Third Quarter (2004)

Kay Giesecke and Lisa R. Goldberg The Modigliani-Miller theorem describes conditions under which the value of a firm is independent of its leverage ratio. It is one of the cornerstones of finance. A history of this result along with a modern perspective on its derivation is given in Rubinstein (2003), Journal of Investment Management 1(2)… Read more

John J. McConnell and Alexei V. Ovtchinnikov Investment strategies of buying and holding recently spun off companies and their parents have received significant attention from the investment community in the recent past. Despite their popularity, the existing evidence on the attractiveness of spinoffs appears piecemeal. In this paper, we examine in detail the stock price… Read more

Edward Qian and Ronald Hua One of the underlying assumptions of the Fundamental Law of Active Management is that the active risk of an active investment strategy equates estimated tracking error by a risk model. We show there is an additional source of active risk that is unique to each strategy. This strategy risk is… Read more

Jacob Boudoukh, Matthew Richardson, Richard Stanton and Robert F. Whitelaw The standard VaR approach considers only terminal risk, completely ignoring the path of the portfolio value prior to this final horizon. This assumption is unrealistic interim risk may be critical in a mark-to-market environment because interim values of a portfolio may generate margin calls and… Read more

Daniel J. Bradley, Bradford D. Jordan, Jay R. Ritter and Jack G. Wolf A newly public company is subject to a “quiet period,” which restricts insiders and affiliated underwriters from issuing earnings forecasts and research reports regarding the firm for a specified period following the initial public offering (IPO). As soon as this quiet period… Read more