Smart Money, Noise Trading and Stock Price Behavior

This paper derives and estimates an equilibrium model of stock price behavior in which exogenous "noise traders" interact with risk-averse "smart money" investors. The model assumes that changes in exponentially detrended dividends and prices are normally distributed, and that smart money investors have constant absolute risk aversion. In equilibrium, the stock price is the present value of expected dividends, discounted at the riskless interest rate, less a constant risk premium, plus a term which is due to noise trading. The model expresses both stock prices and dividends as sums of unobserved components in continuous time. The model is able to explain the volatility and predictability of U.S. stock returns in the period 1871-1986 in either of two ways. Either the discount rate is 4% or below, and the constant risk premium is large; or the discount rate is 5% or above, and noise trading, correlated with fundamentals, increases the volatility of stock prices. The data are not well able to distinguish between these explanations.

Is There a Corporate Debt Crisis?

macroeconomics, Corporate, Debt, Crisis

U.S. Corporate Leverage: Developments in 1987 and 1988

macroeconomics, U.S. Corporate Leverage, Developments, 1987, 1988

Foreign Currency for Long-Term Investors

Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and should hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long-term investors. Domestic bills are risky for long-term investors, because real interest rates vary over time and bills must be rolled over at uncertain future interest rates. This risk can be hedged by holding foreign currency if the domestic currency tends to depreciate when the domestic real interest rate falls, as implied by the theory of uncovered interest parity. Empirically this effect is important and can lead conservative long-term investors to hold more than half their wealth in foreign currency.

Intramolecular palladium(II)/(IV) catalysed C(sp3)–H arylation of tertiary aldehydes using a transient imine directing group

Palladium catalysed β-C(sp3)–H activation of tertiary aldehydes using a transient imine directing group enables intramolecular arylation to form substituted indane-aldehydes. A simple amine bearing a methyl ether (2-methoxyethan-1-amine) is the optimal TDG to promote C–H activation and reaction with an unactivated proximal C–Br bond. Substituent effects are studied in the preparation of various derivatives. Preliminary mechanistic studies identify a reversible C–H activation, product inhibition and suggest that oxidative addition is the turnover limiting step

Learning from NEPA: Some Guidelines for Responsible Federal Risk Legislation

The past three or more Congresses have seen substantial efforts to enact risk reform legislation that would require environmental, health, and safety regulations to be adopted following the performance of risk assessments modeled on quantitative risk assessment methods for carcinogens. While such a requirement has potentially beneficial effects on the quality of the resulting rules, there is also a substantial potential for mischief by reorienting substantive environmental, health, and safety regulation, and by introducing substantial new costs and delays into the regulatory process. This article, which is derived from a report by the authors to support an American Bar Association recommendation on risk legislation, presents eight guidelines that ought to be followed by such legislation were it to be adopted. The article also draws on the experience with the National Environmental Policy Act. Environmental impact statements are analogous to risk assessments in many (heretofore unrecognized) respects, especially the importance of distinguishing between a procedural, analytical tool for decisionmaking and a substantive, result-determinative element of rulemaking

Learning from NEPA: Some Guidelines for Responsible Federal Risk Legislation

The past three or more Congresses have seen substantial efforts to enact risk reform legislation that would require environmental, health, and safety regulations to be adopted following the performance of risk assessments modeled on quantitative risk assessment methods for carcinogens. While such a requirement has potentially beneficial effects on the quality of the resulting rules, there is also a substantial potential for mischief by reorienting substantive environmental, health, and safety regulation, and by introducing substantial new costs and delays into the regulatory process. This article, which is derived from a report by the authors to support an American Bar Association recommendation on risk legislation, presents eight guidelines that ought to be followed by such legislation were it to be adopted. The article also draws on the experience with the National Environmental Policy Act. Environmental impact statements are analogous to risk assessments in many (heretofore unrecognized) respects, especially the importance of distinguishing between a procedural, analytical tool for decisionmaking and a substantive, result-determinative element of rulemaking