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- Are Investors Rational? Choices Among Index Funds
- Financial theory is often based on the belief that the actions of rational investors determine prices, which leads to the elimination of dominated financial instruments. Standard and Poor's 500 index funds represent one of the simplest vehicles for examining whether investors make rational decisions consistent with the normal paradigm of...
- White papers 2002-10-01
- Are Investors Rational? Choices Among Index Funds
- Financial theory is often based on the belief that the actions of rational investors determine prices, which leads to the elimination of dominated financial instruments. This paper shows that the relative returns offered by alternative S&P index funds are easily predictable. It shows that the other important aspects of performance,...
- White papers 2002-10-01
- Pricing for Systematic Risk
- The financial methods have emerged as the dominant approach for establishing insurance profit loadings. Financial theory suggests that prices should reflect systematic risk only, with no reward for diversifiable risk. This principle is applied to the pricing of insurance exposures actively traded in a secondary market. The resulting Systematic Risk...
- White papers 2004-08-12
- The Determinants of Debt and (Private-) Equity Financing in Young Innovative SMEs: Evidence From Germany
- Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. On the contrary, authors who focus explicitly on start-up finance predict that entrepreneurs are the more likely to...
- White papers 2004-06-01
Additional Resources
- Contingent Claim Pricing Using Probability Distortion Operators: Methods From Insurance Risk Pricing and Their Relationship to Financial Theory
- This paper considers the pricing of contingent claims using an approach developed and used in insurance pricing. The approach is of interest and significance because of the increased integration of insurance and financial markets and also because insurance related risks are trading in financial markets as a result of securitization...
- White papers 2001-08-29
- Taxes, Estate Planning and Financial Theory: New Insights and Perspectives
- This paper examines how financial theory and economic principles offer guidance and predictions about the organization of investments and asset allocation decisions given the structure of taxes in estate-planning situations. This paper provides insight about many of the conventional approaches to estate planning and suggests how these strategies can be...
- White papers 2004-03-15
- The Theory of Corporate Finance: A Historical Overview
- Our purpose is to provide a review of the development of the modern theory of corporate finance. Through the early 1950s the finance literature consisted in large part of ad hoc theories. Dewing (1919; 1953) the major corporate finance textbook for a generation, contains...
- White papers 2003-01-01
- Keeping options open: venerable finance theory spreads to other areas.(Column)(Brief Article)
- 00-00-0000 There are times when you know that the right decision seems to be to make no decision at all. Now, the desire to keep your options open- -as a business strategy--is receiving some important validation. Companies are increasingly applying the theory behind...
- Research articles 1998-02-16
- Measuring the Value of Strategic Alliances in the Wake of a Financial Implosion: Evidence From Japan's Financial Services Sector
- This paper examines the wealth effects of financial-institution strategic alliances on the shareholders of the newly allied firms. This paper is different from previous studies of non-financial joint ventures, financial and non-financial mergers and acquisitions, and non-financial strategic alliances in three important aspects/ways: First, the paper focuses on financial institutions...
- White papers 2003-10-08
- Emotions, Bayesian Inference, And Financial Decision Making
- This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, the paper shows that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also...
- White papers 2005-10-01
- State Street Global Advisors Provides Support to MIT's Laboratory for Financial Engineering
- BOSTON -- World's Largest Institutional Investment Manager Remains at Forefront of Financial Theory and Practice
- Research articles 2004-11-30
- Taking Improbable Events Seriously: An Interview with the Author of ‘The Black Swan'
- The author of The Black Swan explains why the rarity and unpredictability of certain events does not make them unimportant. The scholar, trader, and author Nassim Nicholas Taleb brings a decidedly contrarian view to the world of finance, statistics, and risk. In 2007, he published...
- Articles 2009-01-12
- The Quantity Theory of Money and Financial Accounting
- The Quantity Theory of Money is implicitly embedded in the arguments for price level adjusted financial statements - inflation accounting. Historically, the instability of commodity prices, which is due to changes in relative prices, is considered by one school of economic thought monetarism as a reflection of the instability of...
- White papers 2004-12-09
- Stochastic Excess-of-Loss Pricing Within a Financial Framework
- This paper is aimed at the practicing actuary to introduce the theory of extreme values and a financial framework to price excess-of-loss reinsurance treaties. It introduces the reader to extreme value theory via the classical central limit theorem. Two key results in extreme value theory are presented and illustrated with...
- White papers 2005-04-22
- On Finance As A Theory Of TFP, Cross-Industry Productivity Differences, And Economic Rents
- The authors have developed a theory of capital-market imperfections to study how the ability to enforce contracts affects resource allocation across entrepreneurs of different productivities, and across industries with different needs for external financing. The theory implies that countries with a poor ability to enforce contracts are characterized by the...
- White papers 2007-04-03
- Theoretical struggle.
- The crisis triggered by Northern Rock is a struggle between financial theory and game theory - and game theory is winning, says Mr Bearbull Mr Bearbull The governor of the Bank of England has made it quite clear where he thinks the crisis in...
- Research articles 2007-09-25
- The Origins Of Trade Theory
- The trade theory deals with the financial dynamics of the trading activity between two countries. It discusses and analyzes different nuances of trade for the trading countries. The trade theory includes the principle of comparative advantage, which analyzes the effects of trading activity if one of the countries has a...
- Presentations 2003-01-01
- Applying Portfolio Theory to EU Electricity Planning and Policy-Making
- This study presents an effort to apply one of the well-known elements of modern finance theory to the process of evaluating generating technologies and generating portfolios: Mean-Variance Portfolio Theory. The underlying motive for the study is a perception that there has been only limited understanding to date of how improved...
- White papers 2003-02-01
- Should Financial Economics Change the Way You Manage Your Pension Plan?
- Financial managers of pension plans face many uncertainties. Mandatory cash funding requirements and financial accounting standards that have evolved over decades are under scrutiny, with major overhauls possible in the next few years. Among the forces the outcome of new accounting standards and funding requirements is the emerging field of...
- White papers 2004-12-01
- A Multidimensional Framework for Financial-Economic Decisions
- Most financial-economic decisions are made consciously, with a clear and constant drive to ‘good', ‘better' or even ‘optimal' decisions. Nevertheless, many decisions in practice do not earn these qualifications, despite the availability of financial economic theory, decision sciences and ample resources. The paper implores for the development of a multidimensional...
- White papers 2003-03-03
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