Encyclopedia of finance

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<ul><li> 1. Encyclopedia of Finance </li></ul><p> 2. The Editors Cheng-Few Lee, Rutgers University, USA Alice C. Lee, San Franscisco State University, USA ADVISORY BOARD James R. Barth, Auburn University and Milken Institute, USA Ivan Brick, Rutgers University, USA Wayne Ferson, Boston College, USA Joseph E. Finnerty, Universty of Illinois, USA Martin J. Gruber, New York University, USA George Kaufman, Layola University, USA John Kose, New York University, USA Robert A. Schwartz, City University of New York, USA 3. Encyclopedia of Finance Edited by CHENG-FEW LEE Rutgers University and ALICE C. LEE San Francisco State University 4. Library of Congress Cataloging-in-Publication Data Encyclopedia of finance / edited by Cheng-Few Lee and Alice C. Lee p.cm. Includes bibliographical references and index. ISBN-13: 978-0-387-26284-0 (alk. paper) ISBN-10: 0-387-26284-9 (alk.paper) ISBN-10: 0-387-26336-5 (e-book) 1. Finance-Encyclopedias. I. Lee, Cheng F. II. Lee, Alice C. HG151.E625 2006 332.03-dc22 2005049962 2006 Springer Science+Business Media, Inc. All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer ScienceBusiness Media, Inc., 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights Printed in the United States of America. 9 8 7 6 5 4 3 2 1 SPIN 11416555 springer.com 5. ABOUT THE EDITORS Cheng-Few Lee is a Distinguished Professor of Finance at Rutgers Busi- ness School, Rutgers University and was chairperson of the Department of Finance from 19881995. He has also served on the faculty of the University of Illinois (IBE Professor of Finance) and the University of Georgia. He has maintained academic and consulting ties in Taiwan, Hong Kong, China and the United States for the past three decades. He has been a consultant to many prominent groups including, the American Insurance Group, the World Bank, the United Nations and The Marmon Group Inc., etc. Professor Lee founded the Review of Quantitative Finance and Accounting (RQFA) in 1990 and the Review of Pacific Basin Financial Markets and Policies (RPBFMP) in 1998, and serves as managing editor for both journals. He was also a co-editor of the Financial Review (19851991) and the Quarterly Review of Economics and Business (19871989). In the past thirty-two years, Dr. Lee has written numerous textbooks ranging in subject matter from financial management to corporate finance, security analysis and portfolio management to financial analysis, planning and forecasting, and business statistics. Dr. Lee has also pub- lished more than 170 articles in more than twenty different journals in finance, accounting, economics, statistics, and management. Professor Lee has been ranked the most published finance professor worldwide during 19532002. Alice C. Lee is an Assistant Professor of Finance at San Francisco State University. She has a diverse background, which includes engineering, sales, and management consulting. Her primary areas of teaching and research are corporate finance and financial institutions. She is coauthor of Statistics for Business and Financial Economics, 2e (with Cheng-Few Lee and John C. Lee) and Financial Analysis, Planning and Forecasting, 2e (with Cheng-Few Lee and John C. Lee, forthcoming in 2006). In addition, she has co-edited other annual publications including Advances in Investment Analysis and Portfolio Management (with Cheng-Few Lee). 6. TABLE OF CONTENTS PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii LIST OF CONTRIBUTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv PART I: TERMINOLOGY AND ESSAYS . . . . . . . . . . . . . . . . . . . . 1 Cheng-Few Lee, Rutgers University, USA Alice C. Lee, San Francisco State University, USA PART II: PAPERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 1. Deposit Insurance Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299 James R. Barth, Auburn University and Milken Institute, USA Cindy Lee, China Trust Bank, USA Triphon Phumiwasana, Milken Institute, USA 2. Gramm-Leach-Bliley Act: Creating a New Bank for a New Millennium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 James R. Barth, Auburn University and Milken Institute, USA John S. Jahera, Auburn University, USA 3. Comparative Analysis of Zero-coupon and Coupon-pre-funded Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 A. Linda Beyer, Alaska Supply Chain Integrators, USA Ken Hung, National Dong Hwa University, Taiwan Suresh C. Srivatava, University of Alaska Anchorage, USA 4. Intertemporal Risk and Currency Risk . . . . . . . . . . . . . . . . . . . . . . . 