This paper analyzes the robustness of the day-of-the-week (DOW) and weekend effects to alternative estimation and testing procedures. The results show that sample size can distort the interpretation of classical test statistics unless the significance level is adjusted downward. Specification tests reveal widespread departures from OLS assumptions. Hypothesis tests results are reported using robust econometric methods and a GARCH model. The strength of the DOW and weekend effect evidence appears to depend on the estimation and testing method. Both effects seem to have disappeared by 1975.

Focusing on takeover bids for which the outcome can be predicted in advance with certainty, Grossman and Hart established the proposition, which subsequent work accepted, that successful bids must be made at or above the expected value of minority shares. This proposition provided the basis for Grossman and Hart's identification of a free-rider problem and became a major premise for the analysis of takeovers. This paper shows that this important proposition does not always hold once we drop the assumption that the only successful bids are those whose success could have been predicted with certainty. In particular, it is shown that any unconditional bid that is below the expected value of minority shares but above the independent target's per share value will succeed with a positive probability, that the bidder's expected payoff from such a bid (not counting the transaction costs of making the bid) is always positive, and that bidders might elect to make such bids. These results have implications for the nature of the free-rider problem and for the operation of takeovers; in particular, it is shown that, when a raider can increase the value of a target's assets, the raider might elect to bid even if no dilution of minority shares is possible and it holds no initial stake in the target.

The purpose of this paper is to provide a link between the various multivariate tests of asset pricing and a performance measure for asset sets. The paper includes a unified summary of various F tests for mean-variance efficiency, intersection, and spanning for sets and subsets of financial assets. Both the risk-free asset and no risk-free asset environments are discussed. These tests are then related to the concept of potential performance for asset sets. The potential performance measure can be viewed as an extension of the Sharpe performance measure for single portfolios. The economic intuition behind the tests is that the multivariate tests of portfolio efficiency, intersection, and spanning are tests of zero potential performance at particular margins between the asset or portfolio subset and the full asset set.

This paper tests the Kraus-Litzenberger (1976) three-moment capital asset pricing model using Hansen's (1982) generalized method-of-moments (GMM). The GMM approach does not impose strong distributional assumptions on the asset returns. This is an interesting issue since there is no obvious multivariate distribution for returns that also exhibits co-skewness. Using monthly stock returns to test the model, there is some evidence that systematic skewness is priced.

A spot portfolio of rate-sensitive assets can be hedged by a portfolio of interest-sensitive futures contracts. The hedge ratios of minimum-variance portfolios are unique when the fixed cash flows of underlying instruments are linearly independent and when the covariance matrix of unexpected changes in spot rates over the term of the cash flows is of full rank. Hilliard's (1984) full-rank model has produced smaller portfolio variances than a duration model in a short-term hedging context. However, the methodology typically requires extensive econometric analysis. This paper develops a structured covariance matrix of full rank that requires only one parameter estimate. Hedging examples are provided.

This paper investigates the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system. Using simulated responses of the estimated VAR system, we (i) locate all the main channels of interactions among national stock markets, and (ii) trace out the dynamic responses of one market to innovations in another. Generally speaking, a substantial amount of multi-lateral interaction is detected among national stock markets. Innovations in the U.S. are rapidly transmitted to other markets in a clearly recognizable fashion, whereas no single foreign market can significantly explain the U.S. market movements. Also, the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets.

This paper provides further empirical evidence on the relation between entrepreneurial ownership retention and the initial value of unseasoned common shares. A Canadian data set is employed to estimate the various empirical specifications used in previous studies and to examine additional variables suggested by recent developments in the theoretical literature. The estimation is carried out using a more general procedure to correct for heteroskedasticity. In contrast to previous findings, the entrepreneurial ownership retention signal does not possess statistical significance in any of the models examined.