David P. Ely

Are stocks a hedge against inflation? International evidence using a long-run approach

Abstract A large body of evidence indicates that the stock market tends to perform poorly during inflationary time periods. However, these results are mostly obtained from models structured to estimate the short-run relationships between stock returns and inflation. In this paper, we use a reduced-form approach and recent advances in the theory of cointegration to explore the international evidence on the relationship between stock prices and goods prices. This approach allows us to test if stocks maintain their value relative to goods prices and whether these response patterns depend on the source of inflation shocks. For most of the countries analysed, our results indicate that stocks do maintain their value relative to movements in overall price indexes and this conclusion generally does not depend on whether the source of the inflation shock is from the real or monetary sector. One notable exception is that stocks do not maintain their value relative to goods price following real output shocks in the US.

American depositary receipts: An analysis of international stock price movements

Abstract With significant increases in private capital flows across the globe, there has been a rise in the US listing of foreign stocks as American depositary receipts (ADRs). In this study, we employ cointegration techniques and estimate error-correction (EC) models to examine the degree of integration between US and three foreign equity markets. We find that ADRs are cointegrated with ordinary shares trading in the UK, Japan, and Germany, which implies that for long-term investors, they are a substitute for ordinary shares. Our analysis of the dynamic relationships between ADRs and foreign equities suggest that both markets contribute information pertinent to portfolio valuation. However, the foreign markets are found to be the more important source of information.

Internet banking: a customer-centric perspective

Many financial institutions are actively developing new electronic banking products for their retail customers. These efforts are can succeed only if their managers focus the promotion of the new services toward those customers who are most likely to find them attractive. The analysis of a 6-branch financial institution presented in this study suggests that institutions are vulnerable to loss of customers to rivals with extensive online services. The likelihood of current customers being tempted to do business online with another institution was shown to increase with the level of customer transaction use on the Internet. Current customer account relationships are found to be predictive of electronic services use in general. And, interest in the use of specific online services is related to differing customer relationships in addition to ordinary demographic and balance information. These findings can be useful in identifying potential users from a customer relationship management perspective.

Stock returns and inflation: Further tests of the role of the central bank

This study investigates the anomalous relationship between real stock returns and inflation. Specifically, we investigate hypotheses that claim the proxy relationship between inflation and expected real output is driven by the practice of debt monetization and/or countercyclical monetary policy carried out by the central bank. Using a rational expectations approach to the determination of stock returns, the equilibrium process in the monetary sector is not found to be a consistent explanation for the anomalous relationship. Also, the results do not favor the hypothesis that debt monetization lies behind the performance of the stock market during inflationary time periods.

Derivative securities and cash market stability

This study investigates the effect of introducing interest-rate futures and options on the price variances in related financial cash markets. Standard research approaches to this issue relate cash-price stability before the introduction of futures and options trading to cash-price stability after trading in the derivative security begins. However, controlling for the additional factors that may also effect cash markets is difficult. The approach employed here to deal with this obstacle is motivated by recent theoretical research relating cash and futures markets, but hitherto not operationalized to empirically test for a relationship between the markets. Varying-parameter models of (1) the demand for short-term Treasury securities, (2) the demand for large time-deposits, and (3) the supply of large time-deposits are specified such that changes in the parameters imply changes in the volatility of the cash price. These parameters are modelled as functions of the trading volume of interest-rate futures and o...

Acquisition activity of large depository institutions in the 1990s:: An empirical analysis of motives

Abstract This study examines the performance and ownership structure characteristics of financial institutions that chose to aggressively expand by acquiring other institutions. The “wealth maximization hypothesis” posits that in an era of deregulation, the most efficient institutions will acquire the less efficient, thereby creating value and benefiting shareholders. Conversely, the “incentive conflict hypothesis” argues that a large number of acquisitions is a symptom of managers pursuing their own self interests. The empirical results are consistent with the wealth-maximization hypothesis for acquirers that have at least one large outside blockholder and when acquisition activity is measured by assets acquired. But, when acquisition activity is measured by the number of acquisitions, our results fail to support the wealth-maximization hypothesis. Together, these results imply that benefits are more likely to be created when the expansion strategy is implemented by making large acquisitions rather than numerous small acquisitions. Jel classification: G21, G28, G34

Assessing the Resolution of Insolvent Thrift Institutions post FIRREA: The Impact of Resolution Delays

The Resolution Trust Corporation (RTC) was created by FIRREA in 1989 to manage and dispose of troubled thrifts in a manner that would minimize resolution costs. In this study, we focus on the transition of troubled thrifts from conservatorship into resolution via sales in RTC auctions. We examine the determinants of bidder participation, observed premiums, and RTC estimates of resolution costs, including the impact of resolution delays in RTC-insured-deposit-transfer and purchase-and-assumption auctions from August 1989 to November 1991. Our analysis indicates that resolution delays were associated with lower premiums and higher resolution costs. These associations are found to be economically and statistically significant and result from both the deterioration in franchise value and the deterioration in asset value while being held in conservatorship.

Opportunity Costs Incurred by the RTC in Cleaning Up S&L Insolvencies

This paper draws attention to an important but neglected component of the costs of the thrift cleanup as reported by the Resolution Trust Corporation (RTC). The RTC resolved 747 thrift institutions over the period 1989-1995 at an estimated cost of

Is the Community Reinvestment Act in Need of Further Reform? Evidence from Equity Markets during the 1995 Reform Process

90.1 billion. Since the RTCs loss exposure indirectly represented a taxpayer-funded equity position in troubled thrifts, the associated opportunity costs constitute significant costs that are in addition to the reported resolution costs. Recognition of this important category of costs raises the taxpayer burden from the official estimate of

Consolidation, Technology, and the Changing Structure of Banks' Small Business Lending

90.1 billion to a cost of between