Jerry L. Stevens

Corporate returns and cash conversion cycles

This study examines the relationship between profitability measures and management of ongoing liquidity needs for a large cross-section of firms over a twenty-year period. Long-run equilibrium relationships between the cash conversion cycle, a measure of ongoing liquidity management, and alternative measures of profitability are tested using both nonparametric and multiple regression analysis. Industry and size differences are controlled. While there are exceptions to the general finding for specific firms and for specific industries, the paper offers strong evidence that aggressive working-capital policies enhance profitability.

Time Series Estimation of the Bond Default Risk Premium

The bond default risk premium, measured by the spread between higher and lower grade bond returns, is often estimated with univariate time series procedures and used as an input in financial models. In this paper, time series properties of the historical default risk premium are analyzed and forecasting results from univariate time series models are compared. An autoregressive model with an overraction component provides the best statistical fit for the bond default risk premium series. A random walk model exhibits the worst fit. The findings are robust over a variety of model specifications and measure the time series process the univariate time series models explain a small percentage of the variation in the default risk premium, raising questions about traditional approaches to estimating the expected default risk premium.

The Effects of Dividend Payout, Stability, and Smoothing on Firm Value

Dividend policy relevance has been researched extensively, but little consensus can be built from the findings. Researchers have examined the influence of short-run dividend announcements on stock prices and have tested the relationship between dividend yield and risk-adjusted returns. The implicit assumption in these studies has been that dividend announcements or dividend yield measure the relevant aspects of a firm’s dividend policy. Unlike previous studies, this study tests the relationship between multiple dividend “policy” measures and a market-value-based measure of firm performance, everything else equal. Policy variables measuring the level as well as the stability and smoothing of dividends relative to earnings are employed as measures of a firm’s commitment to dividends over time. Capital market premiums, unexplained by other sources of rents to the firm, are examined for a wide cross-section of firms in multiple regression models to test for statistically significant relationships with dividend policy measures.

Integration of LIBOR and Treasury bill yields over different monetary regimes

Abstract In this paper, tests are conducted for cointegration and Granger-causality relationships between monthly yields on 90-day maturities for London Interbank Borrowing Rate (LIBOR) and Treasury bills (T-bills). Unlike prior studies, there is no evidence of increased integration between LIBOR and T-bill yields over time. Findings in this study suggest that tests of integration of global dollar markets are sensitive to sample periods and different monetary regimes. Integration relationships are strongest under interest rate target regimes and weakest under non-borrowed reserve regimes, as predicted. Under the current regime of borrowed reserve targets, a hybrid of money supply and interest rate targeting, LIBOR and T-bill yields are integrated to a lesser extent than under interest rate target regimes prior to 1979.

Personal Taxes and Equity Security Pricing

* Do personal taxes affect pricing in the security markets? To a practitioner, the answer to this question is obvious: Yes. Yet, capital asset pricing theory is based on a number of perfect market assumptions one of which is that personal taxes do not exist. Equity prices are strictly a function of a securitys beta and the expected market risk premium. Beta, the only company-specific estimate, is unlikely to capture any tax factors.

Investment performance of high income stocks over up and down markets

This paper presents empirical tests of the hypothesis that high-dividend-yield stocks offer investors significantly lower systematic risk in down markets. While high-yield stocks have lower levels of systematic risk overall, there is no evidence in this study that lower systematic risk is achieved in down markets for stocks with high-yield components in their total rates of return. This finding is robust over a variety of test procedures and provides additional support for dividend irrelevance propositions.

Fiduciary and legal considerations for student-managed investment funds

ABSTRACT Student-managed investment funds are popular forms of experiential learning in business schools and finance departments. The investment management experience is a real world activity and the structure of the fund may also introduce real world fiduciary and legal responsibilities for students, faculty, and administrators. The authors review how the Uniform Prudent Management of Institutional Funds Act (UPMIF) and Investment Advisers Act of 1940 apply to common structures of student-managed funds. They summarize their findings to suggest the best structure of a student-managed fund depending on the source of funding and relevant requirements under the UPMIF and the Investment Advisers Act of 1940.

The Next Generation ETF Student Managed Investment Program

Exchange-traded funds (ETFs) are well suited for trading in student-managed investment funds (SMIFs). Unlike other forms of security selection, ETF trading provides efficient trading of portfolios by asset classes, subclasses, investment style, countries, regions, and sectors. The learning experience from trading ETFs based on global macroeconomic themes enhances the learning experience of economics students by requiring application of macroeconomics, industrial organization, international economics, and econometrics. This article presents the structure, tools, and results of an ETF trading program implemented by the economics and finance departments at the University of Richmond. Although this SMIF example uses ETF funds as a learning medium for undergraduates, the investment process with ETFs is also well suited to small individual investors.