Statistical analyses of price series generated by auction markets has been oriented historically toward the detection of structure (or lack of structure). While the results of such studies have been mixed, insufficient empirical evidence has been obtained on the properties of the measures employed to capture the inherent behavior of the price series. The first differences of the closing price have been shown, theoretically, to be unbiased for a random walk process. The use of averages, particularly the first differences of the midrange, has been shown to introduce spurious serial dependence in mathematical time series. It is the purpose of this article to examine the properties of both the delta close and delta midrange as measures, and to perform a variety of statistical tests and analyses to establish empirically the relationship between them. The predominant effort in seeking this relationship consisted of the spectral analysis of 11 years of May potato futures prices. The results obtained support the contention that the delta midrange amplifies the delta close, and that the amount of amplification is stochastic distortion in the delta midrange.

Corporate investment in an economy without a complete set of contingent claims markets has the characteristic of a public good in the sense that the stockholders’ consumption planscannot be separated from, but depend on, the specific investment plans of the firms. Drèze [4] has shown that a constrained Pareto optimal (CPO) allocation of investment in a stock market economy must satisfy a generalization of the Samuelson [24] condition for efficient production of public goods: the investment plan should maximize a weighted sum of the stockholders’ personal valuations of future output minus current input cost. However, except for those special cases in which CPO investment plans are unanimously supported by stockholders (see [17], [20], and [2]), the theory of the firm in incomplete markets lacks a suitable maximization criterion. Although the Drèze-Samuelson condition is a most appealing candidate, it is not unanimously preferred by stockholders, each of whom prefers that his or her own valuation of future output receives all the weight in the investment decision. Furthermore, the application of the Drèze-Samuelson condition depends on the correct revelation of stockholders’ preferences, which, in the absence of special inducements, cannot be expected from economic agents.

When a unit of a multinational corporation requires short-term funding, it normally has the opportunity to obtain funds from a number of different sources, both internal and external to the country where these funds will be deployed. The possibility exists for borrowing in a currency other than the local currency of the borrowing unit. The purpose of this paper is to find the optimal currency source or sources for such a loan, when the borrowing unit can enter the forward exchange market for a term equivalent to the time to maturity of the loan.

The following proof of Modigliani and Miller's (MM) [2] famous propositions concerning the valuation of the firm and the cost of capital does not require the usual risk-class or arbitrage assumptions; the proof depends only on the Fundamental Theorem of Parameter-preference, which states that the riskpremium for security A is a linear combination of its comoments with the market index, .

Term structure theories and the related specification of estimating equations are properly viewed as part of the complex multiperiod consumptioninvestment decision, a research area which presents many analytical problems (for a review, see Long [4]). Because of both the complexity and analytical difficulties, yield curve estimation has generally utilized rather ad hoc specifications. Thus, the recent article by Echols and Elliot [1] is to be applauded because it attempts to rigorously derive a yield curve specification based upon the pure expectations model of the term structure of interest rates.

We document that a significant number of insiders violate the Securities and Exchange Commission (SEC) reporting requirements by filing open market transactions after the legally required deadline. Prior to the Sarbanes–Oxley Act (SOX), 29% of transactions fell outside the required reporting window. Following SOX, 8% are delinquent. Violations cluster in periods of high information asymmetry, incentivizing insiders to keep trades private and earn abnormal returns. Collectively, these findings suggest that a subgroup of insiders personally benefit from violating SEC disclosure requirements. Evidence also suggests that blockholders provide governance for violations. Guilty insiders experience a reduction in board seats and an increased likelihood of turnover.

The opening of equity markets to foreign investment by developing countries appears to generate an enormously large positive growth effect (see Bekaert, Harvey, and Lundblad (2005), Journal of Financial Economics 77, 3–55) in spite of a relatively small role of such markets for financing investment in most economies. We propose a spillover channel from equity market opening to lower costs of bank loans, which helps to explain this puzzle. From analyzing bank loan data associated with China’s introduction of the Qualified Foreign Institutional Investors program, we find significant support for this channel. Furthermore, we show that a reduction in the risk premium in loans is an important mechanism.

