Analysts Journal Research Articles

Investment Basics XXX. EVA™: The Real Key to Creating Value!

(1994). Investment Basics XXX. EVA™: The Real Key to Creating Value! Investment Analysts Journal: Vol. 23, No. 40, pp. 57-59.

The P/E Ratio and the Cost of Equity Capital

(1993). The P/E Ratio and the Cost of Equity Capital. Investment Analysts Journal: Vol. 22, No. 38, pp. 43-47.

Cash flow ratios—Investment Basics XXVIII

(1993). Cash flow ratios—Investment Basics XXVIII. Investment Analysts Journal: Vol. 22, No. 38, pp. 49-53.

Modelling a series of uneven deposits and a series of uneven percentage withdrawals

(1992). Modelling a series of uneven deposits and a series of uneven percentage withdrawals. Investment Analysts Journal: Vol. 21, No. 35, pp. 15-19.

A Novel Approach to Transactions-Based Currency Exposure Management

"A Novel Approach to Transactions-Based Currency Exposure Management." Financial Analysts Journal, 48(6), pp. 79–80

Is Currency Trading Profitable? Exploiting Deviations from Uncovered Interest Parity

Footnotes 1. See H. Bierman, Jr., Price/Earnings Ratios Restructuredfor Japan. Financial Analysts JournaL March/April 1991. 2. We assume Y. i O for Vi. If the firm issues debt, Y, is defined as earnings net of interest payments, and the subsequent analysis is also valid. 3. See F. Brioschi, L. Buzzacchi and M G. Columbo, More on Stock Market Value with Reciprocal Ownership, Financial Analysts Journal, Aay/ June 1991. Also see H Bierman, Jr., Total Stock Market Value with Reciprocal Ownership: A Note on the Japanese Situation, Financial Analysts Journal, January/February 1990. His two models are special cases in our general expression.

Price/Earnings Ratios with Reciprocal Ownership

Footnotes 1. F. R. Macaulay, Some Theoretical Problems Suggested by the Movement of Interest Rates, Bond Yields, and Stock Prices in the United States Since 1856 (New York: National Bureau of Economic Research, 1938). 2. See M. L. Dunetz andj M Mahoney, Using Duration and Convexity in the Analysis of Callable Bonds, Financial Analysts Journal, May/June 1988. 3. F Black and M. Scholes, Pricing of Options and Corporate Liabilities, Journal of Political Economy 81 (1973), pp. 637-54. 4. For a more formal treatment, see J Hull, Options, Futures, and Other Derivative Securities (Englewood Cliffs, NJ: Prentice Hall, 1989), chapter 8. 5. See Hull, Options, Futures, op. cit. 6 The derivation is available from the authors on request. 7. See, for example, J Ingersoll, Examination of Corporate Call Policies on Securities, Journal of Finance 2 (1977), pp. 463-78; E. I. Altman, Debt Market: Are Returns Worth the Risk? Financial Analysts Journal July/August 1989; and R. King, Convertible Bond Valuation: An Empirical Test, Journal of Financial Research 1 (1986), pp. 53-69. 8. The derivation is available from the authors on request. 9. The derivation is available from the authors on request.

Equivalent dividends: an extension

(1992). Equivalent dividends: an extension. Investment Analysts Journal: Vol. 21, No. 36, pp. 32-34.

Hooker Corporation: A Case For Cashflow Reporting?

This study was prepared from public information as a basis for classroom discussion, rather than to illustrate effective handling or otherwise of an administrative situation. It was suggested by an earlier case analysis of the W.T. Grant bankruptcy in the US by James A. Largay HI and Clyde P. Stickney, which appeared in the Financial Analysts Journal (July/August 1980).In the 1988 annual report of Hooker Corporation, the chief financial officer's review of performance contained the following: “The confidence of major banks with regard to Hooker's strategy is reflected in the large increase in banking lines negotiated during the year, with a number of United States and Canadian banks joining the group as lenders.”

