Evidence Of The Nonstationarity Of The Variance Rate Of Ret

A study was conducted to test for the stationarity of the variance rate of return of 150 New York Stock Exchange (NYSE)-listed common stocks. The sample consisted of NYSE-listed common stocks from June 15, 1981, through August 21, 1981, and October 4, 1982, through December 14, 1982. Two estimators of the variance rate were used. One estimator used returns data, and the other incorporated the range of prices over the period. The results show that the variance rate of return was not stationary for most of the stocks studied. There was a median change of 100% over a period of 1 1/2 years. The degree of change decreased as the interval between estimates was shortened, as did the extent to which the variance rates of different stocks changed in the same direction. The size and direction of the change were not strongly related to the trading frequency of the stock.
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Callaway, Richard E.

Full text: [The Financial Review] May 1989

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Evidence of the Nonstationarity of the Variance Rate of Return of New York Stock Exchange Listed Common Stock

A study was conducted to test for the stationarity of the variance rate of return of 150 New York Stock Exchange (NYSE)-listed common stocks. The sample consisted of NYSE-listed common stocks from June 15, 1981, through August 21, 1981, and October 4, 1982, through December 14, 1982. Two estimators of the variance rate were used. One estimator used returns data, and the other incorporated the range of prices over the period. The results show that the variance rate of return was not stationary for most of the stocks studied. There was a median change of 100% over a period of 1 1/2 years. The degree of change decreased as the interval between estimates was shortened, as did the extent to which the variance rates of different stocks changed in the same direction. The size and direction of the change were not strongly related to the trading frequency of the stock.
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Callaway, Richard E.

Full text: [The Financial Review] May 1989

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A General Stationary Stochastic Regression Model For Estima

A beta regression model was proposed in which the coefficients follow a general class of stationary stochastic processes. The procedure identified the processes and estimated the parameters of the model simultaneously from the information in the return series. The returns of each of the Dow Jones 30 securities were analyzed over 60-month estimation periods. The betas of 5 of the securities were nonstationary and did not seem to follow a particular form of nonstationarity. The conclusions of many earlier analyses may be suspect because they were based on procedures tailored to the adoption of a specific form of beta nonstationarity. Therefore, they were based on an erroneous a priori assumption regarding such form. The ordinary least squares model also was found to be quite robust, providing reliable beta and intercept estimates not materially different from the more complex procedure with 25 of the return series.
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D’Souza, Rudolph E.
Brooks, LeRoy D.
Oberhelman, H. Dennis

Full text: [The Financial Review] May 1989

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A General Stationary Stochastic Regression Model for Estimating and Predicting Beta

A beta regression model was proposed in which the coefficients follow a general class of stationary stochastic processes. The procedure identified the processes and estimated the parameters of the model simultaneously from the information in the return series. The returns of each of the Dow Jones 30 securities were analyzed over 60-month estimation periods. The betas of 5 of the securities were nonstationary and did not seem to follow a particular form of nonstationarity. The conclusions of many earlier analyses may be suspect because they were based on procedures tailored to the adoption of a specific form of beta nonstationarity. Therefore, they were based on an erroneous a priori assumption regarding such form. The ordinary least squares model also was found to be quite robust, providing reliable beta and intercept estimates not materially different from the more complex procedure with 25 of the return series.
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D’Souza, Rudolph E.
Brooks, LeRoy D.
Oberhelman, H. Dennis

Full text: [The Financial Review] May 1989

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Fourth Quarter Boosts Staodyn’s Outlook

A fourth-quarter turnaround for Staodynamics Inc. of Longmont is helping to nurse the ailing medical products manufacturer back to health, after suffering losses in each of its first three quarters for fiscal 1988. And the cure arrived just in time. “We were worried that we’d get an offer to buy us out, a tender offer we did not want, and that someone could buy the company for $6 million to $8 million,” said W. Bayne Gibson, Staodyn’s chief executive officer. “We were going gang-busters a year ago. Then, after 11 quarters of gains, suddenly we had three quarters of losses and our stock went down from $4.25 to $2.50. We laid low for a bit.” (excerpt)
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McEachern, Sharon

Full text: [The Denver Business Journal] May 01, 1989

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Cash-Flow Crunch Threatens Boulder-Based Synergetics

Synergetics International Inc. of Boulder, a maker of environmental monitoring devices, is fighting a cash crunch that may threaten the company’s future. The company, which employs approximately 47 people, was unable to meet its payroll obligations in full last March, and officials conceded the company is struggling to make timely payments to creditors. Adding to the company’s woes is the qualified report of Synergetics’ condition by independent auditor Arthur Young & Co. in the company’s 1988 annual report. “The company’s recurring losses from operations raise substantial doubt about its ability to continue as a going concern,” said Arthur Young’s report, dated March 17. (excerpt)
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Sample, James O.