Although federal judges are the ultimate arbiters of insider trading enforcement, the role of their political ideology in insider trading is unclear. Using the partisanship of judges’ nominating presidents to measure judge ideology, we first document that liberal judges are associated with heavier penalties in insider trading lawsuits than conservative judges. Next, we find that firms located in circuits with more liberal judges have fewer opportunistic insider sales. Cross-sectional analyses show that this deterrent effect is stronger when managers face a higher risk of insider trading lawsuits. Finally, we find that the Securities and Exchange Commission considers judges’ ideology when selecting litigation forums.

We demonstrate the benefits of merging traditional hypothesis-driven research with new methods from machine learning that enable high-dimensional inference. Because the literature on post-earnings announcement drift (PEAD) is characterized by a “zoo” of explanations, limited academic consensus on model design, and reliance on massive data, it will serve as a leading example to demonstrate the challenges of high-dimensional analysis. We identify a small set of variables associated with momentum, liquidity, and limited arbitrage that explain PEAD directly and consistently, and the framework can be applied broadly in finance.

I develop a dynamic model to investigate how labor mobility impacts firms’ decisions. In the model, firms make investment and financing decisions, hire labor with different skill and mobility levels, and set wages through bargaining. The model predicts that, in response to an increase in labor mobility, high-skill firms operate with lower financial leverage, become less responsive to investment opportunities, and invest at lower rates, while low-skill firms remain unaffected. I confirm these predictions in the data using shocks to workers’ mobility across firms. The results are useful in understanding the effects of labor mobility changes driven by government policies or technological shocks, such as the rise of remote work.

Results of the analysis imply that rates of return on the property-liability portfolios included in this study are less than rates of return on either the investment company portfolios or the Standard and Poor's industrials. However, it appears that these differences are likely due to different investment objectives of the different portfolios.

In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.

Using a proprietary data set on international private equity activity, we study the determinants of buyout investments across 61 countries and 19 industries over the period of 1990 to 2017. We find that countries with cyclically strong economies, more active stock and credit markets, and better rule of law experience more buyout activity. Countries also receive more buyout capital following investor protection and contract enforcement reforms. The set of determinants we identify appear somewhat unique to buyout investments, because other forms of investment such as foreign direct investment, gross capital formation, investments in R&D, and M&A activity do not respond similarly to these factors.

The classic 1955 paper of Lorie and Savage has stimulated the development of mathematical programming approaches to the analysis of capital budgeting problems. A problem that they considered has been succinctly stated as:

given the net present value of a set of independent investment alternatives, and given the required outlays for the projects in each of two time periods, find the subset of projects which maximizes the total net present value of the accepted ones while simultaneously satisfying a constraint on the outlays in each of the two periods.

Short sale constrained stocks are overpriced on average. I show that firms exploit mispricing by selling shares when their stock is short sale constrained and repurchasing shares when their stock is easily shorted. Stocks underperform following seasoned equity offerings (SEOs) if and only if the stock is difficult to short. This suggests that some SEOs are motivated by mispricing, whereas others are not. Short selling costs make it difficult for investors to profit from the poor performance following SEOs. Short selling and SEOs are alternative ways to supply shares to investors, and firms become the low-cost share provider when short selling is costly.

The findings of this study indicate, contrary to the recent claims by Aaron [1, 2], among others, that the real estate tax on residential properties is regressive. Using a data base from a sample of household observations for FHA–HUD 203–Program single–family market sales for counties contained in five major United States Standard Metropolitan Statistical Areas (SMSAs), the statistical analyses suggest that the degree of observed regressivity varies significantly across counties and is the result of two forces. First, in many counties, the poor and de facto inequitable assessment practices are the principal causes for property tax regressivity. Second, in some counties that exhibit relatively equitable and uniform assessment practices, the end product appears to be an income regressive property tax. Hence, the property tax in these counties may be intrinsically (slightly) regressive. However, in general, if there were uniform administration of the property tax, it would be (slightly) progressive.

The work of Black and Scholes [2] and Merton [4] suggests that analysis of hedged positions in a continuous time random walk model yields powerful insights into the valuation of financial securities. The present paper extends this methodology in a straightforward fashion to foreign exchange transactions. By adopting the device of hedging in a secondary market for forward currency contracts against a long position in spot currency, a simple statement of boundary conditions for the forward position can be detailed. This allows a direct solution of the continuous time valuation problem that yields the interest rate parity theory.