The law of insider trading has progressed from an expansive approach, according to which all trading on nonpublic information was considered illegal, to a constricted approach, under which corporate outsiders are permitted to trade on nonpublic information provided such trading does not breach a fiduciary duty. This article analyzes both the former, expansive theory and the currently utilized constricted theory, within a framework of basic tenets of the American capitalist social contract regarding legitimacy of property claims. The existing constricted approach to the regulation of insider trading is found to be deficient in meeting the expectations of two core components of the social contract: it discourages procedural equality of opportunity, and it endorses claims to property that are not characterized by legitimate methods of acquisition or transfer. Because the old, expansive regulatory interpretation was more consistent with the terms of the social contract in regard to property claims, it served our economic and ethical expectations more effectively than the system presently in place. Accordingly, the article culminates in a recommendation that the expansive approach to regulating insider trading be reestablished under Unites States law.

The notion of rationality underlying contemporary business and business ethics, or the “rational actor” model of moral decision-making in business, links a roughly utilitarian notion of the good to a contractarian notion of human agency. The “C-U model” provides inadequate means for explaining how business people do or ought to behave or think about their behavior, because the notion of rationality upon which it relies is far too narrow a picture of business people’s character. An alternative to these assumptions and to the Contractarian-Utilitarian model, is offered in an ethics of virtue. Despite the traditional apparent conflict between these divergent models, the C-U model, if founded in a notion of rationality consistent with Aristotelian ethics, is recognized as a useful instrument in business ethics and business decision-making. Hence, a reconciliation is effected between the C-U model and virtue ethics.

The first magnetic recorder, the telegraphone, was invented in 1898 in Denmark. Despite favorable publicity and considerable investment, the telegraphone was a commercial failure. This article uses the theoretical concept of “frames of meaning” to explain that failure, focusing on three factors in particular: Denmark's status as a technologically peripheral country, the telephone orientation of the telegraphone's inventors, and management failures by the firm set up to manufacture the machine.

We investigate the stock market reaction to 447 announcements of business relocation decisions in the 1978–1990 period. We find that the stock market reaction to such decisions is tied to the motive for the relocation and the implied prospects for the firm, with the type of facility being relocated playing an insignificant role. Our finding reconciles several results in the literature concerning the stock market reaction to announcements of capital investment decisions.

This study investigates the liquidity effects of reverse stock splits using bid-ask spread, trading volume, and the number of nontrading days as proxies for the liquidity of the stock. Results indicate a decrease in bid-ask spread and an increase in trading volume after reverse splits. More importantly, the number of nontrading days significantly declines following reverse splits. For the control group, however, no such changes are observed. These results suggest that reverse splits enhance the liquidity of the stock.

The Capital Asset Pricing Model predicts that investors will hold diversified portfolios, but many households actually hold very few assets. The paper examines the asset pricing implications of one possible explanation for this phenomenon, fixed costs of holding assets. While earlier authors found the exact asset pricing effects of such costs in single-period models under restrictive assumptions, I derive a general upper bound on these effects that is also valid in continuous time. Illustrative calculations reveal that large holding costs must be postulated to generate significant asset pricing effects.

This paper investigates the response of stock prices to dividend shocks in a bivariate model of stock prices and price-dividend spreads. Dividend process is modeled as the sum of a permanent component and a temporary component. By using the stock price valuation (present value) model, the two components are related to stock prices. The stock market responds significantly not only to permanent shocks to dividends, but also to temporary shocks to dividends. Furthermore, initial responses of stock prices to the temporary shocks are as strong as those to the permanent shocks. As a result, substantial variation in stock prices is due to the temporary shocks. This finding provides empirical support for the imperfect information hypothesis that emphasizes the failure of investors to clearly distinguish between the two components of dividends, and also suggests that the observed mean-reverting behavior of stock returns should be explained by incorporating a significant temporary component into stockprices. The price-dividend spreads are primarily accounted for by the temporary shocks to dividends, and respond strongly to them, suggesting that, in response to the temporary shocks to dividends, stock prices respond excessively relative to dividends.

Unlike previous studies, this paper finds a consistent and highly significant relationship between beta and cross-sectional portfolio returns. The key distinction between our tests and previous tests is the recognition that the positive relationship between returns and beta predicted by the Sharpe-Lintner-Black model is based on expected rather than realized returns. In periods where excess market returns are negative, an inverse relationship between beta and portfolio returns should exist. When we adjust for the expectations concerning negative market excess returns, we find a consistent and significant relationship between beta and returns for the entire sample, for subsample periods, and for data divided by months in a year. Separately, we find support for a positive payment for beta risk.

We use a no-arbitrage, cost-of-carry asset pricing model to show that the existence of cointegration between spot and forward (futures) prices depends on the time-series properties of the cost-of-carry. We argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets, explaining many of the empirical results in the literature. We also use this model to demonstrate why the forward rate forecast error, the basis, and the forward premium are serially correlated, and to develop econometric tests of the “unbiasedness hypothesis” (sometimes called the “simple efficiency hypothesis”) in various financial markets. The unbiasedness hypothesis is so prevalent in the finance literature that many tests for it have been developed. We examine four of the common tests and and use our cointegration results to demonstrate why each of these tests should reject the null hypothesis of unbiasedness. We find strong support for our hypothesis in the existing empirical literature.

We examine the stock market effect of changes in the composition of the Dow Jones Industrial Average (DJIA). Unlike S&P 500 listing studies, we find that the price and the trading volume of newly listed DJIA firms are unaffected. We attribute this result to a lack of index fund rebalancing, since index trading is limited for most of our sample period and index funds mimic the S&P 500, not the DJIA. Firms removed from the index, however, experience significant price declines. We consider information signaling, price pressure, imperfect substitutes, and information cost/liquidity explanations for these asymmetric findings. The evidence is consistent with the information cost/liquidity explanation, which holds that investors demand a premium for higher trading costs and for holding securities that have relatively less available information.

Price adjustment delays occur between in-the-money convertible preferred stock prices and common stock prices. Convertible preferred prices systematically deviate from the prices predicted from their conversion relations with common stocks. The price predictability stems from price changes in the underlying common stocks leading the price changes in the convertible preferred stocks by up to nine hours. Cross-sectionally, about 70 percent of the variation in the unsigned size of the price deviations is explained by proxies for costs of arbitrage.

We examine how prices in interest rate and foreign exchange futures markets adjust to the new information contained in scheduled macroeconomic news releases in the very short run. Using 10-second returns and tick-by-tick data, we find that prices adjust in a series of numerous small, but rapid, price changes that begin within 10 seconds of the news release and are basically completed within 40 seconds of the release. There is some evidence that prices overreact in the first 40 seconds but that this is corrected in the second or third minute after the release. While volatility tends to be higher than normal just before the news release, there is no evidence of information leakage. In our analysis, we correct for the biases created by bid-ask spreads and tick-by-tick data.

In this paper I argue that a greater understanding of the part of ethics in leadership will improve leadership studies. Debates over the definition of leadership are really debates over what researchers think constitutes good leadership. The ultimate question is not “What is leadership?” but “What is good leadership?” The word good is refers to both ethics and competence. Research into leadership ethics would explore the ethical issues of current leadership research, serve as a critical study of the field, analyze and expand normative theories of leadership, and develop new theories, research questions and ways of thinking about leadership.