An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies

Recent advances in financial theory have created an understanding of the environments in which a real security can be synthesized by a dynamic trading strategy in a risk free asset and other securities. We contend that there is a crucial distinction between a synthetic security and a real security, in particular the notion that a real security is redundant when it can be synthesized by a dynamic trading strategy ignores the informational role of real securities markets. The replacement of a real security by synthetic strategies may in itself cause enough uncertainty about the price volatility of the underlying security that the real security is no longer redundant. Portfolio insurance provides a good example of the difference between a synthetic security and a real security. One form of portfolio insurance uses a trading strategy in risk free securities ("cash") and index futures to synthesize a European put on the underlying portfolio. In the absence of a real traded put option (of the appropriate striking price and maturity), there will be less information about the future price volatility associated with current dynamic hedging strategies. There will thus be less information transmitted to those people who could make capital available to liquidity providers. It will therefore be more difficult for the market to absorb the trades implied by the dynamic hedging strategies, In effect, the stocks' future price volatility can rise because of a current lack of information about the extent to which dynamic hedging strategies are in place.

Consumption Correlatedness and Risk Measurement in Economies with Non trade Assets and Heterogeneous Information

The consumption beta theorem of Breeden makes the expected return on any asset a function only of its covariance with changes in aggregate consumption. It is shown that the theorem is more robust than was indicated by Breeden. The theorem obtains even if one deletes Breeden's assumptions that (a) all risky assets are tradable, (b) investors have homogeneous beliefs, (c) other assets can be traded without transactions costs and (d) that all assets have returns which are Ito processes.

Computer program for calculating and fitting thermodynamic functions

A computer program is described which (1) calculates thermodynamic functions (heat capacity, enthalpy, entropy, and free energy) for several optional forms of the partition function, (2) fits these functions to empirical equations by means of a least-squares fit, and (3) calculates, as a function of temperture, heats of formation and equilibrium constants. The program provides several methods for calculating ideal gas properties. For monatomic gases, three methods are given which differ in the technique used for truncating the partition function. For diatomic and polyatomic molecules, five methods are given which differ in the corrections to the rigid-rotator harmonic-oscillator approximation. A method for estimating thermodynamic functions for some species is also given

Enhancement and suppression effects resulting from information structuring in sentences

Information structuring through the use of cleft sentences increases the processing efficiency of references to elements within the scope of focus. Furthermore, there is evidence that putting certain types of emphasis on individual words not only enhances their subsequent processing, but also protects these words from becoming suppressed in the wake of subsequent information, suggesting mechanisms of enhancement and suppression. In Experiment 1, we showed that clefted constructions facilitate the integration of subsequent sentences that make reference to elements within the scope of focus, and that they decrease the efficiency with reference to elements outside of the scope of focus. In Experiment 2, using an auditory text-change-detection paradigm, we showed that focus has similar effects on the strength of memory representations. These results add to the evidence for enhancement and suppression as mechanisms of sentence processing and clarify that the effects occur within sentences having a marked focus structure

One Share/One Vote and the Market for Corporate Control

A corporation's securities provide the holder with particular claims on the firm's income stream and particular voting rights. These securities can be designed in various ways: one share of a particular class may have a claim to votes which is disproportionately larger or smaller than its claim to income. In this paper we analyze some of the forces which make it desirable to set up the corporation so that all securities have the same proportion of votes as their claim to income ("one share/one vote"). We show that security structure influences both the conditions under which a control change takes place and the terms on which it occurs. First, the allocation of voting rights to securities determines which securities a party must acquire in order to win control. Secondly, the assignment of income claims to the same securities determines the cost of acquiring these voting rights. We will show that it is in shareholders' interest to set the cost of acquiring control to be as large as possible, consistent with a control change occurring whenever this increases shareholder wealth. Under certain assumptions, one share/one vote best achieves this goal. We distinguish between two classes of benefits from control: private benefits and security benefits. The private benefits of control refer to benefits the current management or the acquirer obtain for themselves, but which the target security holders do not obtain. The security benefits refer to the total market value of the corporation's securities. The assignment of income claims to voting rights determines the extent 'to which an acquirer must face competition from parties who value the firm for its security benefits rather than its private benefits.

Skylab food system

A review of the Skylab food system requirements, package designs, and launch configurations was presented. In-flight anomalies were discussed, and between-mission changes in design were described. A discussion of support for Skylab 3 and Skylab 4 mission extensions and of new items launched on these missions is included

Estimating the Continuous Time Consumption Based Asset Pricing Model

The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or unit average of the consumption flow is available. In our paper, we show how to estimate the parameters of interest consistently from the available data by maximum likelihood. We estimate the market's degree of relative risk aversion and the instantaneous covariances of asset yields and consumption using six different data sets. We also test the model's overidentifying restrictions.

Liquidity and Market Structure

Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determine the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.

Thermodynamic data for fifty reference elements

This report is a compilation of thermodynamic functions of 50 elements in their standard reference state. The functions are C(sub p)(sup 0), (H(sup 0)(T) - H(sup 0)(0)), S(sup 0)(T), and -(G(sup 0)(T) - H(sup 0)(O)) for the elements Ag, Al, Ar, B, Ba, Be, Br2, C, Ca, Cd, Cl2, Co, Cr, Cs, Cu, F2, Fe, Ge, H2, He, Hg, I2, K, Kr, Li, Mg, Mn, Mo, N2, Na, Nb, Ne, Ni, O2, P, Pb, Rb, S, Si, Sn, Sr, Ta, Th, Ti, U, V, W, Xe, Zn, and Zr. Deuterium D2 and electron gas e(sup -) are also included. The data are tabulated as functions of temperature as well as given in the form of least-squares coefficients for two functional forms for C(sub p)(sup 0) with integration constants for enthalpy and entropy. One functional form for C(sub p)(sup 0) is a fourth-order polynomial and the other has two additional terms, one with T(exp -1) and the other with T(exp -2). The gases Ar, D2, e(sup -), H2, He, Kr, N2, Ne, O2, and Xe are tabulated for temperatures from 100 to 20,000 K. The remaining gases Cl2 and F2 are tabulated from 100 to 6000 K and 1000 to 6000 K. The second functional form for C(sub p)(sup 0) has an additional interval from 6000 to 20,000 K for the gases tabulated to 20,000 K. The fits are constrained so that the match at the common temperature endpoints. The temperature ranges for the condensed species vary with range of the data, phase changes, and shapes of the C(sub p)(sup 0) curves