Journal of Banking & Finance

article

Futures trading, information and spot price volatility: evidence for the FTSE-100 Stock Index Futures contract using GARCH

Antonios Antoniou, Phil Holmes

Journal of Banking and Finance > 1995 > 19 > 1 > 117-129

This paper examines the impact of trading in the FTSE-100 Stock Index Futures on the volatility of the underlying spot market. To examine the relationship between information and volatility (as subject neglected in previous studies) the GARCH family of techniques is used. The results suggest that futures trading has led to increased volatility, but that the nature of volatility has not changed post-futures...

article

Corporate partial acquisitions, total firm valuation and the effect of financing method

Sudip Datta, Mai E. Iskandar-Datta

Journal of Banking and Finance > 1995 > 19 > 1 > 97-115

Previous studies on partial acquisitions focusing solely on stockholder wealth report mixed results about the valuation effect of these transactions. By examining the percent and dollar excess returns of the acquiring firm's bondholders and stockholders, this study is able to conclude unambiguously that partial acquisitions are, at best, value neutral. Our analysis indicates that any wealth loss...

article

Discount rate changes and security returns in the U.S., 1962-1991

Gerald R. Jensen, Robert R. Johnson

Journal of Banking and Finance > 1995 > 19 > 1 > 79-95

It is well-known that financial markets respond quickly to announcements of changes in the discount rate. We extend previous research and ask whether rate changes provide information about subsequent long-term market performance. Between 1962 and 1991, stock returns following discount rate decreases are higher and less volatile than returns following rate increases. The stock performance patterns...

article

Savings and loan ownership structure and expense-preference

Itzhak Krinsky, Hugh Thomas

Journal of Banking and Finance > 1995 > 19 > 1 > 165-170

This note demonstrates that the conclusion of the Akella and Greenbaum (1988) study that managers of mutual S&Ls exhibit more expense-preference behavior than managers of stockholder-owned S&Ls is premature. It is shown that, in operationalizing their theoretical model, A&G introduce an endogenous variable in their correction for homogeneity, invalidating their results. The only firm...

article

Financial ratio proportionality and inter-temporal stability: An empirical analysis

P.S. Sudarsanam, R.J. Taffler

Journal of Banking and Finance > 1995 > 19 > 1 > 45-60

A major reason for the widespread use of the ratio transform in financial analysis is to control for company size. The primary condition for achieving size control is that the ratio numerator bears a strictly proportionate relationship with the denominator. This paper seeks to provide empirical evidence on how far commonly used financial ratios satisfy the proportionality condition and how serious...

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The optimal pricing of exports invoiced in different currencies

Pekka Ahtiala, Yair E. Orgler

Journal of Banking and Finance > 1995 > 19 > 1 > 61-77

The paper presents a model of optimal pricing of exports invoiced in different currencies, integrating export pricing with exchange risk management. The model maximizes the present value of an exporter's profits from sales in different currencies in the presence of covered interest arbitrage, exchange risk and transactions costs, given the corresponding cost minimization by the buyers. It turns...

article

Should bond funds be added to M2?

John V. Duca

Journal of Banking and Finance > 1995 > 19 > 1 > 131-152

In the early 1990s, M2 growth has been weaker than estimated while bond mutual funds have grown rapidly. This study assesses whether adding bond funds to M2 would yield a monetary aggregate that is more explainable using a standard error correction model of money with and without modifications for bond interest rate and thrift resolution effects. Results indicate that it is important to net out...

article

On the structure of take-over models, and insider-outsider conflicts in negotiated take-overs

P. Sercu, C. Van Hulle

Journal of Banking and Finance > 1995 > 19 > 1 > 11-44

We model a takeover game where the players can bid or bargain without the traditional exogenous constraints on the order, length, and number of alternating stages. In our ( European ) setting, dominant shareholders can appoint and dismiss management, implying that we have an insider-outsider conflict rather than a management-shareholder agency problem and that the distribution of (sizeable) private...

article

Savings and loan ownership structure and expense-preference: Reply

Srinivas R. Akella, Stuart I. Greenbaum

Journal of Banking and Finance > 1995 > 19 > 1 > 171-172

We present counterarguments to the points Krinsky and Thomas make, and express confidence with our original conclusions and the tests that support them.

article

Face value convergence for stochastic bond price processes: a note on Merton's partial equilibrium option pricing model

Sanjay K. Nawalkha

Journal of Banking and Finance > 1995 > 19 > 1 > 153-164

This paper considers Merton's (1973) model for partial equilibrium bond option pricing when stochastic bond price processes are involved. A log-normal process with a stochastic drift is suggested that allows the price of a pure discount bond to converge to its face value upon maturity. The stochastic process for the instantaneous short rate implicit in the bond price dynamics is identified. A necessary...

article

Vector autoregression or simultaneous equations model? The intraday relationship between index arbitrage and market volatility

Kalok Chan, Y. Peter Chung

Journal of Banking and Finance > 1995 > 19 > 1 > 173-179

We conduct simulations to compare the vector autoregression (VAR) and simultaneous equations models (SEM) for examining temporal relationships among arbitrage spreads, spot price volatility, and futures price volatility. Contrary to Koch (1993), we find that the VAR model can better reveal the underlying process, and that SEM can be misleading and may yield unreliable inferences.

article

The impact of default risk on the prices of options and other derivative securities

John Hull, Alan White

Journal of Banking and Finance > 1995 > 19 > 2 > 299-322

This paper presents a model for valuing derivative securities when there is default risk. The holder of a security is assumed to recover a proportion of its no-default value in the event of a default by the counterparty. Both the probability of default and the size of the proportional recovery are random. The paper shows how data on bonds issued by the counterparty can be used to provide information...

