Search Results
Journal Article
Rules of the game: book review
In Trading & Exchanges: Market Microstructure for Practitioners, SEC Chief Economist Larry Harris has written a must-read for anyone interested in the good, the bad, and the ugly of securities trading.
Journal Article
Are stock returns different over weekends? a jump diffusion analysis of the \"weekend effect\"
The distribution of returns on common stocks is, arguably, one of the most widely studied financial market characteristics. The performance of stock prices during breaks in trading has received considerable attention in recent years, especially since the advent of "circuit breakers" designed to create stability when markets are chaotic. This study examines the distribution of daily returns on five popular stock price indices, with a special emphasis on the difference between returns over weekends and returns over adjacent intraweek trading days. The author revisits the "weekend effect" in ...
Working Paper
Debt capacity, tax exemption, and the municipal cost of capital: a reassessment of the new view
The Traditional View of municipal investment holds that the federal tax-exemption of interest payments by state and local (municipal) governments provides a capital cost subsidy to municipal investment. Recently a New View has emerged which argues that tax-exemption plays a minor role, if any, in shaping municipal investment decisions. In its simplest version (with municipal debt issued at a constant interest rate), the New View argues that tax-exemption plays a role only for municipalities in which the representative individual has an income tax rate lower than the implicit tax rate on ...
Journal Article
Mutual fund myths
Journal Article
The municipal bond market, part II: problems and policies
Why does Congress allow municipal interest payments to be exempted from federal income taxes in the face of a very large chronic deficit in the federal budget, even though no constitutional provision requires that this tax policy continue? The rhetoric of tax exemption is philosophical, appealing to notions of appropriate intergovernmental relations and, in particular, to the doctrine of reciprocal immunity: no level of government should use its taxing authority to impose harm on another level. ; But the true force behind tax exemption is that it provides states and local governments with a ...
Journal Article
Mutual funds, part II: fund flows and security returns
Mutual funds played a very small role in the financial system until the 1970s, before which ownership of financial instruments was dominated by commercial banks, thrift institutions, insurance companies, and pension funds. The financial system of the 1990s is not simply the system of the 1970s with more mutual funds, however. Evolution in financial laws and regulations, increasing global interactions, the rise of new financial instruments, major shifts in the structure and nature of financial institutions, and a change in the locus of risk-bearing from institutions to individuals have also ...
Discussion Paper
Pension accounting and corporate earnings: the world according to GAAP
This study?s underlying premise is that current pension plan accounting has two important negative effects. First, it distorts the measurement of earnings and net worth in the short run, as well as the pattern of earnings over future periods. Second, this distortion can send incorrect signals to investors about a firm?s health, resulting in the mispricing of a firm?s outstanding debt and equity instruments. The author demonstrates how these distortions are introduced, examines the magnitude of the distortions, and discusses proposals for reform.
Journal Article
Stock market efficiency: an autopsy?
This article assesses the current state of the efficient market hypothesis, which was the conventional wisdom among academic economists in the 1970s and most of the 1980s. It concludes that empirical evidence provides an overwhelming case against the efficient market hypothesis. The evidence exists in the form of a number of well-established anomalies--the small firm effect, the closed-end fund puzzle, the Value Line enigma, the losers blessing and winners curse, and the January and weekend effects. ; These anomalies can be explained by resorting to a model of "noise trading," in which ...
Journal Article
Primer on U.S. stock price indices
The measurement of the "average" price of common stocks is a matter of widespread interest. Investors want to know how "the market" is doing, and to be able to compare their returns with a meaningful benchmark. Money managers often have their compensation tied to performance, typically measured by comparing their results to a benchmark portfolio, so they and their clients are interested in the benchmark portfolio's returns. And policymakers want to judge the potential for sudden adjustments in stock prices when differences from "fundamental value emerge. ; This article discusses some ...
Journal Article
Do municipal bond yields forecast tax policy?
During the recent flat tax debate, interest rates on long-term municipal bonds rose relative to the rate on U.S. Treasury bonds. This was widely attributed to expectations of a reduction in future tax rates. While an axiom of finance states that current asset prices reflect expectations about future events, there is no consensus on how sensitive municipal bond yields are to expectations about future tax rates. This study assesses that question by examining the relationship between the implicit tax rate and actual future tax rates.> Efficient markets theory predicts that the implicit tax ...