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 Department: Department of Finance, Insurance, Real Estate and Law
 Degree Level: Doctoral
Arbitrage Pricing Theory and the Capital Asset Pricing Model: Evidence from the Eurodollar Bond Market

Arbitrage Pricing Theory and the Capital Asset Pricing Model: Evidence from the Eurodollar Bond Market

Date: May 1988
Creator: Jordan-Wagner, James M. (James Michael)
Description: Monthly returns on twenty-seven Eurobonds from July 1982 to June 1986 were examined. There were no consistent differences in returns based on the country in which a firm is located. There were consistent differences due to industry classification, with energy-related firms exhibiting higher average returns and variances. Excess returns were calculated using the capital asset pricing model and arbitrage pricing theory. The results from calculation of mean average deviation, root mean square, and R2 all indicate that the arbitrage pricing theory was a better descriptor of the Eurobond market. The excess returns were also examined using stochastic dominance. Arbitrage pricing theory never dominated the capital asset pricing model using first-order criteria, but consistently dominated using second-order criteria. The results were discussed in terms of the implications for investors and portfolio managers.
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Information Content of Managerial Decisions, Change in Risk, and Complimentary Signals: Evidence on New Bond Issue, Exchange Offer, and Dividend Payments

Information Content of Managerial Decisions, Change in Risk, and Complimentary Signals: Evidence on New Bond Issue, Exchange Offer, and Dividend Payments

Date: August 1988
Creator: Iqbal, Zahid
Description: The effect of a change in capital structure on the risk and return of common stockholders is investigated. Also, the information content of dividends when a firm goes for new outside financing is examined. Data used in the study are collected from the Moody's Bond Survey, the Prentice Hall's Capital Adjustments, the Wall Street Journal Index, and the Center for Research in Security Prices Tape. The study uses an event study methodology. The risk (beta) of common stock before an issuance of debt securities is compared with the risk after the issue. The stock market reaction to the issuance of new debt securities is measured using after-the-event risk. The information content of dividend announcement before a new debt issue is compared to that of after the issue. The findings show that debt issue reduces stock holders' risk if the issuer is a dividend paying company. Also, debt securities issued through an exchange offer increase stockholders' wealth. Finally, issuance of new debt does not affect the information content of dividends.
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The Determinants of Off-Balance-Sheet Hedging in the Value-Maximizing Firm: an Empirical Analysis

The Determinants of Off-Balance-Sheet Hedging in the Value-Maximizing Firm: an Empirical Analysis

Date: December 1988
Creator: Nance, Deana R. (Deana ReneƩ)
Description: The observed use (and indeed tremendous growth in volume) of forward contracts, futures, options, and swaps as hedges against interest rate risk, foreign exchange risk, and commodity price risk indicates that hedging does add value to the firm. The purpose this research was to empirically examine the value of off-balance-sheet hedging. The benefits of off-balance-sheet hedging were found to accrue from reducing (1) taxes, (2) expected financial distress costs, and (3) agency costs. Taxes. Hedging reduces the firm's tax liability by reducing the variability in taxable income. The value of hedging to the firm is a positive function of the convexity of the tax function and the variability of taxable income. Expected Financial Distress Costs. The value of hedging is a positive function of the degree to which hedging reduces the probability of financial distress and the costs of financial distress. Agency Cost. Due to the fact that bondholders and some managers hold fixed claims while shareholders hold variable claims, shareholders desire more risky projects than do bondholders or managers. Hedging reduces this conflict by allowing shareholders to undertake higher risk projects while protecting the holders of fixed claims. Firms can achieve the same benefits of hedging by using alternative ...
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Purchasing Power Parity and the Efficient Markets: the Recent Empirical Evidence

Purchasing Power Parity and the Efficient Markets: the Recent Empirical Evidence

Date: December 1988
Creator: Yuyuenyongwatana, Robert P. (Robert Privat)
Description: The purpose of the study is to empirically determine the relevance of PPP theory under the traditional arbitrage and the efficient markets (EPPP) frameworks during the recent floating period of the 1980s. Monthly data was collected for fifteen industrial nations from January 1980 to December 1986. The models tested included the short-run PPP, the long-run PPP, the EPPP, the EPPP with deviations from expectations, the forward rates as unbiased estimators of future spot rates, the EPPP and the forward rates, and the EPPP with forward rates and lagged values. A generalized regression method called Seemingly Unrelated Regression (SUR) was employed to test the models. The results support the efficient markets approach to PPP but fail to support the traditional PPP in both the short term and the long term. Moreover, the forward rates are poor and biased predictors of the future spot rates. The random walk hypothesis is generally supported.
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Locational Determinants of Real Estate Valuation: an Analysis of Spatial Autocorrelation in the Hedonic Pricing of Real Estate

Locational Determinants of Real Estate Valuation: an Analysis of Spatial Autocorrelation in the Hedonic Pricing of Real Estate