Full text: [The Denver Business Journal] May 01, 1989

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Engel Sets Up New Start for American Guaranty

As expected, timber magnate Bruce Engel is moving some of his non-timber holdings into the corporate arms of American Guaranty Financial Corp. Engel, chief executive officer of lumber giant WTD Industries Inc., sold a Florida manufacturer of video and communications accessories to American Guaranty in early April. Engel effectively controls American Guaranty with just over 10 percent of the company’s stock and a post as chairman of the board. There has been speculation in the past that he planned to use American Guaranty as a corporate shell for many of his diverse investments, which range from radio stations to real estate development companies. (excerpt)
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Manning, Jeff

Full text: [The Business Journal] May 01, 1989

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Restructuring Opportunities for Commercial Banks

Commercial banks are restructuring because of a number of structural changes in the formerly stable financial services industry. Such changes include: 1. deregulation, 2. increasing capital requirements, 3. disintermediation, 4. globalization, and 5. economic volatility. These changes have led to overcapacity, declining margins, and lower stock prices. There are 3 methods of restructuring. The first involves such changes in bank ownership as acquisitions, divestment, securitization, and sale-leaseback. The 2nd restructuring option involves changes in management, such as spin-offs. The equity structure can be changed in various ways, such as: 1. using stock options as a form of management compensation, 2. forming employee stock ownership plans, 3. substituting senior nonvoting instruments for common stock, or 4. reducing equity levels in cases of excess capitalization.
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Rizzi, Joseph V.

Full text: [The Bankers Magazine] May/Jun 1989

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Legal Analysis Of Current Legislative Regulatory, And Judic

Hall Estate versus Commissioner (1989) established for estate tax purposes the value of the equity interest in Hallmark Cards Inc. that was held by the deceased, Hallmark’s founder and chairman of the board. The Internal Revenue Service contended that there was an understatement in the value of the deceased’s interest in Hallmark stock. The estate argued that the value of the stock for federal estate tax purposes was fixed at its “adjusted book value” by the various restrictions and options. The huge differences in the valuations of the government and the estate were attributable to the fundamental differences in approach with regard to certain transfer restrictions and in choices of appropriate comparable companies. The court concluded that the adjusted book value was appropriate and found many aspects of the government’s methodology to be flawed. The case is an excellent guide to a successful taxpayer valuation.
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Anonymous

Full text: [Tax Management Estates, Gifts and Trusts Journal] May/Jun 1989

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In Determining Estate Tax Value, Tax Court Refuses to Ignore Transfer Restrictions and Prices Set in Buy-Sell and Option Agreement

Hall Estate versus Commissioner (1989) established for estate tax purposes the value of the equity interest in Hallmark Cards Inc. that was held by the deceased, Hallmark’s founder and chairman of the board. The Internal Revenue Service contended that there was an understatement in the value of the deceased’s interest in Hallmark stock. The estate argued that the value of the stock for federal estate tax purposes was fixed at its “adjusted book value” by the various restrictions and options. The huge differences in the valuations of the government and the estate were attributable to the fundamental differences in approach with regard to certain transfer restrictions and in choices of appropriate comparable companies. The court concluded that the adjusted book value was appropriate and found many aspects of the government’s methodology to be flawed. The case is an excellent guide to a successful taxpayer valuation.
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Anonymous

Full text: [Tax Management Estates, Gifts and Trusts Journal] May/Jun 1989

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The Deterrent to Dubious Corporate Behavior: Profitability,

