Long forward and zero-coupon rates can never fall

Article Abstract:

A study that relates the three types of interest rate demonstrates that the non-existence of arbitrage significantly hinders the behavior of these rates in the limit as the level of maturity increases. Long-forward and zero-coupon rates can never come down when arbitrage is not present, thereby proving that frictionless competitive models cannot exhibit the arbitrary behavior of long interest rates. It is thus not allowable to assign a term structure model having a stochastic factor which is the long end of the zero-coupon yield curve. Similarly, empirical testings of yield curves that use splines may want to constrain the asymptote to be constant or nondecreasing. These findings can be directly applied to parametric term structure models with sufficient structure for identifying long forward or discount rates.

Zero coupon securities, Arbitrage

---

Waiting to invest: investment and uncertainty

Article Abstract:

Investment projects undertaken in an environment of economic uncertainty almost always have option values. This observation is similarly noted for projects that are not marked by cash flow uncertainty. Uncertainty is expressed in terms of interest rates, whose influence is substantial on investment delay at optimum levels. The extent of uncertainty of interest rate and the real interest rate level will be the critical factors affecting the rate of aggregate investment. Low levels of interest rate do not necessarily correspond to increased investments. A simple account of how corporate hurdle rates are established over capital cost is provided.

Return on investment, Rate of return

---

Measuring investment performance in a rational expectations equilibrium model

Article Abstract:

The problem of measuring investment performance is examined for cases in which superior performance is identified with superior information. Investment performance is measured in the context of a full equilibrium model of securities markets. In the model, agents behave optimally and have asymmetric and diverse private information. Traditional risk-return measures are shown to be inappropriate in this context. Alternative procedures for making valid inferences about performance are developed.

Management science, Models, Rational expectations (Economics)

Similar abstracts:

• Abstracts: Playing politics: Soviet deal shows pitfalls and potential of international telecommunications business
• Abstracts: Playing politics: Soviet deal shows pitfalls and potential of international telecommunications business. part 2
• Abstracts: Arbitrage, nontrading, and stale prices: October 1987. Anomalies in financial economics: Blueprint for change?
• Abstracts: Tsongas narrowly wins Maine caucus over Brown; Kerry earns solid victory in South Dakota primary. Brown scores upset in Connecticut primary
• Abstracts: Trying to look bad at work: methods and motives for managing poor impressions in organizations. Foci and bases of commitment: are they distinctions worth making?

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.