Results of the analysis imply that rates of return on the property-liability portfolios included in this study are less than rates of return on either the investment company portfolios or the Standard and Poor's industrials. However, it appears that these differences are likely due to different investment objectives of the different portfolios.

The federal deposit insurance system of the United States was instituted as a result of severe financial crises in the United States and was intended to prevent the recurrence of some of the evils of such crises, specifically those resulting from bank deposit losses. Since the Federal Deposit Insurance Corporation (FDIC) was established in 1934, the United States has not experienced banking panics or harmful effects on the economy due to widespread destruction of bank deposits. As a result, there is a fairly widespread feeling that the present deposit insurance system has been a success. If prevention of panics and large-scale deposit destruction are the only criteria for success, this judgment may be justified, although, if the insurance system uses resources, it must be proved that panics and deposit losses would be unacceptably frequent or large in its absence.

I am going to consider three questions. First, what have been the trends in the institutionalization of savings and, as a consequence, in the evolving role of institutions in the equity markets? Second, what have been the effects of these trends on the securities industry, narrowly defined; that is, on the securities broker-dealers. And, third, what have been the effects of these trends on the financial markets and the economy as a whole?

Aggregation of monies must be determined in accord with the theory using the aggregate. This theory must specify aggregation (1) eligibility rules and (2) weights. Four current methods are evaluated on this basis: Fisher's aggregation bases eligibility on significant quantities Vi of monies Mi and attaches quantity weights Vi/Vn (Vn being numeraire). Pesek-Saving aggregation merely substitutes social marginal value weights Vipi/Vnpn. Friedman-Schwartz aggregation has eligibility depend on good subsequent statistical performance and uses weights given by private marginal values (gross of subsidies). Chetty's aggregation has all assets eligible and weighted by cross-elasticities of demand.

The purpose of this paper is to derive and test a model of the dividend-saving decision for a shareholder wealth-maximizing firm. Starting with the basic proposition that shareholders should prefer capital gains income to dividend income in a world of differential taxes and transactions costs, dividends are viewed as basically a residual in the corporate decision process. The term residual does not imply that there is no dividend decision or that dividend policy does not affect the worth of the firm since, as argued, the selection of an optimal level of dividends in an uncertain environment still involves the forecasting of future investment needs and the selection of a dividend-saving program to finance these needs at minimum cost. The relevant costs in this context relate to the possible accumulation of excess liquidity resulting from insufficient dividends on the one hand and the possible need for external equity financing resulting from excessive dividends on the other.

The “market model” of capital asset pricing theory posits that the oneperiod return on an asset is a linear function of the one-period return on a “market factor” plus the effect of factors that are unique to that asset. The coefficients of the model, estimated using realized returns, can be used for predicting asset returns conditional on market returns, and the slope or “beta” coefficient provides an estimate of the asset's risk. Although the market model has been applied to a wide variety of capital market studies and is now being applied by practitioners for assessing asset risk, very little research has been undertaken to discover the determinants of the beta coefficient.

The purpose of this research is to compare empirically the usefulness of two historical risk, measures to predict the probability of future loss of various magnitudes resulting from investment in different common stocks. The two risk measures are the mean absolute deviation and the standard deviation of the natural logarithms of monthly investment performance relatives.

In the last decade the theories of Investor behavior and capital markets have broadened to recognize the importance of the portfolio decision of investors and the simultaneity of price determination of equity values. Tobin, Sharpe, Lintner, and Lerner and Carleton have all made contributions to the theory that equity markets are essentially a system in which many investors simultaneously seek to maximize their wealth by allocating their available liquidity among various equities.

For as long as governments have intervened in economic affairs, private decision makers have searched for signs and indicators of ongoing or impending government actions. A century ago, anxious British bankers relied on changes in the bank rate to provide them with information on the intent of the Bank of England. Contemporary decision makers not only analyze changes in policy-tools monetary, fiscal, or debt policy actions—but they carefully scrutinize the words of ever more talkative economic policy makers. The State Department's legendary crew of “China watchers” could not analyze pronouncements by Chairman Mao any more carefully than money market bankers and security dealers analyze an economic report of the President or a speech by the Chairman of the Board of Governors of the Federal Reserve.

