The purpose of this paper is to provide evidence that the Bureau of the Census' X–ll program for seasonal adjustment [3] overstates the incidence of seasonality in some forms of times series data. This problem arises in a recent study by Bonin and Moses [1] (hereafter B-M) indicating that 7 of the 30 Dow Jones Industrial stocks exhibited persistent seasonal patterns during the period July 1962 through June 1971.

It is widely accepted that percentage price changes in lower coupon (“deep discount”) bonds will exceed those of issues with higher coupons [see, e. g., 8 and 9 ]. Cramer and Hawk's recent article in this journal [5], in fact, utilized this assumption although no exact empirical verification was sought. In an efficient market, the existence of such capital gains opportunities would be expected to attract investors and thereby reduce any risk-adjusted advantage to these bonds. Indeed, Conard and Frankena found that exactly this riskadjustment phenomenon seems to occur [4, pp. 162–163]. Thus, the purpose of this note is to address the question: Have the deepest discount bonds actually provided the greatest capital gains opportunities during periods of falling interest rates? In doing so, the paper does not question the validity of the mathematical “linkage” between price and coupon; rather, it seeks to determine if market structure (e. g., investor preferences) leads to a breakdown in the assumed (traditional) price volatility-coupon level relationship.

The bank financial management process involves assets, liabilities, and factors external to the bank and thus is multivariate. Because variables such as deposits, loans, or interest rates are often related with a time lag to another variable such as investments, the process is also dynamic. Although the research work of Aigner [1], Aigner and Bryan [2], Anderson and Burger [3], Bryan [6], Bryan and Carleton [7], Fraser and Rose [10], Hester and Pierce [13], and Melnik [14] has dealt with the multivariate aspect of the process, the consideration of dynamic properties in empirical work has been limited.

This study is concerned with establishing the determinants of banks' exposure to risk and with predicting risk in banking. Using the COMPUSTAT data base, prediction rules have been developed for two aspects of risk: systematic risk (risk that is related to covariance with the market portfolio) and residual risk (the aggregate of specific risk and extra-market covariance). For each type of risk, several models have been estimated: one model employs only measures of the asset and liability characteristics of the bank; a second employs these characteristics and other data taken from annual reports; a third model adds the history of the behavior of the price of the bank's common stock. The central conclusion of the study is that systematic and residual risk in banks can be predicted from predetermined data. Prediction rules estimated in this way can serve a useful function in monitoring bank risk.

This study presents theory and some exploratory empirical work on several separate strands of monetarism in an international context and reports the results of tests of the two interrelated hypotheses: (a) the United States' monetary expansion was responsible forthe exportation of inflation to the rest of the world during the period of generally fixed exchange rates that lasted from the end of World War II until August 1971 (followed by the Smithsonian revaluations and generalized floating in March 1973), and (b) foreign nations could not control their money supplies, even in the short run, to prevent importing inflation. Succinctly stated, the monetarist approach to macroeconomic phenomena holds that money is preeminent in determining the short-run shocks to real output and the long-run price level of an economy. However, received theory is simply not clear as to whose money is most important in an international context. Is it the domestic money stock which is kept relativelyindependent of foreign forces under fixed exchange rates through astute central bank policy, at least in the short run? Is it the rest of the world money stock which, under fixed exchange rates, is a close substitute for domestic money? Or is it the money stock of the so-called world's banker, the United States, which drives foreign economies? We address these issues and others in our empirical analysis.

In a recent article, Modigliani and Pogue [2] raised the issue of “leverage bias” in portfolio performance measures. Specifically, they contended that the value of the Jensen's alpha (α) could be affected by borrowing or lending at the risk-free rate, while the Treynor index (TI) does not suffer from this shortcoming. They illustrated this effect through the use of a graphical example similar to the one in Exhibit I where A and B are two unlevered portfolios with the same α's but different TI's. Modigliani and Pogue argued that by leveraging, i.e., borrowing at Rf, the portfolio with the greater slope (TI), A, could attain a levered portfolio AL which clearly dominates portfolio B. In other L words, the line with the higher TI will dominate the line with a lower TI regardless of α values. This seems to imply that, in general, TI is a better measure of ex post portfolio performance, and that ranking based on TI's is consistent and invariant to the leverage effect, while ranking based on a's is not.

The world is still recovering from the shock of radically higher energy prices triggered by the October 1973 war in the Mideast. In the months following the oil embargo and the quadrupled price of petroleum, there seemed to be a very real possibility that the strains imposed on world markets and institutions, and indeed on national economies, would cause a fracture in one or another part of the complex linkages that make up the world economic system.

