Stock price movements in response to stock issues under asymmetric information

Article Abstract:

Stock issue announcements provoke drops in the prices of that firm's new and old shares, because most investors believe that if the firm's financial position were strong, it would not need to issue more stock. A model is developed, which assumes that a prototypical firm in good financial position has enough assets but needs more capital to take advantage of a new investment opportunity; this model projects that two years would be required for the firm to issue stock and invest the proceeds therefrom. The model supports the hypothesis that a decrease on stock value is associated with the issuing of new stock, but adds that the size of the new offering is also an important variable.

Investments, Stock-exchange, Stock exchanges, Capital market, Capital markets, Information management

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Towards a semigroup pricing theory

Article Abstract:

Certain linear operators who account for contingent dividends when pricing securities are known as semigroup pricing agents, within an economy that evidences no arbitrage. This semigroup, under the restriction disallowing arbitrage, is studied and practical examples of semigroup pricing agents are cited. The research demonstrates that semigroup pricing theories are important to arbitrage studies, although the discussion following the presentation of the research finds the outlook of the paper too conventional and cites three factors which indicate that the semigroup pricing theory is not preference free in either arbitrage or claims pricing situations.

Arbitrage

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Asset pricing and expected inflation

Article Abstract:

There is a negative relation between the expected return rates on investments in assets and (1) inflation, (2) changes in inflation, and (3) unexpected inflationary factors. An equilibrium model shows that the expected real rate of return and the rate of interest are, in effect, negatively related to an increase in inflation rates, of any type. The model also demonstrates that this rate falls less when the inflation is caused by growth in the money supply, than when it is the result of a deteriorating economy.

Inflation (Finance), Assets (Accounting), Inflation (Economics), Financial research

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