FINANCIAL RESTRUCTURING: IMPACT ON HOUSING

The purpose of this paper is to describe the primary factors that helped encourage the growth of savings and loan business and its development as the primary mortgage originating and investing intermediary. This will be followed by a discussion of how and why changes have been made to alter the sheltered environment of the business. Finally, the paper will focus on several options for the future structure of the savings and loan business and the implications each has on our mortgage delivery system and housing
The paper concludes that the country in general and its housing needs, in particular, would be best served by freeing up the asset and liability powers of thrifts. In order to meet the mortgage finance needs of the country, it is recommended that increased emphasis be put on making mortgages investment grade assets that will be able to compete with other investments for funds in the capital market generally. To do this, the government must refrain from price fixing (i.e., setting specific prepayment penalties, savings rates, etc.); establishing terms and conditions on mortgages (i.e., regulating mortgage forms); changing contractual provisions on mortgages (i.e., due-on-sale prohibitions), and avoiding noncompetitive behavior by government credit programs.     

WHY THE COMPOSITE INDEX OF LEADING INDICATORS DOES NOT LEAD

This paper assesses the real-time performance of the Commerce Department's composite index of leading indicators. The authors find that the composite leading index has failed to provide reliable advance warning of cyclical turning points. One reason for this failure is that the leading index's transition from expansion to contraction generally is not very sharp. Consequently, discerning real-time cyclical peaks in the index is difficult. Transitions from contraction to expansion on average are sharp. However, cyclical troughs in the leading index often precede cyclical troughs in the economy by only a few months. Thus, even timely recognition of troughs in the leading index fails to provide advance warning of turnarounds in the general level of economic activity .     

Are U.S. Multinational Corporations Becoming More Aggressive Income Shifters?

This paper examines income shifting of U.S. multinational companies over the past two decades. Domestic and foreign policy makers are increasingly concerned with the effect of income shifting on dwindling tax revenues, however, extant research on income shifting by U.S. multinational enterprises is mixed. We address the disconnect between the academic literature and the policy maker's perceptions by examining the extent of multijurisdictional income shifting by U.S. multinational companies. We directly address conflicting results in extant literature and show that using either multiperiod proxies or instrumental variables overcomes weaknesses of annual proxies in this setting. Our tests show that U.S. companies have become more active at shifting income out of the United States as the regulatory costs of shifting have changed. Holding tax rate differences between U.S. and foreign jurisdictions constant, our empirical estimates suggest that our sample of 380 corporations with low average foreign tax rates collectively shifts approximately $10 billion of additional income out of the United States annually during 2005–2009 relative to 1998–2002 due to varying regulatory costs of shifting.     

Securities market response to pension fund termination*

Abstract. Capital market data are used to investigate the termination announcement effect of over- and underfunded corporate pension plans. Significant positive abnormal returns are initially observed for samples of both over- and underfunded plan terminations; however, after segmenting the samples on the basis of publicly available information regarding a firm's financial condition, significant returns are observed only for financially distressed subsamples. The evidence suggests that the property rights to pension fund assets and liabilities reside fully with the sponsoring firm, and that financially distressed firms may effect a wealth transfer to shareholders by fund termination. Résumé. Les auteurs utilisent les données relatives au marché financier pour analyser l'incidence des avis de discontinuation de régimes de retraite surcapitalisés et sous-capitalisés de sociétés. Des rendements positifs irréguliers importants sont d'abord observés pour des échantillons de cas de discontinuation de régimes surcapitalisés ainsi que sous-capitalisés; toutefois, après une segmentation des échantillons à partir de l'information mise à la disposition du public concernant la situation financière de la société, des rendements importants sont observés seulement pour les sous-échantillons de sociétés en difficulté financière. Les résultats donnent à penser que les éléments d'actif et de passif de la caisse de retraite échoient entièrement à la société promotrice et que les sociétés en difficulté financière peuvent procéder à un transfert de richesses au profit des actionnaires par voie de discontinuation du régime.     

Evidence on the Extent and Potential Sources of Long Memory in U.S. Treasury Security Returns and Yields

Unlike equity returns, many fixed-income return measures appear to display long memory. We show that the extent of long memory differs strongly for gross and excess holding period returns on U.S. Treasury securities. Granger and others have argued that long memory may only reflect infrequent structural breaks. We explore the impact of structural instability on tests for long memory and find only weak indications that it lies behind the long memory in our return series. The evidence of long memory remains strong for yield and term premia series even after accounting for a series of potential underlying structural changes.     

The CAPM is Wanted,Dead or Alive

Kothari, Shanken, and Sloan (1995) claim that βs from annual returns produce a stronger positive relation between β and average return than βs from monthly returns. They also contend that the relation between average return and book-to-market equity (BE/ME) is seriously exaggerated by survivor bias. We argue that survivor bias does not explain the relation between BE/ME and average return. We also show that annual and monthly βs produce the same inferences about the β premium. Our main point on the β premium is, however, more basic. It cannot save the Capital asset pricing model (CAPM), given the evidence that β alone cannot explain expected return.