LeRoy D. Brooks

Evidence on equity private placements and going-out-of-business information release

Abstract In our study, shareholder wealth gains around announcements of equity private placements primarily came from firms which subsequently went out of business. Investors’ positive response was consistent with an expected greater survival likelihood for more troubled firms, but with no such revisions for stronger companies. Inconsistent with their apparent beliefs, going-out-of-business companies had statistically significant and material negative abnormal returns that averaged 17.5% from prior to and until 150 days after the announcement period. Still-in-business companies had insignificant abnormal returns over either the announcement or post announcement period. The evidence on failing businesses is consistent with a semi-strong form of efficient markets hypothesis violation.

Marginal Stockholders and Implied Tax Rates

In this REVIEW some years ago, Edwin Elton and Martin Gruber (1970) used the concepts of market equilibrium and differential tax rates between capital gains and dividend income to structure a theoretical model which they then used empirically to estimate marginal stockholder tax rates. Their specification of an equilibrium condition is appropriate for a security seller who qualifies for preferential tax treatment of capital gains. However, their assumption that such a stockholder is the marginal stockholder in a market equilibrium is questionable. This assumption, along with disregard of transactions and other costs, is essential to their empirical derivation of stockholder tax rates. This note presents an alternative explanation of their empirical results.

A stationary stochastic parameter model and OLS estimation of beta: A simulation study

Abstract A procedure that explicitly estimates the form of beta nonstationary followed by a security is examined. Beta estimates and forecasts generated from this process are compared with estimates and forecasts generated by the ordinary least squares (OLS) procedure. With the true underlying parameters known in the simulations, estimator basis adn efficiency are both measured. The OLS estimators and predictors are found to be quite robust, generally providing accurate estimates even when OLS conditions are seriously violated. The expanding advocacy of random-coefficient and other stochastic parameter models is open to question.

Inventory Policy Incorporating Systematic Risk

ABSTRACT An expected return-systematic risk (r,β) criterion is used to develop a decision framework for investing in inventory. The direct incorporation of risk in the model in the context of the Capital Asset Pricing Model avoids the shortcoming of exogenous risk specification, which is inherent in both the return on investment and cost minimization criteria commonly employed in inventory management.

The impact of U.S. money supply announcements on foreign exchange markets: An event study approach

The primary objective of this short paper is to demonstrate how the event study methodology may be applied to the foreign exchange market, as suggested by Kwok and Brooks [ll]. The events chosen for the demonstration are the announcements of U.S. money supply. Using the regression approach, previous studies find that the impact of U.S. money supply announcements on the currency markets generally support the policy-anticipation hypothesis. It would be interesting to see whether similar results are obtained with the event study methodolo~ and whether additional insights may be generated using this alternative methodology. In order to encourage event studies in currency markets, Kwok and Brooks [ll] extend the Brown and Warner [l, 21 simulation study to the foreign exchange market. The power of four abnormal return models is examined under different experimental conditions. They consider choice of foreign currency or numeraire, level of abnormal shock, sample size, length of estimation period, market return proxy, and time period examined. Their results show that, under most circumstances, the market model seems to be the best model and that some findings of Brown and Warner in the common stock market are not generalizable to the foreign exchange market. Following the suggestions of Kwok and Brooks, this paper demonstrates how the event study methodology may be applied to examine the impact of U.S. money supply announcements on exchange rates, In examining the impact of U.S. money supply announcements, most of the previous studies (such as Cornell [3], Doukas [5], Ito and Roley [lo], Hakkio and Pearce [S] and Hardouvelis [9]) use a regression equation of the general form:

Risk-return characteristics of convertible preferred stock: Comment

Soldofsky’s findings are provocative. For example, differences in contractual features of convertible preferred, straight preferred, and common stocks would lead one to expect that convertible preferred stocks have risk and return levels falling between those of straight preferred and common stocks. Convertible preferred stocks, like straight preferreds, typically have prior claims on corporate income ahead of common stock, but, unlike straight preferreds, they also provide an opportunity for price appreciation from the conversion privilege. Since the advantageous combination of ”safety” and “growth” in the convertible security is intended to appeal to investors seeking intermediate levels of risk and return, Soldofsky’s findings are surprising. The empirical findings of the present study conflict with those of Soldofsky; we find risk and return to be positively associated.