Much effort has been recently devoted to investigating and expounding the properties of the measure called “duration.” Two properties claimed for duration are (1) that it is a good indicator of the average life of a payments stream and (2) that it measures the elasticity of the present value of such a stream with respect to the discount rate. Unfortunately the theoretical justifications of the second, more important, property have been based upon the analysis of either a change in a discount rate constant for all future time periods, or, more generally, a parallel shift in the term structure of interest rates.

This paper examines the stationarity of beta coefficients, especially in regard to recent, major stock market trends. In addition to the usual correlation tests for stationarity, this paper describes a more direct method for testing the stationarity of portfolio betas. The method involves the use of paired t-tests which show separately the degree of stationarity for each portfolio beta. In the process of testing for stationarity, the portfolio betas also are adjusted for measurement error using a formulation suggested by Blume [3].

Taking a fresh look at the factors bearing on profitability of carrying coal from Newcastle to London in the eighteenth century, Professor Hausman finds that average ship loads rose and technology improved during the period. He notes that this is consistent with Adam Smith's dictum that England's effort to monopolize the colonial carrying trade, through the Navigation Acts, would divert capital from domestic to colonial shipping, thereby raising rates of return in the former and lowering them in the latter.

If the “smart money” was out of Franklin before its financial difficulties became public knowledge, just what elements of Franklin's balance sheet were the sagacious analysts reading and why weren't the banking authorities aware of this information? The purpose of this paper is to determine what balance-sheet and income-statement figures, if any, could have been arrayed in an ex post early-warning system to spotlight Franklin's developing problems.

Taking issue with such earlier theorists as Schumpeter, who believed that the rise of bureaucratic structures would stifle the innovative process that lies at the heart of capitalism and thus lead on to socialism, Professor Livesay discusses the careers of three innovative leaders who used the bureaucratic form of organization to keep innovation alive and to realize its implications. He argues that with shrewd leaders like Andrew Carnegie and Henry Ford II (and less well-known ones like Howard Stoddard) at the helm, bureaucratic organizations have been the mechanism of highly dynamic policies rather than the agency of socialistic stasis.

The asset and liability portfolios of financial institutions generate patterns of future cash flows that must conform to many restrictions in order to assure solvency and profitability. Many institutions, including insurance companies and pension funds, have definite and certain future commitments of funds. These institutions may wish to invest funds now so that their cash inflows (investment with accumulated earnings) will match their future commitments. In principle, the simplest way to meet future commitments exactly is to purchase single payment notes (or zero coupon bonds) which mature on the commitment dates. For long-term commitments, such instruments are not readily obtainable, at least in the United States. Most available bonds promise coupon payments over time so that these payments would have to be reinvested at unknown future interest rates in order to realize an accumulated sum at any future date when a commitment must be discharged. Since future interest rates are unknown at the initial moment of investment, it is not certain what accumulated earnings will be at future dates. In the absence of default, the risk of not meeting future commitments may be minimized by adopting investment strategies based on the concept of duration. Duration is a measure of the average maturity of an income stream; it is a weighted average of the dates at which the income payments are received, where the weights add to unity and are related to the present value of the income stream. Dating from the initial work of Macaulay [9] and Hicks [6], duration has been shown to be important in constructing portfolios that are hedged or ‘immunized’ from the possible ravages of interest rate uncertainty.