A study examined stock market returns as a deterrent to dubious corporate behavior in the production of defective automobiles. Using the Wall Street Journal, 147 major recalls were identified in 4 periods – 1967-1968, 1972-1973, 1977-1978, and 1982-1983. The market’s responses to recalls were found to vary across time and companies. The deterrent effect of the stock market reaction was no greater than the deterrent provided by the direct costs of recall. For a large majority of the combinations examined, the production of defective autos appeared to be a profitable activity. Also, the consideration of managerial cognitive limitations substantially weakened the deterrent effect of the market reaction. There was little basis for thinking the market punished companies for recalls. The results suggest that the stock market was not a dependable deterrent to the production of defective autos. Shareholder losses did not dependably deter dubious practices in production.
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Bromiley, Philip
Marcus, Alfred

Full text: [Strategic Management Journal] May/Jun 1989

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Nooney Realty Trust Had Loss of $405,954 in 1988

Substantial increases in real estate taxes and high vacancy rates caused by an oversupply of office space have hindered the performance of Nooney Co.’s real estate investment trust. The Nooney Realty Trust, formed June 14, 1984, incurred a loss from operations of $405,954, or 47 cents a share, for the year ended Dec. 31, 1988, according to the trust’s annual report. Despite the loss, total distributions to shareholders paid during 1988 were $415,980, or 48 cents a share. Nooney Realty Trust is a real estate investment trust (REIT) similar to a mutual fund that invests in real estate. Shares are traded on the NASDAQ National Market System. The trust allows small investors a chance to invest in commercial real estate, a long-term investment, with the liquidity of shorter-term investment options. (excerpt)
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Dwyer, Joe III

Full text: [St. Louis Business Journal] May 01, 1989

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G&K cleaning up in laundry business

[Thomas Postek] said there’s no way of knowing what would happen, but notes that “the record in this regard is not encouraging. . . . Our hope is that the next recession will be moderate enough to enable G&K and others in this industry to keep earnings moving ahead even if the gains are below past or targeted expansion rates. G&K appears to have flexibility to . . . (achieve) our hoped-for outcome.” [Robert Maples], [Larry Rader] and Postek all strongly endorse buying the stock, but while all three characterize G&K’s stock price as “reasonable,” they also allow that it isn’t cheap. More important, G&K is a company whose history seems to have been split in half – before and after 1983. That fiscal year spanned the depths of the last recession, depressing G&K’s net income from $2.4 million to a scant $576,000, on revenues that increased from $42 million to $47 million.
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Anthony Carideo
Staff Writer

Full text: [Star Tribune] May 1, 1989

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WPP Bids $730 Million for Ogilvy

With advertising operations in almost 50 countries, WPP serves a blue-chip list of clients that includes Citicorp, Kodak, Kraft General Foods, Nestle and Pepsico. Ogilvy Group, with comparably far-flung operations, serves companies such as American Express, Polaroid, Mattel, Beecham and Unilever. The offer, made late Friday in a letter sent by facsimile machine from Martin Sorrell, chairman of WPP, to Kenneth Roman, chairman of Ogilvy, was made public by Roman yesterday. The offer by WPP follows months of turmoil in Ogilvy’s stock price, after takeover rumors in which WPP has figured prominently. Since January 9, Ogilvy shares have risen 16.4 percent, from $27.50 to a close on Friday of $32.
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Full text: [San Francisco Chronicle (pre-1997 Fulltext)] May 1, 1989

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BUSINESS INSIDER

Since taking big stakes last year in Oakland’s American President Cos. and Chicago-based Santa Fe Southern Pacific, Itel’s motives have been the subject of widespread speculation. But it would be a mistake to assume the Chicago transportation leasing company intends to buy either company. That’s the impression left following lunch with President Rod Dammeyer, who describes both as merely investments that should provide substantial returns as their stock prices escalate. Itel’s role at American President, where the company has a $90-million, 18-percent stake, is far more passive than at Santa Fe, where its 17 percent position is valued at $550 million. No Itel officials serve on American President’s board, while Dammeyer and Itel Chairman Sam Zell are directors of Santa Fe. Itel’s relationship with American President is “”friendly,” Dammeyer says; but he terms it “”constructive” with Santa Fe. Itel’s profit potential at Santa Fe is huge: Its cost on its investment, which was acquired from Henley Group, is about $19 per share. Analysts estimate a broken-up Santa Fe is worth in the high 30s, and Dammeyer says Itel “”is in a postion to influence what happens” as quickly as possible.
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Herb Greenberg

Full text: [San Francisco Chronicle (pre-1997 Fulltext)] May 1, 1989

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BENEFITS / Stock Options Swell Executives’ Coffers