The purpose of this paper is to investigate the performance of propertyliability insurance companies' stock portfolios from 1952 to 1968, and to show how that performance compared to the general stock market and investment company performance.

In recent years the cost of fuel to operate power plants for electric utilities has increased much faster than many utility executives and regulators have anticipated. In the presence of substantial regulatory lag in adjusting rates, stockholders have had to absorb the difference between revenues and unanticipated increases in fuel expenses. In an effort to shorten the time required for increased costs to be reflected in increased prices to consumers, many firms have been allowed to use an automatic fuel adjustment clause (FAC) to pass on increased costs to consumers as they occur. The FAC usually allows the firm to adjust the price of electricity when the price of fuel deviates from some fixed base price. Presently more than 40 of the 50 state regulatory commissions allow some type of FAC.

In a recent paper published in this journal [1], Bierman and Hass (BH) developed a model in which the risk differential that an investor would require to compensate him for the risk of default is stated as a function of the following variables: the probability of default on annual interest payments, (1-P1); the probability of default on the principal payment at the end of the maturity of the bond, (1-P2); the default-free rate, i, and the maturity, N.

In a recent issue of JFQA, Aucamp and Eckardt [1] (henceforth referred to as AE), developed a new sufficient condition for the existence of a unique (and simple) nonnegative internal rate of return (IRR), which includes the one previously formulated by Norstrøm [8] as a particular case. As pointed out by the former authors, their new procedure is appealing since it is easier to apply than the rather involved Sturm-Kaplan [6] method, while being a refinement of Norstrøm's result.

In a series of recent articles ([2], [3], [4], [5]) R. B. Porter and his associates have conducted empirical comparisons of the Mean-Variance (EV) and Stochastic Dominance portfolio choice criteria. The basic methodology of all these studies was first to compute the set of EV-efficient portfolios by an optimizing algorithm, then to find through heuristic methods “stochastically dominant” portfolios, and finally to compare the two. A major finding of these studies was that most EV-efficient portfolios survived the second-degree stochastic dominance (SSD) test against the randomly generated portfolios. The purpose of this note is to show that, for all cases of practical interest, a portion of the EV frontier is a subset of the SSD-efficient set. In other words, we offer here an exact theoretical justification of some empirical results of the aforementioned studies.

Recent economic research efforts in rate of return regulation of public utilities have for the most part been couched in a static, steady-state framework, “Averch-Johnson” hypotheses being the most obvious examples [3]. Nevertheless, standard classical microeconomic analysis of rate of return regulation seems to have two important drawbacks: first, it does not address itself to multiperiod relationships; and secondly, it cannot be represented in current-practice financial terms. This paper first outlines rate of return regulation as typically practiced. It then describes the essential features of a model designed to examine intertemporally the financial and capital expansion decision tradeoffs a public utility faces given corporate, institutional, and regulatory constraints. Decision tradeoff questions have assumed substantial policy importance in recent years not only because of the ambiguities in rate of return regulation effects conceptualized in the Averch-Johnson literature but because of the behavioral (occasionally legal) importance of purely financial constraints, such as interest coverage requirements, on corporate investment and financing choices.

Dynamic policies for corporate finance have mostly been studied under conditions of certainty. Financial optimal control models (Davis [3], Krouse [5], Inselbag [4], and Senchack [7]) are characterized by time-varying, state-dependent policy formulations: when and to what extent should earnings retention, borrowing, and debt repayment, new stock issues, and capital investment be varied over an extended planning horizon. Optimal policies generated by these (and other) dynamic deterministic models tend to exhibit a bang-bang phenomenon: switching instantaneously from one extreme to another in a managerially unpalatable way. Dividends are either nonexistent or all of net earnings; borrowing is either absent or at the limit of what banks and the bond market will allow. This sort of policy behavior is acceptable only in a completely deterministic world. Investors would tolerate such extremes since they know that their share, when it finally comes and even after discounting, would still be larger than by any other policy. However, with uncertainty, a balance between dividends now and capital gains later must be struck which will better satisfy investor preferences.

In [2], I gave a solution of an extended cash balance problem which disallows overdrafts and shortselling. This solution is incorrect. To show this, we produce a counterexample constructed by Carl Norstrøm. In the notation of the note [2], let x0 = 0, y0 = 3, d(t) = 0, α = 0, T = 10, M1 = M2 = ∞

and r2 (t) = .1. Applying the procedure in [2] to this problem, we obtain the policy of impulse-selling all the securities at t = 0. On the other hand, it is obvious by inspection that the optimal policy is to keep the securities until t = 5, at which time, turn them into cash by an impulse-sale. We note, in passing, that the solution by inspection in this case is possible because there is no bounds on the control variable.