Exact arbitrage pricing and the minimum-variance frontier
Article Abstract:
The author examines the relationship between the Arbitrage Pricing Theory of Ross and mean-variance analysis. In particular, conditions are derived on the vector of the factor risk premia that are equivalent to the existence of a strictly positively weighted portfolio on the minimum-variance frontier. Also, a sufficient condition is given under which the existence of a positive minimum-variance portfolio of all the assets in the economy will imply the existence of a positive minimum-variance portfolio on a subset. This means that rejection of the hypothesis of the existence of a positive minimum-variance portfolio on a subset satisfying this condition implies rejection for the whole set. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1988
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Bond covenants and delegated monitoring
Article Abstract:
This paper examines alternative contracting arrangements available to a firm seeking to finance an investment project. The authors consider the choice between loan contracts with covenants based on noisy indicators of the firm's financial health and loan contracts enforced by a monitoring specialist. In one interpretation, the specialist is a financial intermediary. The firm's choice is shown to depend upon the firm's credit rating, the accuracy of financial indicators of the firm's condition, the loss from premature liquidation of the firm's project, and the cost of monitoring. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1988
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