324 Jow-Ran Chang, National Tsing Hua University, Taiwan Mao-Wei Hung, National Taiwan University, Taiwan 5. Credit Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 REN-RAW CHEN, Rutgers University, USA Jing-Zhi Huang, Penn State University, USA 6. International Parity Conditions and Market Risk . . . . . . . . . . . . . . 344 Thomas C. Chiang, Drexel University, USA 7. Treasury Inflation-Indexed Securities . . . . . . . . . . . . . . . . . . . . . . . . 359 Quentin C. Chu, University of Memphis, USA Deborah N. Pittman, Rhodes College, USA 7. 8. Asset Pricing Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364 Wayne E. Ferson, Boston College, USA 9. Conditional Asset Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 Wayne E. Ferson, Boston College, USA 10. Conditional Performance Evaluation . . . . . . . . . . . . . . . . . . . . . . . 384 Wayne E. Ferson, Boston College, USA 11. Working Capital and Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . 393 Joseph E. Finnerty, University of Illinois, USA 12. Evaluating Fund Performance within the Stochastic Discount Factor Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 J. Jonathan Fletcher, University of Strathclyde, UK 13. Duration Analysis and Its Applications . . . . . . . . . . . . . . . . . . . . . 415 Iraj J. Fooladi, Dalhousie University, Canada Gady Jacoby, University of Manitoba, Canada Gordon S. Roberts, York University, Canada 14. Loan Contract Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 Aron A. Gottesman, Pace University, USA 15. Chinese A and B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435 Yan He, Indiana University Southeast, USA 16. Decimal Trading in the U.S. Stock Markets . . . . . . . . . . . . . . . . 439 Yan He, Indiana University Southeast, USA 17. The 1997 Nasdaq Trading Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 443 Yan He, Indiana University Southeast, USA 18. Reincorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 Randall A. Heron, Indiana University, USA Wilbur G. Lewellen, Purdue University, USA 19. Mean Variance Portfolio Allocation . . . . . . . . . . . . . . . . . . . . . . . 457 Cheng Hsiao, University of Southern California, USA Shin-Huei Wang, University of Southern California, USA 20. Online Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 Chang-Tseh Hsieh, University of South Mississippi, USA viii TABLE OF CONTENTS 8. 21. A Note on the Relationship among the Portfolio Performance Indices under Rank Transformation . . . . . . . . . . . . . . . . . . . . . . . . 470 Ken Hung, National Dong Hwa University, Taiwan Chin-Wei Yang, Clarion University, USA Dwight B. Means, Jr., Consultant, USA 22. Corporate Failure: Definitions, Methods, and Failure Prediction Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477 Jenifer Piesse, University of London, UK and University of Stellenbosch, South Africa Cheng-Few Lee, National Chiao Tung University, Taiwan and Rutgers University, USA Hsien-chang Kuo, National Chi-Nan University and Takming College, Taiwan Lin Lin, National Chi-Nan University, Taiwan 23. Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 Thomas S.Y. Ho, Thomas Ho Company, Ltd., USA Sang Bin Lee, Hanyang University, Korea 24. Term Structure: Interest Rate Models . . . . . . . . . . . . . . . . . . . . . . 501 Thomas S.Y. Ho, Thomas Ho Company, Ltd., USA Sang Bin Lee, Hanyang University, Korea 25. Review of REIT and MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 Cheng-Few Lee, National Chiao Tung University, Taiwan and Rutgers University, USA Chiuling Lu, Yuan Ze University, Taiwan 26. Experimental Economics and the Theory of Finance . . . . . . . . . . 520 Haim Levy, Hebrew University, Israel 27. Merger and Acquisition: Definitions, Motives, and Market Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Jenifer Piesse, University of London, UK and University of Stellenbosch, South Africa Cheng-Few Lee, National Chiao Tung University, Taiwan and Rutgers University, USA Lin Lin, National Chi-Nan University, Taiwan Hsien-Chang Kuo, National Chi-Nan University and Takming College, Taiwan TABLE OF CONTENTS ix 9. 28. Multistage Compund Real Options: Theory and Application . . . 