He said that every time shareholders’ wealth (defined as dividends paid plus any increase in the company’s stock price) rises by $1,000, the average chief executive at a large corporation earns an additional 45 cents in salary and bonus. But every time shareholders’ wealth goes up $1,000, the CEO’s wealth as measured by his stock holdings goes up by $1.40. “”I think it’s occurring out of fear the company will disappear and the executives will lose their jobs,” said David Swinford, vice president at compensation consultant TPF&C. “”If the company is acquired, the options will go up in value.” — Seagate Technology paid $1.2 million last year to a company owned by its chairman, Alan Shugart, for chartered aviation services. Seagate also paid $45,336 to Personal Computer Repair, a company owned by Shugart and his wife, for maintenance services performed on Seagate’s office equipment.
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JOHN ECKHOUSE, Chronicle Staff Writer

Full text: [San Francisco Chronicle (pre-1997 Fulltext)] May 1, 1989

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INVESTMENT ADVICE

Jefferson is strongly capitalized and conservatively run with an attractive deposit base in its central and western Virginia markets. Jefferson is currently negotiating to acquire Chesapeake Bank Corp. in Eastern Virginia. Fast-growing Chesapeake is a loan-rich, deposit-poor and capital-constrained bank that should complement Jefferson’s stable slower-growth base. The deal is scheduled to close in midsummer. Dilution of 5 percent in per-share earnings from the proposed merger is reflected in our estimates. Before the acquisition announcement in January, Jefferson was a cheap stock in an out-of-favor group. With the announcement, the bank’s shares have declined another 9 percent to 10 percent. However, in the 32 months since our last report, Jefferson’s earnings have advanced 43 percent while its shares have fallen 25 percent. Our bottom line: high asset quality, low stock price, 10 percent growth, 5 percent yield with the possibility of an annual return between 25 percent and 30 percent.
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Full text: [Richmond Times - Dispatch] May 1, 1989

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Conditions for Efficiency on the Government Securities Secondary Market: Initial Research Results

Aspects of problems in the secondary market in government securities in Italy were examined, and the results of research conducted by Prometeia for the Italian Bankers’ Association were presented. Market efficiency before and after the reform of May 1988 was assessed. Dealer participation and the conditions of price formation were given special attention. The research revealed that dealer participation was highly irregular. Trading was aimed at exploiting special opportunities to profit from current financial conditions. The same conclusion was made from the analysis of the securities being traded. In the area of price formation on the secondary market, a high market segmentation was indicated, which lessened somewhat after May 16, 1988. The research shows that the setting up of the screen-based market in government securities has created an institutional basis for guaranteeing efficiency on the secondary market, which is up to the levels of the primary market.
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Onado, Marco

Full text: [Review of Economic Conditions in Italy] May-Aug 1989

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Real liquidity signaling decrease in stock prices

Since taking over the investment portfolio of Fireman’s Fund in 1986, Robert Bruce has made 19 percent annually on his money, vs. 7.7 percent for the Standard & Poor’s 500. Bruce is a confirmed value hunter who uses total-return analysis to uncover bargains, then takes enormous positions in them. Forty-three percent of Fireman’s $1.8-billion equity portfolio is in just five stocks: Alexander & Alexander Services, Freeport McMoran, Raychem, San Juan Basin Royalty Trust, and US Shoe.
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Brendan Boyd:Special to the Register

Full text: [Orange County Register] May 1, 1989

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To Keep Profits On A Roll, Stay Tuned To The Business Cycle

To comprehend economic statistics, it is necessary to understand the framework that forms them: the US business cycle. This cycle normally takes 3-4 years and is directly related to the performance of investments and interest rates. The business cycle begins when interest rates and inflation are low or falling. As demand for credit increases, interest rates rise because more borrowers are competing to get loans. The cycle ends when inflation and interest rates climb high enough to send stock prices down. Watching interest rates helps an investor develop an idea of what it will cost to borrow money and what rates can be earned on cash investments. Three key government economic figures that should be tracked are the US gross national product, the balance of payments, and the index of leading economic indicators. The consumer price index is a measure of the costs of goods and service. The stock market’s behavior sometimes gives advance warnings of economic fluctuations.
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Updegrave, Walter L.

Full text: [Money] May 1989

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