Under certainty the firm's average cost of capital is a directly observable magnitude — the rate of interest. Under uncertainty the firm–s average cost of capital is an ex ante expectational concept which is not directly observable. In a seminal application of their prior theoretical contributions to corporation finance, Miller and Modigliani (M-M) [11] obtained indirect econometric estimates of the cost of capital for electric utility firms. A sample of electric utilities was ideal for an empirical application of the A M-M valuation model which is rooted in the partial equilibrium framework of an equivalent risk class. For other industries where interfirm differences in operating risk are greater, the equivalent risk class assumption would be less appropriate. That is, each firm in a heterogeneous industry may be considered in a unique risk class and the concept of an industry cost of capital would be suspect. Furthermore, the M-M theoretical construct does not provide insights into the relationship among costs of capital of firms in divergent risk classes.

The dividend decision is a residual corporate decision and yet it is not a residual corporate decision. This theme runs through Professor Higgins' paper. It is based on the one hand on Higgins' belief that other decisions are more important and should take precedence over the dividend decision, and on the other, that the dividend decision is a function of these more important decisions. If dividends were truly residual, they would be explained by the corporate budget identity. In the empirical analysis, however, dividends are a function of other balance sheet decisions. In this sense the decision is neither active nor residual but passive. The reader wonders why the author insists on this role for dividends when interdependency in decision making is the more appealing (and inevitable) framework.

The facts of increased institutional trading on the nation's securities markets are by now well known. On the New York Stock Exchange (NYSE), the six major institutional groups—insurance companies, investment companies, noninsured pension funds, nonprofit institutions, common trusts, and mutual savings banks, now own more than one-fourth of the market value of listed shares compared with less than 16 percent at the end of 1956. But, ownership is merely the tip of the perennial iceberg, since institutional trading of stock has become much more significant than institutional ownership. This fact is pointed up in the recent SEC Study of Institutional Investors. It shows that there has been a relatively slow increase in the share of outstanding stock owned by institutions in all markets, but the institutional share of trading has mushroomed.

Understanding and predicting various aspects of the financial performance of corporations have been undertaken almost entirely on the basis of assumed one-way statistical relationships which rely on some aspects of internal corporate behavior being exogenous to other aspects of behavior. When financial performance variables involved in such studies are jointly determined as parts of a simultaneous system of financial performance, this approach cannot be expected to produce useful results, because it is well known that obtained statistical results are biased and inconsistent.

First, let me say that I enjoyed Professor Edmister's paper and found his Inquiry into ratio analysis and multiple discriminant analysis (MDA) for small business financing decisions quite interesting.

During the past two decades, corporate managements have been increasingly Interested in growth through mergers and acquisitions. This external growth trend has been accompanied by the development of several merger strategies and philosophies. As a result, merger literature is frequently concerned with concepts such as price-earnings ratio strategy [13] and merger synergy. Synergy may be operational (e.g., the development of marketing or production economies) and/or financial in nature. Although financial synergy may produce “real” benefits (e.g., a lower cost of capital or increased cash flows), it is the general custom today to associate financial synergy with temporary [8], pecuniary [10], or instantaneous [9] earnings per share benefits.

This study develops and empirically tests a number of methods of analyzing financial ratios to predict small business failure. Although not all of the methods and ratios are predictors of failure, many ratio variables are found which do predict failure of Small Business Administration borrowers and guarantee recipients. Using step-wise multiple discriminant analysis with a restriction on the simple correlation of the entering variable with the included variables, a function of independent ratio variables, which is highly accurate in classifying borrowers in the test sample, is developed. Methods of analysis found useful are (1) classification of a borrower's ratio into quartiles relative to other borrowers in the sample, (2) observation of an up- or down-trend for a three-year period, (3) combinatorial analysis of a ratio's trend and recent level, (A) calculation of the three-year average, and (5) division of a ratio by its respective RMA industry average ratio. The discriminant function demonstrates an ability as great as those functions recently estimated for much larger firms. However, the small business function fails to discriminate when only one statement is available, whereas Altman [1] and Beaver [4, 5] show that one financial statement is sufficient for a highly discriminant function for large businesses. This leads the author to qualify his conclusion above with the provision that at least three consecutive financial statements be available for analysis of a small business.

I find a great deal in Kaufman's paper with which I am in agreement, and I think that setting out the two approaches, the neutralized variable approach versus the ideal indicator, is very useful. I have nothing to add to what Kaufman has said about the work on neutralized variables, even though I know there are a few people who do not consider this a closed issue.

Weeden & Co.'s business is that of making markets. We do it in many different types of securities and we take considerable inventory risk in the process. As market makers we learn to be direct in our dealings. “My market is 62 bid; offered at 62½.” “I can offer 5,000 at 62½ net.” The pace and the pressures of the marketplace tend to make us impatient with those who speak in vague terms, who mask their intentions, or who do not know the facts.