Date: May 1992
Creator: Shampton, John F.
Description: Recent studies of the valuation of real estate have concentrated on the use of hedonic pricing techniques in which the implicit prices of the component characteristics of an asset are inferred from the observed sale price using regression analysis. All of these studies include as explanatory variables one or more locational factors, such as distance to the central business district, as proxies for the effect that location has on the utility of land. In this research, the explicit consideration of the location of real estate in terms of the geographic or Cartesian coordinates (spatial attributes) of observed sales is shown to be a potential substitute for such proxies, either wholly or in part. Such use of spatial attributes could improve the usefulness of the hedonic methodology while at the same time significantly reducing cost and eliminating sources of error.
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The Information Content of Pension Fund Asset Reversion

The Information Content of Pension Fund Asset Reversion

Date: August 1992
Creator: Shetty, Shekar T.
Description: Prior studies on the impact of the termination of overfunded defined benefit pension plans on shareholders' wealth have produced conflicting findings. The first study on the stock market reaction to pension plan termination was conducted by Alderson and Chen (1986); this study claimed that shareholders realize significant positive abnormal returns around the termination announcement date. A more recent study, by Moore and Pruitt (1990), disclaimed the findings of Alderson and Chen. Reexamination of these two studies with additional evidence and the use of the appropriate announcement date suggests that termination of pension plans is associated with significant wealth gain to shareholders. This study also analyzes samples from periods prior to and after the imposition in 1986 of a 10 percent excise tax on recaptured excess pension assets. The empirical results suggest that shareholders experience significant positive wealth effects for the pre-tax (1980-85) period and no wealth effects for the post-tax (1986-88) period. The primary purpose of this study is to determine the impact of stock market reaction upon shareholders' wealth under the partial anticipation hypothesis. The pre-tax sample is analyzed by isolating the expected terminators using the multiple discriminant analysis model. This study finds significant positive abnormal returns only for ...
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Corporate Sale-and-Leaseback Transactions: An Examination of Corporate Incentives, Wealth Effects and Dealer Spreads

Corporate Sale-and-Leaseback Transactions: An Examination of Corporate Incentives, Wealth Effects and Dealer Spreads

Date: August 1993
Creator: Gordon, Bruce L. (Bruce Lee)
Description: There is a limited amount of research dealing with the wealth effects of sale-and-leaseback transactions, but previous research has focused predominantly on the tax effects of these transactions. The results of these studies have often been in conflict with one another. This dissertation shows that tax effects do play a role in determining the wealth effect of sale-and-leasebacks on stockholders, but there exists a framework of finance research that suggests several other factors could play a determining role as well.
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Three Essays in Corporate Governance

Three Essays in Corporate Governance

Date: December 1993
Creator: Forjan, James M. (James Martin)
Description: Corporate governance issues have become increasingly important to financial managers and shareholders. Firms that are plagued by poor performance, incompetent managers, or excess agency costs have become the subject of a dramatic increase in shareholder activism. Dissident shareholders, who are unable to launch costly takeover bids or proxy contests, have initiated a process of governance reform through the use of shareholder sponsored proposals. Shareholder proposals are a direct attempt to reverse operating or voting policies, such as a proposal to repeal a classified board. Managers announce shareholder proposals in a proxy statement and typically include a vote recommendation against the proposal. In the first essay, I find an unfavorable stock price reaction to the announcement of a shareholder proposal. In some cases, however, management supports the proposal and negotiates an agreement with the proposing shareholder. Stock prices react favorably to a settlement announcement. If managers are willing to negotiate with shareholders, they are perceived to be acting in the best interest of shareholders. If managers are unwilling, shareholders believe a severe agency problem exists. In the second essay, the effect that ownership structure has on voting outcomes of shareholder proposals is examined. I find a direct relationship between the percentage ...
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An Analysis of Preferred Equity Redemption Cumulative Stock

An Analysis of Preferred Equity Redemption Cumulative Stock

Date: May 1994
Creator: Pu, Hansong
Description: This dissertation examines whether Percs, Preferred Equity Redemption Cumulative Stocks, are properly priced regarding to the relevant securities, such as the underlying common stock, the long-term call option of the stock, and so on. Test results indicate that Percs were overpriced with respect to the equivalent packages composed of the relevant securities. Further tests on arbitrage restrictions show that transaction costs would prevent arbitrage profits. This dissertation also examines the market reactions to Percs offerings. Test results reveal that the market reactions to the announcement of Percs offering and the actual issuance are both significantly negative. Compared to the market reaction on common stock offering announcement, the market reaction on Percs offering announcement is weaker. The overpricing of Percs and the weaker reaction of the market suggest that Percs may have advantages in transaction costs, taxes and some corporate finance issues.
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Three Essays on Real Estate Investment Trusts and Financial Markets

Three Essays on Real Estate Investment Trusts and Financial Markets

Date: August 1995
Creator: Durr, David W.
Description: This dissertation is structured as three essays on real estate investment trusts and financial markets. It addresses the financial performance and systematic risk of different REIT types, the information content of REIT bankruptcies, and the effect of recent tax law changes on the REIT industry.
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