555 William T. Lin, Tamkang University, Taiwan Cheng-Few Lee, National Chiao Tung University, Taiwan and Rutgers University, USA Chang-Wen Duan, Tamkang University, Taiwan 29. Market Efficiency Hypothesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585 Melody Lo, University of Southern Mississippi, USA 30. The Microstructure/Micro-finance Approach to Exchange Rates 591 Melody Lo, University of Southern Mississippi, USA 31. Arbitrage and Market Frictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 596 Shashidhar Murthy, Rutgers University, USA 32. Fundamental Tradeoffs in the Publicly Traded Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604 Joseph P. Ogden, University at Buffalo, USA 33. The Mexican Peso Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610 Fai-Nan Perng, The Central Bank of China, Taiwan 34. Portfolio Performance Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . 617 Lalith P. Samarakoon, University of St. Thomas, USA Tanweer Hasan, Roosevelt University, USA 35. Call Auction Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 Robert A. Schwartz, Baruch College, USA Reto Francioni, Swiss Stock Exchange, Switzerland 36. Market Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 Robert A. Schwartz, City University of New York, USA Lin Peng, City University of New York, USA 37. Market Makers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634 Robert A. Schwartz, City University of New York, USA Lin Peng, City University of New York, USA 38. Structure of Securities Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 Robert A. Schwartz, City University of New York, USA Lin Peng, City University of New York, USA 39. Accounting Scandals and Implications for Directors: Lessons from Enron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643 x TABLE OF CONTENTS 10. Pearl Tan, Nanyang Technology University, Singapore Gillian Yeo, Nanyang Technology University, Singapore 40. Agent-Based Models of Financial Markets . . . . . . . . . . . . . . . . . . 649 Nicholas S. P. Tay, University of San Francisco, USA 41. The Asian Bond Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655 Khairy Tourk, Illinois Institute of Technology, USA 42. Cross-Border Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . 664 Geraldo M. Vasoncellos, Lehigh University, USA Richard J. Kish, Lehigh University, USA 43. Jump Diffusion Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 Shiu-Huei Wang, University of Southern California, USA 44. Networks, Nodes, and Priority Rules . . . . . . . . . . . . . . . . . . . . . . . 689 Daniel G. Weaver, Rutgers University, USA 45. The Momentum Trading Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 700 K.C. John Wei, Hong Kong University of Science and Technology, Hong Kong 46. Equilibrium Credit Rationing and Monetary Non Neutrality in a Small Open Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 Ying Wu, Salisbury University, USA 47. Policy Coordination between Wages and Exchange Rates in Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715 Ying Wu, Salisbury University, USA 48. The Le Chatelier Principle of the Captial Market Equilibruim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724 Chin-Wei Yang, Clarion University of Pennsylvania, USA Ken Hung, National Dong Hwa University, Taiwan John A. Fox, The Fox Consultant Incorporated, USA 49. MBS Valuation and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 729 C. H. Ted Hong, BeyondBond Inc., USA Wen-Ching Wang, Robeco Investment Management, USA 50. The Impacts of IMF Bailouts in International Debt Crises . . . . . 744 Zhaohui Zhang, Long Island University, USA Khondkar E. Karim, Rochester Institute of Technology, USA TABLE OF CONTENTS xi 11. PART III: APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751 Cheng-Few Lee, Rutgers University, USA Alice C. Lee, San Francisco State University, USA APPENDIX A. Derivation of Dividend Discount Model . . . . . . . . . . 753 APPENDIX B. Derivation of DOL, DFL AND DCL . . . . . . . . . . . . 755 APPENDIX C. Derivation of Crossover Rate . . . . . . . . . . . . . . . . . . . 757 APPENDIX D. Capital Budgeting Decision with Different Lives . . . 759 APPENDIX E. Derivation of Minimum-Variance Portfolio . . . . . . . 761 APPENDIX F. Derivation of an Optimal weight Portfolio using the Sharpe Performance Measure . . . . . . . . . . . . . . . 763 APPENDIX G. Applications of the Binomial Distribution to Evaluate Call Options . . . . . . . . . . . . . . . . . . . . . . 767 PART IV: REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773 PART V: INDEX ....</p>