Benchmark Portfolio Inefficiency and Deviations from the Security Market Line

This paper theoretically evaluates the robustness of the Security Market Line relationship when the market proxy employed is not mean-variance efficient. The analysis focuses on the behavior of the “benchmark errors,” the deviations of assets and portfolios from the Security Market Line. First, we characterize how the location of an asset in mean-variance space determines its benchmark error. Then the continuity properties of the benchmark errors are studied. The results indicate that the magnitudes of the errors exhibit continuous but not uniformly continuous behaviors. The relative rankings based on deviations from the Security Market Line, however, exhibit some severe discontinuities. In fact, these can be exactly reversed for two proxies arbitrarily close in mean-variance space.     

BALANCED BUDGETS: ECONOMIC NIRVANA OR FISCAL CHAOS?

This paper investigates the effect of a pay-as-you-go, balanced budget policy on macroeconomic performance. It uses a simple model of the aggregate demand for money and goods, with temporary monetary equilibrium and quantity adjustments on goods markets. Within this framework, if the monetary/real interaction is strong enough, a balanced budget with sufficiently high tax rates (≡ sufficiently high government expenditures) is consistent with typical bounded fluctuations around a relatively high income, low unemployment equilibrium. Lower tax rates (≡ lower government expenditures) can trigger a sharp decline in revenues, expenditures, employment, and output.     

THE IMPACT OF EUROPEAN CONSUMER LAW IN THE UNITED KINGDOM*

In this paper the authors describe the consequences of European consumer law for British consumers. After an analysis of some of the difficulties which have been faced by the United Kingdom in coming to terms with its new-found status within a federal system, the article goes on to describe the progress which has been made with the programme of implementation. The third part looks at some EEC proposals which are in the pipeline at the moment and comments on some of the consequences which the prospect of EEC legislation can have for domestic reform. Finally, the authors examine the actual enforcement of EEC consumer law through the criminal process and the effects upon civil processes.     

Product Knowledge and Product Involvement as Moderators of the Effects of Information on Purchase Decisions: A Case Study Using the Perfect Information Frontier Approach

This study ascertains the extent to which consumers achieve highest value-for-money under different conditions. Perfect Information Frontier Approach is applied to examine the influences of providing consumers with information on their purchase decisions, with allowance for the joint effects of prior product knowledge and product involvement on the provided information. A 2 (provided information: simple vs. complex) × 2 (prior product knowledge: novice vs. expert) × 2 (involvement: high vs. low) factorial design was employed. Data from 282 survey respondents illustrate that experts were more likely to be persuaded by complex product information than by simple information, while novices reacted similarly to both simple and complex information. The effects of providing complex information to involved novices and providing simple information to involved experts showed the least impact.     

How Risky Are U.S. Corporate Assets?

We use market data on corporate bonds and equities to measure the value of U.S. corporate assets and their payouts to investors. In contrast to equity dividends, total corporate payouts are highly volatile, turn negative when corporations raise capital, and are acyclical. At the same time, corporate asset returns are similar to returns on equity, and both are exposed to fluctuations in economic growth. To reconcile this evidence, we argue that acyclical but volatile net repurchases mask the exposure of total payouts' cash components to economic growth risks. We develop an asset pricing framework to quantitatively illustrate this economic channel.