Grady Perdue

Applying Bankruptcy Prediction Models to Distressed High Yield Bond Issues

High-yield bonds have a relatively high probability of default, but there is no clear methodology for predicting their default. Evaluation of several corporate bankruptcy prediction models indicates that none of the major models is suitable for predicting default on high-yield bonds. A new methodology produces significantly better results.

A nineties perspective on international diversification

Abstract Investors often look to international diversification as a means to reduce the risk of a stock portfolio while maintaining a given level of return. In this study we look at ten years of historical data from the stock markets in the G-7 countries. We see how diversification from an S & P 500 portfolio into a two-market (two-country) portfolio would have impacted the risk and return. Across this ten-year period, we find that a portfolio consisting solely of the S & P 500 dominates any portfolio that can be constructed from the S & P 500 and the major market index of the G-7 countries.

The role of marketing in the valuation of a firm: exploring the underlying mechanism

Marketing plays a significant role in the value of a company, and thus has an impact on the value of the common stock. Yet, the significance of marketing in determining the value of a company and its common stock is not clearly recognized in finance. While financial theory relies heavily on estimates of future revenue streams to predict the firms ability to cover operational costs and generate profits for shareholders, financial theory usually takes marketing as a ‘given’ in financial analysis. The ability of marketing to generate various revenue streams for the firm (depending on strategic objectives) is often over‐simplified. This paper examines the role and significance of marketing in determining the value of the firm, and the price of its common stock.

Portfolio diversification in a highly inflationary emerging market

Abstract This study applies modern portfolio theory to the individual asset allocation decision of an investor in an emerging market. The study utilizes data from January 1991 to January 1999. Turkey’s experience with high inflation, depreciation in its currency, and a relatively fast growing economy provide a unique financial environment to examine personal portfolio asset allocation. Seven investments are considered for inclusion in the portfolio, including the Turkish, German and American stock markets, gold, and 12-month bank deposits denominated in Turkish liras, German marks, and U.S. dollars. The findings indicate that the lira-denominated bank deposit is the dominant investment vehicle.

DROP:The Revenge of the DB Plan

A recent innovation in defined benefit (DB) plans is providing a new form of compensation to longterm employees. Although initially implemented in public sector pension plans, the ability of private sector pension plans to replicate this new form of deferred compensation could slow or even reverse the shift from DB to defined contribution (DC) plans. A Deferred Retirement Option Plan (DROP) is a provision in a DB plan that gives long-term employees the opportunity to leave their jobs with both their traditional DB retirement annuity and a lump-sum accumulation resembling that of a DC plan. DROP is an enhancement that may be added to a DB plan but is impossible to add to a DC plan. Professionals who work in the area of compensation and benefits design need to understand this new DROP provision for DB plans so that they are prepared to help propose these plans when appropriate, assist management in understanding these plans when proposed by employees and unions and help to implement these plans.