The problem considered in this paper is the optimal expansion or contraction of credit by a single bank in response to a change in its reserve account. Such a change is usually not of an exogenous nature when the entire operations of the bank are considered. Quite often, the change in the reserve position comes as a result of the bank's decision to engage in securities transactions, thereby changing its mix of reserves and securities without affecting the total asset position of the bank. We do not consider the overall portfolio selection problem faced by the bank; we assume that changes in the reserve account from such decisions are exogenous to our models.

In a paper published in an earlier issue of this journal, Melnik and Kraus [3] reported the results of their time-series analysis of the yields on U.S. government securities. The data used by the authors are somewhat unique in that the observations were derived from a regression-fitted yield curve, and in that the trend in mean was removed by employing deviations from a fitted trend line as the time series to be analyzed. The authors applied cross-spectral methods to their derived monthly time series for ninety-day Treasury bills and ten-year Treasury bonds, encompassing the years 1954–1967. Their interpretation of the results of their analysis led the authors to conclude that a cycle of eighteen to twenty-four months is significant and that the ten-year rate leads the short rate, thus apparently lending credence to the expectations hypothesis of the term structure of interest rates. A close examination of the basis for the Melnik and Kraus conclusions leads one to believe that they are questionable on the following two counts.

Recent studies of mutual funds have all arrived at the same conclusion: mutual fund performance has been inferior to the performance of the market indices. One of the most prominent of these studies was conducted by William F. Sharpe. He showed that if his measure of mutual fund performance, the reward-to-variability ratio, is calculated net of management expenses for each fund in his sample of thirty-four, then the average value of this ratio over the thirty-four funds is significantly less than the same measure applied to the Dow Jones Industrials over the 1954–1963 period. From this evidence, Sharpe concluded that average mutual fund performance was distinctly inferior to an investment in the Dow Jones Industrial Average. It is the intent of this paper to show that if another variable, namely the third moment of the fund's annual rate of return, is introduced into the investor's decision process, Sharpe's conclusion must be altered.

An examination of the manuscript censuses of manufacturing in 1850 and 1860 indicates the forthcoming revision of many traditional interpretations of American industrial development. This study suggests that large-scale manufacturing in the South and West was quite similar in the decade before the Civil War and that antebellum manufacturing was sufficiently concentrated to imply that the model of perfect competition is as inappropriate a description of mid-nineteenth century industrial structure as it is of twentieth century industry.