A survey of exchange-traded basket instruments

This survey discusses basket financial instruments generically known as Index Participation shares (IPs). An IP is a hybrid instrument that has characteristics similar to those of existing index-futures contracts, options contracts, and stock-index mutual funds. An IP is a contract and does not represent direct ownership over any individual security. Similar to other derivatives, an IP has a clearing house guaranteeing its performance and a zero net supply. The equilibrium market price of an IP will differ from its underlying index's cash price by an amount defined as the IP basis. The IP basis will be determined by the dividend stream of the underlying index and expected short-term interest rates. IP contracts opened trading on the AMEX and PHILX exchanges on May 12, 1989, after the SEC lifted a temporary stay of trading.     

Presenting hypothesis testing by analogy

Auditing students often have difficulty with hypothesis testing. In this article, a concise approach for presenting hypothesis testing is discussed. Specifically, the author shows that the construction of an hypothesis test for the mean per-unit estimator is analogous to the formulation of such a test for auxiliary estimators. Because these tests are comparable, the approach encompasses a logical progression from the mean per-unit estimator to the auxiliary estimators. This approach enables students to perceive the similarities among these estimators and to better understand and assimilate the subject matter.     

Duration and the price behavior of fixed-rate level payment mortgages: An analytical investigation

In this research we use a continuous payment formula for duration to examine the price behavior of a fixed-rate level payment mortgage. In the case where the mortgage is held to maturity, duration increases monotonically as term-to-maturity increases, regardless of changes in the market rate of interest. In the case where the mortgage is prepaid prior to maturity, there exists a unique market interest rate below which duration is a monotonically increasing function of time of prepayment, but above which duration has a global maximum at some time of prepayment prior to the term-to-maturity.     

The impact of Saturday trading on stock returns: Evidence from the Tokyo stock exchange January 1976 to January 1989

This paper examines the impact of TSE Saturday trading on daily TOPIX returns and TSE trading volume over the January 1976 to January 1989 period. Saturday trading is shown to have no significant impact on mean stock returns for the other days of the week. However, a significant shift in the pattern of Monday and Tuesday TOPIX returns is documented in the post-August 1986 period. This shift does not appear to be related to Saturday trading. TSE Saturday trading is found to have a significant impact on the variance of stock returns on surrounding days. In addition, trading volume is significantly lower on trading days surrounding Saturday trading. These findings are relevant to the timing of portfolio adjustment decisions.     

Using HMDA Data as a Regulatory Screen for Fair Lending Compliance

This paper describes and evaluates the Federal Reserve System's recently developed program designed to use HMDA data as a screening device for fair lending enforcement. The program is designed to identify institutions showing potentially discriminatory patterns in their treatment of minority mortgage applicants vis-a`-vis nonminority applicants. The program also selects specific loan files to pull for additional information in cases where a more comprehensive evaluation might be appropriate. This paper discusses the motivation behind the adoption of the program and its innovative matched-pair method and assesses its value and potential shortcomings.     

A THEORETICAL ANALYSIS OF DESIGN ISSUES IN MEDICAL SAVINGS ACCOUNTS: THE POLICY IMPLICATIONS

Abstract: Numerous methods for helping consumers deal with medical care costs have been suggested. One way that has been discussed is the use of Medical Saving Accounts. A pilot program introducing Medical Spending Accounts was passed by Congress as part of the Health Insurance Reform Act of 1996. The authors review the major points of this program and attempt to examine what impact this program could have on medical care cost.     

The impact on the market for audit services of aggressive competition by auditors

Supporters of direct uninvited solicitation activities argue that clients can make more informed choices of auditors when auditors are allowed to solicit prospective clients. In banned markets, auditors are allowed to submit bids to provide audit services only when invited by the client. This study provides theoretical models that examine the efficiency of client–auditor alignments in the banned and allowed market. We identify conditions under which realignment differences between the two markets occur and derive client losses in the banned market as compared to the allowed market. We also identify conditions under which independence may be impaired in the allowed market, consistent with the claims of solicitation opponents. However, we believe that, in view of the potential positive effects related to audit pricing and client–auditor alignment, restrictions on advertising or direct uninvited solicitation are not necessarily indicated. Instead, regulators or market mechanisms should insure that the independence (truth-telling) condition is so readily satisfied as to be virtually irrelevant. This can happen in one of two ways: (a) increased scrutiny, leading to an increased likelihood of discovery, or (b) increased penalties when an audit failure is discovered, leading to increased costs of an audit failure, or both.     

Myopic loss aversion and the equity premium puzzle reconsidered

Benartzi and Thaler [The Quarterly Journal of Economics 110 (1995) 73–92] offer a quasi-rational explanation for the equity premium puzzle. We reconsider their methodology and, making a simple modification to it, find that their analysis is not robust.     

Globalisation and the environment: the long-term effects of technology on the international division of labour and energy demand

This paper examines the effect of the structural changes arising from the globalisation of production and innovation and from technological changes on the environment. Drawing on theories of international production from international business and innovation, we assess the impact of long-term technological change and changes in international production on the international division of labour and energy demand. We select two industrial sectors with different technological characteristics (the textile, clothing and footwear sector and the chemical sector). We examine the effects of the globalisation of production and of technological change on these two sectors on the level of industrial production and resource intensity in different regions and countries over the last 30 years. We speculate on the impact of globalisation of production and innovation in future pervasive technologies—information technology, biotechnology and nano-technology. The implications of these developments on industrial greenhouse gases emissions are assessed.