Empirical tests of the Sharpe [36]–Lintner [23]–Black [3] Capital Asset Pricing Model (CAPM) have generally concluded that there is a positive, approximately linear, trade-off between average return and systematic risk (beta) for portfolio returns of common stocks. Most of the empirical studies, however, have reported data for short, usually monthly, time intervals. Exceptions to this rule include Blume and Friend [8] and Sharpe [38, pp. 289–292]. Their data provide evidence that long-term wealth ratios are concave, possibly nonmonotonic, functions of beta. These data are surprising since, if returns are intertemporally independent and the linear return model of CAPM is correct, expected multiperiod terminal wealth is a convex, monotone increasing function of beta. The results of this paper provide a theoretical framework for interpreting the long-term empirical data which does not violate the notion of a monotone increasing expected terminal wealth-beta relationship.

The familiar two-parameter model for portfolio decisions, attributed to Markowitz [11], has individuals maximizing an objective function, ϕ [E(Y), V(Y)], of mean and variance of end-of-period wealth, subject to a constraint imposed by initial wealth. In the usual version there is an arbitrary number, n, of risky assets with stochastic end-of-period values (price plus dividend) represented by the vector X with exogenously given mean vector μ and nonsingular variance matrix σ. There is also one riskless asset, whose certain end-of-period value per dollar invested is p. Final wealth, as constrained by initial wealth, W, is given by Y = WP + a' (X – OP), where a and P are vectors of risky asset quantities and prices. Assuming ϕE > 0 (wealth preference), ϕV < 0 (risk aversion), and that the Hessian of $ is negative and semidefinite, portfolio optimum calls for ϕE(μ − OP) + 2ϕVσa = 0, or

In the last few years, several innovations have appeared in mortgage finance which are designed to improve the flow of funds into mortgage lending. Among this group, The Federal National Mortgage Association (FNMA) remains the intermediary which handles the largest share of most mortgage lenders' placements. As a private corporation chartered by Congress and owned by stockholders, FNMA provides a national secondary market facility for government-backed (FHA/VA) and conventional mortgages. Through its secondary market operations, FNMA furnishes a source of liquidity for mortgage lenders with the major portion of this support provided through the Free Market System (FMS) auctions. Through its issuance of forward purchase commitments, the FNMA assures lenders of a permanent investor (at a set yield) for specified periods of time, regardless of changing money market and housing conditions.

In recent years a major controversy has formed in the finance literature regarding the empirical evidence of the informational content of dividends. Despite considerable support for the position of dividend nontriviality by various studies, the work by Watts [13] represents a formidable challenge. Because of the close proximity of the firm's earnings and dividend announcement dates, the major issue of the dispute has centered on the identification and control of contemporaneous earnings information. In an attempt to settle this controversy, the present study evaluates and extends Watts' methodology.

In this paper prices of corporate bonds are decomposed into elements associated with (1) the pure price of time, (2) the default risk of the agency rating class to which the bond is assigned, and (3) the unique risk and ancillary features of the bond itself.

The objective of this study is to determine the impact of money market conditions and a bank's regulatory environment on the interest rates banks charge on their loans. This is accomplished through the analysis of the effect of these impacts, in a multiperiod framework, on a bank's optimal investment and borrowing decisions and the minimum required rate of return on its asset portfolio.

This paper shows that the integer efficient frontier for capital budgeting problems can be computed using a modified Markowitz approach. It is shown that if the quadratic integer capital budgeting problem is reformulated as a parametric programming problem on the right-hand side of the return constraint, the problem indicated by Baum, Carlson, and Jucker [1] is eliminated. The traditional Markowitz approach is to formulate the problem as an objective function parametric programming problem. Baum, Carlson, and Jucker [1] show that the traditional approach cannot generally be applied to solve quadratic zero-one integer capital budgeting problems. They show that this approach may fail to identify some efficient points. The failure results from the objective function parametric programming approach. Even though the objective function and the right-hand side parametric programming approaches are equivalent in the continuous case, they may not be equivalent in the integer case.