Paul Strebel

Pay attention to neglected firms

T he intensity of the research performed by security analysts on listed companies varies widely. Some companies receive broad and continuous attention, while others get virtually no coverage at all. Examples of the latter can be found even among large corporations. In fact, at any given moment, between 100 to 150 companies included in the SP it

A new beta incorporating analysts' forecasts

T he standard beta risk measure, based on historical data, is unable to account for the superior returns on small firms or for the returns on securities neglected by analysts. The superior risk-adjusted returns on small firms were first rigorously documented by Banz [1981] and Keim [1982], while the returns on neglected firms were reported by Arbel and Strebel [1982]. When we compute the standard beta, the historical return distributions are employed without modification as the best estimate of investors’ future expectations. The standard measurement of beta makes no allowance for the information contained in analysts’ forecasts, or for estimation risk in general. Thus, it gives no attention to the impact of analysts’ forecasts on investors’ expectations concerning the future volatility of returns, nor does it take account of instability in the historical return time series. These factors are not critical in the case of large, highly researched firms with relatively stable return data, where beta provides a reasonable estimate of future risk. For small neglected firms, however, the historical measurement of anticipated risk may be grossly inaccurate. We present a new beta derived from a respecified capital asset pricing model (CAPM), incorporating the information contained in analysts’ forecasts by allowing for uncertainty in the mean of the expected return distribution. The conceptual basis of the new beta is described in the next section. We then use a sample of 660 securities to test the new beta relative to the old beta in terms of its ability to 81

The Hotel Industry as a Hedge Against Inflation: The Empirical Evidence:

Institutional investors have traditionally viewed hotels as an especially effective hedge against inflation —and the results of a recent study indicate that hotels were reasonably well preserved from the effects of inflation over a 20-year period

Industry structure and trade policy under fluctuating import prices

Abstract When subsidies and tariffs are applied to imports with fluctuating prices, it is shown that the output response of domestic producers depends on market structure and their attitude toward risk. The domestic industry response is contrasted under two types of market structure, a monopoly and a competitive industry. Some unanticipated results suggest caution in the implementation of trade policy.

Contract revision and price quantity adjustment: A catastrophe model

An attractive feature of contract theory is its potential ability to explain stagflation, and sluggish price quantity adjustment without violating the rational expectations hypothesis. Most macro models which include contracts describe the disequilibria generated by differences between the growth in nominal demand and historically contracted inflation. If reequilibration is considered, it is usually a gradual process, which occurs via the incorporation of the nominal demand growth rate into contracted inflation via scheduled contract renewals. No allowance is made for more rapid re-equilibration, in the form of unscheduled contract revision. This paper incorporates a simple contract revision mechanism into a mixed contract model, with inflation and unemployment as the price and quantity variables. The long term contracts in the model are based on job-specific, monopoly human capital theory/ ra ther than the alternative insurance, or risk sharing theory of contracts, which has been criticized as incomplete/ In effect, the spot and contract sectors of the market are segmented by the monopoly effects of specific human capital. Prices in the spot sector clear this market alone, rather than the contract sector as well, the difference being made up by quantity adjustment.