ContentsExtraordinary Antitakeover Provisions and Insider Ownership Structure: The Case of Converting Savings and LoansGlenn W. Boyle, Richard B. Carter, and Roger D. Stover
The Risk and Return from Factors
Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury
Securities Auction Market
Country and Currency Risk Premia in an Emerging Market
Determining the Number of Priced State Variables in the ICAPM
Shareholder Heterogeneity, Adverse Selection, and Payout Policy
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AbstractsExtraordinary Antitakeover Provisions
and Insider Ownership Structure:
The Case of Converting Savings and Loans Insider ownership and antitakeover provisions both affect a firm's vulnerability to takeover, its value, and its managers' incentives and utility. We examine the simultaneous determination of insider ownership and takeover protection using data from mutual savings and loan associations converting to stock form. At low levels of insider ownership, we find that ownership is negatively related to the number of extraordinary antitakeover provisions; at higher levels, ownership is not related to the number of antitakeover provisions. These results are consistent with insider entrenchment.
The Risk and Return from Factors The ability to identify which factors best capture systematic return covariation is central to applications of multifactor pricing models. This paper uses a common data set to evaluate the performance of various proposed factors in capturing return comovements. Factors associated with the market, size, past return, book-to-market, and dividend yield help explain return comovement on an out-of-sample basis (although they are not necessarily associated with large premiums in average returns). Except for the default premium and the term premium, macroeconomic factors perform poorly. We document regularities in the behavior of the more important factors, and confirm their influence in the Japanese and U.K. markets as well.
Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury
Securities Auction Market This paper models the U.S. Treasury securities auction market and demonstrates that market manipulation can occur in a rational equilibrium. It is a dynamic model with traders participating in a "when-issued" market, a Treasury auction, and a resale market. Manipulations occur when dealers in the when-issued market use their knowledge of the net order flow in order to corner the auction and squeeze the shorts (from the when-issued market). This manipulation equilibrium generates bubbles in Treasury security prices and specials in repo rates. We also compare discriminatory and uniform price auction rules with respect to manipulation. Our analysis shows that manipulations can occur in long-run equilibrium under discriminatory price auctions, but not under uniform price auctions.
Country and Currency Risk Premia in an Emerging Market The magnitude and determinants of credit and currency risks are topics of considerable importance. This paper uses data on peso- and dollar-denominated debt issued by the Mexican government to identify currency and country risk premia. We show th at shocks in equity and debt market returns translate into long-term increases in the premium demanded by investors with respect to currency and country factors. Country and currency premia help explain equity returns and closed-end fund discounts. Addi tional evidence is provided showing that investors did not anticipate the magnitude or timing of the currency devaluation of December 1994 and the subsequent financial crisis.
Determining the Number of Priced State Variables in the ICAPM Suppose the ICAPM governs asset prices and there is a total of S state variables that might be of hedging concern to investors. Can we determine which state variables are, in fact, of hedging concern? What does it mean to say that these state variables are priced, that is, that they give rise to special risk premiums in expected returns? The goal of this paper is to formulate this problem clearly and show when it can and cannot be solved. Ignoring estimation problems, it is possible to find the set of priced state variables when the state variables are identified (named). When we know the number of state variables, but not their names, confident conclusions about even the number of them that produce special risk premiums are probably impossible, unless the number is zero, so the ICAPM collapses to the CAPM.
Shareholder Heterogeneity, Adverse Selection, and Payout Policy When shareholders have different plans to sell their shares, they will, in general, have different preferences concerning the firm's decision to pay out cash using dividends or share repurchase. We illustrate these different preferences and explore a model of payout policy that highlights the adverse selection costs of repurchases when managers have superior information about the value of the firm. We show that, in the absence of fixed costs to repurchasing shares, there is a separating equilibrium in which managers use taxable dividends to signal the quality of the firm, with better firms paying lower dividends, using repurchases for the remainder of the payout. With fixed costs to repurchasing, small payouts are made via dividend and large payouts are divided between repurchases and dividends, as in the no-fixed cost case. In both cases, the percentage of shares repurchased increases with the size of the payout and larger repurchases are better news.
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