PART VI: CAPITAL MARKET IMPERFECTIONS AND THE LIMITS TO ARBITRAGE
by Guofu Zhou, Edwin H. Neave, Frank J. Fabozzi
Financial Economics
- Cover Page
- Title Page
- Copyright
- Contents
- PREFACE
- Acknowledgments
- ABOUT THE AUTHORS
- 1: INTRODUCTION
- PART I: FINANCE IN A CERTAINTY WORLD WITH A PERFECT CAPITAL MARKET
- 2: CONSUMER FINANCIAL DECISIONS
- 3: CREATING WEALTH BY INVESTING IN PRODUCTIVE OPPORTUNITIES
- 4: HOW INVESTORS VALUE FIRMS
- 5: FIRM FINANCING DECISIONS IN A PERFECT CAPITAL MARKET
- 6: FIRM INVESTMENT DECISIONS
- 6.1 INVESTMENT DECISIONS AND OWNERS’ WEALTH MAXIMIZATION
- 6.2 CLASSIFICATION OF INVESTMENT PROJECTS
- 6.3 A PROJECT'S INCREMENTAL CASH FLOWS
- 6.4 APPLYING THE MARKET VALUE RULE TO INDEPENDENT PROJECTS
- 6.5 COMMONLY USED ASSESSMENT CRITERIA IN A CERTAIN WORLD WITH A PERFECT CAPITAL MARKET
- 6.6 INVESTMENT CRITERIA IN PRACTICE
- KEY POINTS
- QUESTIONS
- REFERENCES
- PART II: FINANCIAL SYSTEM
- PART III: TOOLS FOR COPING WITH RISK
- 9: THE MICROECONOMIC FOUNDATION OF FINANCIAL ECONOMICS
- 10: CONTINGENT CLAIMS AND CONTINGENT STRATEGIES
- 10.1 STATES OF THE WORLD
- 10.2 CONTINGENT CLAIMS AND THEIR VALUE
- 10.3 INVESTOR'S UTILITY MAXIMIZATION IN CONTINGENT CLAIMS MARKETS
- 10.4 INCOMPLETE MARKETS FOR CONTINGENT CLAIMS
- 10.5 MODIGLIANI-MILLER REVISITED
- 10.6 FINANCIAL INSTRUMENTS AS CONTINGENT CLAIMS
- 10.7 CONTINGENT STRATEGIES
- KEY POINTS
- QUESTIONS
- REFERENCES
- 11: RISK AND RISK MANAGEMENT
- 12: ON CHOOSING RISK MEASURES
- PART IV: SELECTION AND PRICING OF RISKY ASSETS
- 13: MEAN-VARIANCE PORTFOLIO CHOICE
- 14: CAPITAL ASSET PRICING MODEL
- 14.1 CAPM ASSUMPTIONS
- 14.2 DERIVING THE CAPITAL MARKET
- 14.3 DERIVING THE CAPM
- 14.4 CAPM IN THE ABSENCE OF A RISK-FREE ASSET
- 14.5 IMPLICATIONS OF THE CAPM
- 14.6 AN ALTERNATIVE DERIVATION
- 14.7 ESTIMATING BETA RISK
- 14.8 APPLICATION OF CAPM IN INVESTMENT MANAGEMENT
- 14.9 TESTS OF THE CAPM
- KEY POINTS
- QUESTIONS
- APPENDIX 14.1: RUBINSTEIN'S PROOF OF THE CAPM
- REFERENCES
- 15: ARBITRAGE PRICING THEORY AND FACTOR MODELS
- 16: GENERAL PRINCIPLES OF ASSET PRICING
- 16.1 ONE-PERIOD FINITE STATE ECONOMY
- 16.2 PORTFOLIOS AND MARKET COMPLETENESS
- 16.3 THE LAW OF ONE PRICE AND LINEAR PRICING
- 16.4 ARBITRAGE AND POSITIVE STATE PRICING
- 16.5 THE FUNDAMENTAL THEOREM OF ASSET PRICING
- 16.6 DISCOUNT FACTOR MODELS
- 16.7 EQUITY RISK PREMIUM PUZZLE
- KEY POINTS
- QUESTIONS
- REFERENCES
- 17: PRICING CORPORATE SECURITIES
- 17.1 PROFIT-SEEKING ELIMINATES ARBITRAGE OPPORTUNITIES
- 17.2 PRICING SECURITIES RELATIVE TO EACH OTHER
- 17.3 CALCULATING RISK-NEUTRAL PROBABILITY MEASURES
- 17.4 USING RISK-NEUTRAL PROBABILITIES FOR SECURITIES VALUATION
- 17.5 DEBT VERSUS EQUITY
- 17.6 APPLICATION: BOND VALUATION AND MARKET RISK
- KEY POINTS
- QUESTIONS
- REFERENCES
- PART V: DERIVATIVE INSTRUMENTS
- 18: PRICING DERIVATIVES BY ARBITRAGE: LINEAR PAYOFF DERIVATIVES
- 19: PRICING DERIVATIVES BY ARBITRAGE: NONLINEAR PAYOFF DERIVATIVES
- 19.1 BASIC CONCEPTS
- 19.2 SIMPLE USES OF OPTIONS
- 19.3 PUT-CALL PARITY
- 19.4 KEY IDEA FOR VALUATION
- 19.5 SINGLE-PERIODB IN OMIAL MODEL
- 19.6 BLACK-SCHOLES FORMULA
- 19.7 BINOMIAL MODEL
- 19.8 AMERICAN OPTIONS
- 19.9 ARBITRARY PAYOFFS AND GENERAL MODELS
