quarter 2005 Regulation Fair Disclosure (Reg FD) prohibits selective disclosure policies by companies. This study uses a sample of earning announcements before and after Reg FD to examine the impact on trade size, share volume, number of transactions per day, intraday… Read more
Call Protection in Convertible Bonds: How Much and Why?
Timo P. Korkeamaki and William T. Moore Volume 3, Number 3, Third Quarter 2005 This article is drawn largely from “Convertible Bond Design and Capital Investment: The Role of Call Provisions,” published by the authors in the Journal of Finance, Volume 59, 2004, pp. 391-405. The authors are indebted to colleagues at the University of… Read more