The paper provides sufficient conditions under which a nonrandom economic variable specific to some asset (the dependent variable) can be represented as a linear combination of the betas of some random characteristics of the asset (the independent variables) with some economy-wide factors. This generalizes Ross' APT that proves the above in the case where the dependent variables are expected returns and the independent variables are returns. This generalization will provide a theoretical basis for many existing multibeta relationships beyond the setting of asset pricing models and, thus, motivate their wider use in empirical and theoretical research.

This paper develops an equilibrium factor pricing theory when investors have heterogeneous beliefs about asset payoffs generated by the Ross linear factor model. Investors receive private information about the unknown parameters of the payoff process. They use this private information and equilibrium prices to predict asset payoffs. The paper develops a closed form price function for a noisy rational expectations equilibrium and relates it to the general solution. Even though we allow for a large number of investors, diversity of beliefs and parameter uncertainty both persist in equilibrium. We show that investors' beliefs about expected payoffs are approximately linear in the asset's betas, thus establishing the APT. As investors prefer to hold high information assets in equilibrium, the relative weight of these assets in the APT pricing bound is higher. The reverse is true for low information assets.

This paper provides a comprehensive study of weekly seasonal effects in GNMA, T-bond, T-note, and T-bill futures returns. Two distinct patterns are found in returns on GNMA, T-bond, and T-note contracts, while no seasonals are noted for T-bill futures. A negative Monday seasonal—similar to the well-known Monday effect in stock returns—is found for GNMA and T-bond contracts. A positive Tuesday seasonal is found on GNMA, T-bond, and T-note contracts. Our evidence indicates that the significance of weekly seasonals depends in an important way on the time period studied. The negative Monday phenomenon occurs only in the data before 1982, while the positive Tuesday effect is present only after 1984. In addition, we find that both seasonal phenomena occur only during months prior to a delivery month. This effect appears to be related to the calendar month. More specifically, the Monday effect is apparently concentrated during February, while the Tuesday effect is concentrated during May.

On average, nonconvertible preferred stocks have significantly positive abnormal returns and trading volume on the ex-day. For the less liquid stocks, however, the abnormal returns are significantly positive, and abnormal trading volume is insignificantly different from zero. This evidence suggests that long-term individual investors set the ex-day prices of less liquid stocks. For the more liquid stocks, the ex-day abnormal returns are closer to zero, and there is significantly positive abnormal trading volume on the ex-day and the day before the ex-day. These results suggest that short-term investors set the ex-day prices of more liquid stocks through dividend capture strategies. Despite this evidence, some inconsistent empirical findings make the overall evidence on dividend capture somewhat mixed.

As demonstrated by Boyce and Kalotay (1979) and Brick and Ravid (1985), the use of long-term debt may be preferred because of tax-related advantages. Brick and Ravid show that if there exists a tax advantage to debt and nonstochastic interest rates, long-term debt will increase the present value of the tax benefits of debt if the term structure of interest rates, adjusted for risk of default, is increasing. A decreasing term structure, on the other hand, calls for short-term debt. The present paper extends the tax-induced argument of Brick and Ravid to allow for the presence of stochastic interest rates. Once interest rates are uncertain, pricing even under risk neutrality becomes a complex issue. We analyze the debt maturity decision under two competing pricing equations: the return to maturity expectations hypothesis and the local expectations hypothesis. (This terminology is used in Cox, Ingersoll, and Ross (1981) and Campbell (1986).) Under uncertainty, a debt capacity factor will create an additional incentive to issue long-term debt. Our other results may be interpreted to indicate that if the term premium, the difference between the implied forward interest rate and the future expected spot rate, is positive (sufficiently negative) then long-term (short-term) debt maturity strategy is optimal.

This paper provides an imperfect information explanation for the existence of bank loan commitments when both the bank and the potential borrower are risk neutral. The borrower is assumed to have access to a two-stage investment project wherein the investment required in the second stage is not known at the outset. The unknown investment requirement is revealed to the borrower, but not to the bank, at the beginning of the second stage. If the investor borrows at the beginning of the first stage, the realization at the beginning of the second stage might prompt a default in a situation where the project yields positive net present value. The reason is that the borrower does not regard the first-stage investment as a sunk cost. We show that a two-stage contract resembling a loan commitment can solve this under-investment problem.

This paper examines cash management bill announcements in an event study framework and finds that segmentation in the Treasury bill market is widespread and not limited to bills maturing across month-ends. Announcements of cash management bills, which represent unexpected additional supplies of outstanding Treasury bills, cause the yields on these bills to rise significantly relative to yields on adjacent maturity bills. This paper also finds, consistent with other studies, that segmentation is greater at the short end of the bill market.

This paper uses a time-state-preference valuation model to examine how the firm's choice of technology and production method affects its equilibrium level of risk and, as a result, the firm's cost of capital. A fixed and flexible method of production is analyzed for a firm using a Cobb-Douglas production function. In both cases, it is found that risk and the cost of capital decrease with the level of capital intensity. Implications are drawn for the specification of empirical tests of the determinants of risk.

Previous studies in the valuation of American options apparently undervalue the right of early exercise. This study uses actual prices from the CBOE's S&P 100 option instead of model-generated values. Deviations from the theoretical put-call parity relationship are caused by the possibility of early exercise. These deviations are used to infer the value of early exercise. The actual value of early exercise is both statistically and economically significant. As expected from theoretical considerations, the value of early exercise for put options is greater than for call options.