This research provides improved techniques for analyzing the after-tax risk exposure of taxable institutions holding amortizing instruments such as commercial, real estate, and consumer loans. We derive after-tax duration for amortizing instruments and analyze it for sensitivity to tax rates, coupon, and maturity. Taxable investors who hedge and ignore the effects of taxes on amortizing instruments will underestimate differences in durations on bonds versus amortizing instruments of equal maturities; bond durations increase much faster as tax rates increase. One unexpected result shows that, unlike bond duration, amortizing instrument duration often increases with coupon rate, and sometimes is independent of coupon rate.

Speculative bubbles have been offered to explain the excess volatility results by Shiller (1981) and LeRoy and Porter (1981). Recent work by Flood, Hodrick, and Kaplan has shown that rational speculative bubbles cannot be the explanation for the excess volatility results. This paper provides an analytical framework for examining the hypothesis that the simple present value model used for the excess volatility studies is a misspecification of the true model. The method is applied to data from a market index and four large corporations. The results are consistent with the hypothesis that the simple present value model is not the correct specification for stock market pricing.

This paper presents a generalized version of the lattice approach to pricing options. It shows how the control variate technique can produce significant improvements in the efficiency of the approach. The control variate technique is illustrated using American puts on dividend and nondividend paying stocks.

This paper examines the valuation impacts of specially designated dividends (SDDs) by analyzing the behavior of stock and bond prices on dates surrounding their announcements. The evidence presented here suggests that SDDs are considered positive signals by the market, with (most of) the gains associated with their announcements accruing to stockholders. In addition, we present some evidence that the gain to stockholders is negatively related to the frequency of SDD announcements.

In discussions of the fight for the Pure Food and Drugs Act of 1906, Harvey Washington Wiley is usually portrayed as the consumers' champion, the Whiskey Trust as their adversary. Messrs. High and Coppin argue otherwise. Wiley's correspondence from 1904 to 1906 reveals a deep split between whiskey producers, with the makers of straight whiskey lining up behind Wiley's pure food bill and the rectified whiskey producers fighting against it. The authors argue that both sides used the consumer only as a convenient focus for their rhetoric; their activities thus provide another example of regulatory legislation passed to further the goals of private interests rather than to protect the public interest.

This historical comparison of the Vickers and Alcoa experiences with “borrowed” German airship technology highlights the importance of studying the way industrial R&D has been organized, both within industries and inside individual companies. Professor Graham shows that Alcoa's move in 1919 to organize its corporate Technical Department to include balanced research and development capabilities allowed it not only to appropriate Duralumin technology, but also to build on that technology so that it could be used to supply the infant U.S. airframe industry. Lacking such integrated R&D at the corporate level, Vickers obtained only short–term financial returns on its investment in Duralumin expertise. This article suggests that the differences in exploitation of high–strength aluminum derived partly from different national climates for R&D in the United States and England after the First World War.

In the following article, Professor Baskin traces the evolution of corporate finance from its beginnings among the British trading companies to its modern transformation in the United States at the end of the nineteenth century. He argues that deductive theoretical analyses based on perfect capital markets cannot always explain actual historical developments, and that financial history generally has not received sufficient attention from either economic theorists or historians. Professor Baskin suggests that financial markets developed as they did largely as a result of efforts to minimize the problems created by the asymmetry of information between company insiders and potential investors.