- Appendix 19.1 Derivation of the Black-Scholes Formula
- KEYPOINTS
- QUESTIONS
- REFERENCES
- PART VI: CAPITAL MARKET IMPERFECTIONS AND THE LIMITS TO ARBITRAGE
- 20: CAPITAL MARKET IMPERFECTIONS AND FINANCIAL DECISION CRITERIA
- 20.1 TYPES OF CAPITAL MARKET IMPERFECTIONS
- 20.2 SOME EFFECTS OF CAPITAL MARKET IMPERFECTIONS
- 20.3 NEED FOR AN INTEGRATED APPROACH TO FINANCIAL DECISION MAKING
- 20.4 CHOOSING CRITERIA FOR FINANCIAL DECISIONS
- 20.5 MOTIVATING MANAGERS TO MEET OWNERS’ OBJECTIVES: AGENCY THEORY
- KEY POINTS
- QUESTIONS
- REFERENCES
- 21: IMPEDIMENTS TO ARBITRAGE
- 20: CAPITAL MARKET IMPERFECTIONS AND FINANCIAL DECISION CRITERIA
- PART VII: CAPITAL STRUCTURE DECISIONS IN IMPERFECT CAPITAL MARKETS
- 22: WHEN CAPITAL STRUCTURE MATTERS
- 22.1 EFFECT OF CORPORATE TAXATION ON LEVERAGE
- 22.2 CAPITAL STRUCTURE AND FINANCIAL DISTRESS
- 22.3 FINANCIAL DISTRESS AND CAPITAL STRUCTURE
- 22.4 HETEROGENEOUS EXPECTATIONS
- 22.5 AGENCY EFFECTS
- 22.6 THEORY OF DIVIDEND PAYMENTS
- 22.7 IS THERE AN OPTIMAL CAPITAL STRUCTURE?
- 22.8 DYNAMIC MODELS
- KEY POINTS
- QUESTIONS
- REFERENCES
- 23: FINANCING DECISIONS IN PRACTICE
- 23.1 ESTIMATING THE COSTS OF DIFFERENT FUNDING SOURCES
- 23.2 TIMING THE ISSUANCE OF DEBT
- 23.3 CREDITORS, INVESTORS, AND CAPITAL STRUCTURE CHOICES
- 23.4 SIGNIFICANCE OF TECHNICAL INSOLVENCY
- 23.5 RESTRICTIVE COVENANTS AND AGENCY COSTS
- 23.6 DIVIDEND POLICY
- 23.7 REPURCHASING THE FIRM'S COMMON STOCK
- 23.8 PREEMPTIVE RIGHTS OFFERING
- 23.9 CONTINGENCY PLANNING AND CAPITAL STRUCTURE CHOICES
- KEY POINTS
- QUESTIONS
- REFERENCES
- 24: FINANCIAL CONTRACTING AND DEAL TERMS
- 22: WHEN CAPITAL STRUCTURE MATTERS
- PART VIII: INCORPORATING RISK IN CAPITAL BUDGETING DECISIONS
- 25: CAPITAL EXPENDITURE PLANS IN A RISKY WORLD
- 25.1 A MARKET VALUE CRITERION
- 25.2 COMPARING NEW AND EXISTING EARNINGS RISKS TO OBTAIN OPTIMAL CAPITAL EXPENDITURE PLANS
- 25.3 REQUIRED RATES OF RETURN: FIRM, DIVISION, AND PROJECT
- 25.4 DEPRECIATION TAX SHIELD IN A RISKY WORLD
- 25.5 SINGLE-PERIOD VERSUS MULTI-PERIOD INVESTMENT MODELS
- KEY POINTS
- QUESTIONS
- REFERENCES
- 26: EVALUATING PROJECT RISK IN CAPITAL BUDGETING
- 25: CAPITAL EXPENDITURE PLANS IN A RISKY WORLD
- SUBJECT INDEX
- AUTHOR INDEX
- WEB–APPENDIX A: DEAL TERMS
- WEB–APPENDIX B: CORPORATE DEBT FUNDING INSTRUMENTS
- WEB–APPENDIX C: INVESTMENT BANKERS AND THE ISSUANCE OF SECURITIES
- WEB-APPENDIX D: CREDIT RISK
- WEB-APPENDIX E *: FINANCIAL STATEMENTS
- WEB-APPENDIX F *: FINANCIAL RATIO ANALYSIS
- WEB-APPENDIX G *: ESTIMATING CASH FLOWS OF CAPITAL BUDGETING PROJECTS
- WEB–APPENDIX H: MERGER AND ACQUISITION STRATEGIES
- WEB–APPENDIX I: CONGLOMERATES AS A MEANS OF OVERCOMING CAPITAL MARKET IMPERFECTIONS
- WEB–APPENDIX J: LEASE FINANCING
- WEB–APPENDIX K: TAYLOR SERIES APPROXIMATION
- WEB-APPENDIX L: SOME ELEMENTARY CONCEPTS INVOLVING PROBABILITY
- WEB–APPENDIX M: CONTINUOUS PROBABILITY DISTRIBUTIONS
- WEB–APPENDIX N: CONTINUOUS INTEREST RATES
- WEB-APPENDIX O *: FUNDAMENTALS OF MATRIX ALGEBRA
- WEB–APPENDIX P: PRINCIPAL COMPONENT ANALYSIS IN FINANCE
- SUBJECT INDEX (WEB-APPENDIX A TO P)
- AUTHOR INDEX (WEB-APPENDIX A TO P)
-
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