article

A market evaluation of FDIC assisted transactions

Bruce Cochran, Lawrence C. Rose, Donald R. Fraser

Journal of Banking and Finance > 1995 > 19 > 2 > 261-279

This study updates and extends the literature regarding Federal Deposit Insurance Corporation purchase and assumption transactions. Unlike voluntary mergers, our results indicate that winning bidders do not overpay. Moreover, our results indicate that acquiring banks's undertaking large failed bank transactions experienced large wealth transfers. Excess returns may be explained by the synergy hypothesis...

article

Banker judgement versus formal forecasting models: The case of country risk assessment

R.A. Somerville, R.J. Taffler

Journal of Banking and Finance > 1995 > 19 > 2 > 281-297

The allocation of credit to less-developed countries depends upon lenders' judgements of country risk. Research in psychology suggests that human judgement may be prone to bias. This paper uses the Institutional Investor country credit ratings as indicators of banker judgement. In terms of their ability to predict the emergence of arrears on external debt-service, it is shown that bankers are overly...

article

Bids and asks in disequilibrium market microstructure: The case of IBM

Frederick H. deB. Harris, Thomas H. McInish, Ranjan R. Chakravarty

Journal of Banking and Finance > 1995 > 19 > 2 > 323-345

Microstructure research has recently forged two theoretical frameworks characterizing stock specialist behavior: a Walrasian inventory-theoretic individual optimization model sometimes with asymmetric information, and a queue-theoretic disequilibrium market model of the continuous auction process. To test the Brock and Kleidon (Journal of Economic Dynamics and Control, 16 (1992) 451-489) continuous...

article

Interest rate differentials and exchange rate policies in Austria, The Netherlands, and Belgium

Klaas Knot, Jakob de Haan

Journal of Banking and Finance > 1995 > 19 > 2 > 363-386

In this paper, the small, but persistent interest rate differentials via-a-vis Germany which have existed in Austria, the Netherlands, and Belgium are analysed. These interest differentials may be thought of to consist of three parts: expected exchange rate movements within the band, expected changes of the central rates and a risk premium. Following a similar test as proposed by Svensson, we examine...

article

Disclosure environment and listing on foreign stock exchanges

C. Sherman Cheung, Jason Lee

Journal of Banking and Finance > 1995 > 19 > 2 > 347-362

The benefits of listing a company's stock on a foreign exchange to achieve better global market integration have been quite extensively examined. What has been overlooked in the finance literature is an attempt to explain why the New York Stock Exchange (NYSE) tends to be bypassed in favor of the London market and other exchanges when firms select foreign exchanges for listing. This paper explains...

article

Equity financing and corporate convertible bond policy

P. Jalan, G. Barone-Adesi

Journal of Banking and Finance > 1995 > 19 > 2 > 187-206

A co-operative game playing model is used to examine ex ante the decision parameters which are involved in the selection of callable convertible bonds as a means of delayed equity financing. The differential tax treatment of coupon interest and dividend payments, coupled with market friction and incompleteness, provides sufficient reason for convertible debt issuance. Though there is a myopic incentive...

article

Pension plan terminations, excess asset reversions and securityholder wealth

Sudip Datta, Mai E. Iskandar-Datta, Edward J. Zychowicz

Journal of Banking and Finance > 1995 > 19 > 2 > 245-259

The total firm valuation impact of an excess pension asset reversion is an unresolved issue. Prior studies focusing on stockholder wealth provide varied evidence. This study examines the valuation effects of excess asset reversions on bondholders (straight and convertible) and stockholders of the sponsoring firm. The redeployment and the negative signalling hypotheses provide a framework for the...

article

Prompt corrective action and bank efforts to recover from undercapitalization

Drew Dahl, Michael F. Spivey

Journal of Banking and Finance > 1995 > 19 > 2 > 225-243

This study empirically examines the likelihood and timing of bank recoveries from positions of undercapitalization. Our findings indicate that: (1) There appears to be only a limited capacity for banks to correct positions of undercapitalization by growth limitations or dividend restrictions; (2) the impact of profitability on recovery is greater the longer a bank remains undercapitalized; and...

INFONA - science communication portal

Journal of Banking & Finance

Futures trading, information and spot price volatility: evidence for the FTSE-100 Stock Index Futures contract using GARCH

Corporate partial acquisitions, total firm valuation and the effect of financing method

Discount rate changes and security returns in the U.S., 1962-1991

Savings and loan ownership structure and expense-preference

Financial ratio proportionality and inter-temporal stability: An empirical analysis

The optimal pricing of exports invoiced in different currencies

Should bond funds be added to M2?

On the structure of take-over models, and insider-outsider conflicts in negotiated take-overs

Savings and loan ownership structure and expense-preference: Reply

Face value convergence for stochastic bond price processes: a note on Merton's partial equilibrium option pricing model

Vector autoregression or simultaneous equations model? The intraday relationship between index arbitrage and market volatility

The impact of default risk on the prices of options and other derivative securities

A market evaluation of FDIC assisted transactions

Banker judgement versus formal forecasting models: The case of country risk assessment

Bids and asks in disequilibrium market microstructure: The case of IBM

Interest rate differentials and exchange rate policies in Austria, The Netherlands, and Belgium

Disclosure environment and listing on foreign stock exchanges

Equity financing and corporate convertible bond policy

Pension plan terminations, excess asset reversions and securityholder wealth

Prompt corrective action and bank efforts to recover from undercapitalization

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