The Effectiveness of the Insider-Trading Sanctions

T HIS study empirically examines the effects of increases in the level and enforcement of insider-trading regulations in the 1980s on corporate insiders.1 The main goal of the insider-trading regulations is to prevent insiders from trading on the basis of material, nonpublic corporate information. In addition, regulations require that insiders report their transactions to the Securities and Exchange Commission (SEC) and refrain from generating short-term profits by trading in their own firms' stocks. Regulations also prohibit insiders from short selling the securities of their firms.

Common Errors in the Valuation of Warrants and Options on Firms with Warrants

"Common Errors in the Valuation of Warrants and Options on Firms with Warrants." Financial Analysts Journal, 47(5), pp. 89–90

Investment basics XXIV—Technical analyses part 2 Moving Averages and Momentum Oscillators

"Investment basics XXIV—Technical analyses part 2 Moving Averages and Momentum Oscillators." Investment Analysts Journal, 20(34), p. 49

Are fund managers using futures and options?

(1991). Are fund managers using futures and options? Investment Analysts Journal: Vol. 20, No. 34, pp. 31-35.

The ABO, the PBO and Pension Investment Policy

Corporate management views a defined benefit pension plan as a trust for the employees and manages the fund almost as if it were a defined contribution plan with a guaranteed floor specified by the benefit formula. In order to minimize the cost to the sponsor of providing the minimum benefit guarantee, there is a strong incentive to hedge the accumulated benefit obligation (ABO) by investing in fixed income securities with a matching duration -that is, to immunize it. The incentive to immunize the ABO is strongest when the plan is fully funded. If the plan is overfunded, it makes sense to invest in equities and pursue a kind of portfolio insurance strategy known as contingent immunization. If the plan is very underfunded and the sponsor is in financial distress, it may be optimal to exploit the put provided by PBGC insurance through a high-risk investment strategy. Tax, regulatory, and other considerations have in the past created strong incentives to overfund the pension plan. Recent changes in accounting rules and tax law are likely to reinforce the use of fixed income immunization strategies and reduce pension fund investment in equities. While useful for estimating a firm's future cash flow, the projected benefit method is misleading in the conduct of pension fund investment policy. The PBO is not an appropriate measure of the benefits that the employer has guaranteed and therefore not a target to be hedged by pension fund investment policy. The failure of pension funds to show any significant interest in inflation-protected investment products such as CPI-linked bonds is clear evidence that they do not view their liabilities as indexed for inflation. Investing in equities provides pension funds with higher expected returns, but does not offer an effective hedge against inflation risk. *This paper appeared in the Financial Analysts Journal, September/October 1990. I am grateful to Robert C. Merton, Leslie E. Papke, and Robert A. Taggart, Jr., for many helpful suggestions. THE ABO, THE PBO, AND PENSION INVESTMENT POLICY

Meeting the aspirations of South Africa's poor

(1990). Meeting the aspirations of South Africa's poor. Investment Analysts Journal: Vol. 19, No. 33, pp. 57-66.

Options for building an economic future

(1990). Options for building an economic future. Investment Analysts Journal: Vol. 19, No. 33, pp. 7-10.

The mixed economy of a democratic South Africa

(1990). The mixed economy of a democratic South Africa. Investment Analysts Journal: Vol. 19, No. 33, pp. 32-42.

Truth and fiction in the nationalisation vs privatisation debate

(1990). Truth and fiction in the nationalisation vs privatisation debate. Investment Analysts Journal: Vol. 19, No. 33, pp. 71-75.

Options for building an economic future

(1990). Options for building an economic future. Investment Analysts Journal: Vol. 19, No. 33, pp. 11-17.

Nationalisation of South African agricultural land: Prospects and difficulties

(1990). Nationalisation of South African agricultural land: Prospects and difficulties. Investment Analysts Journal: Vol. 19, No. 33, pp. 92-99.