Asset Management

The objective of governments is to efficiently provide essential services and infrastructure to their jurisdictions at a competitive tax rate within the constraint of a balanced budget. In recent years, several states have found it difficult to maintain this standard. This article examines the nature of the problem in the overlapping jurisdictions of New York City and New York State. Specifically, it explains the nature of projected budget gaps that have emerged in New York, and describes how the two New Yorks' political leaders have managed their budgets in recent years.

We examine associations between accounting measures of earnings and stock returns in Japan over varying window lengths and compare them to those for the United States. Our results are consistent with the view that Japanese investors utilize less accounting information in their pricing of equities than do their U.S. counterparts. This was particularly evident in the 'boom' period of the mid to late 1980s when the fundamental values conveyed by accounting measures appear to have been largely ignored.

Money managers select weights of managed portfolios to enhance their reputation in the spot market for their services, inevitably using their actions to signal their quality. We develop a two-asset signalling model of money managers. A unique screening equilibrium and (under certain parameter configurations) a host of pooling equilibria survive the Cho-Kreps Intuitive Criterion. In all the equilibria managers behave more aggressively than they would in the absence of the signalling motive, exaggerating their position in the risky asset.

This paper documents the revaluation practice over a ten-year period from 1981 of a large sample of Australian firms and examines the association between these revaluations and stock market prices and returns. The analysis uses several different approaches in order to obtain a thorough understanding of the reevaluation process in Australia. We include a description of hand-collected data from published financial statements, follow-up interviews with chief financial officers of the sample firms, and association tests between hand-collected accounting data and stock market measures.

Research was conducted to investigate the value implications of the changes in annual earnings. It was assumed that a relationship exists between the persistence of earnings and the changes in stock prices associated with reported earnings innovations. The study yielded three major findings. Results showed that other data contained in annual financial statements can be used to evaluate pricing multipliers. Findings also revealed the variability of the persistence of earnings and the pricing multipliers indicated by financial statements.

Writing for the New Palgrave Dictionary of Money and Finance, Stephen Zeldes and Stephen O'Connell trace the history of the term "Ponzi Games" and define it as "a situation in which a borrower rolls over debt perpetually, covering all interest and/or principal repayments with additional borrowing. " They illustrate why a perpetual flow of new lenders is necessary to a Ponzi game, and discuss the link between Ponzi games and phenomena such as valued fiat money, asset price bubbles, and dynamic efficiency.

This article outlines research developments that reconcile both fundamental analysis and accounting measurement to the modern theory of valuation. Three features of accounting suggest it may play a role. First, it has the nominal attributes of a value measurement system. The financial accounting process is focused on tracking the book value of equity or net worth. The final entry in the periodic accounting cycle is the close to book values.

The traditional pricing methodology in finance values derivative securities as redundant assets that have no impact on equilibrium prices and allocations. This paper demonstrates that when the market is incomplete primary and derivative asset markets, generically, interact: the valuation of derivative and primary securities is a simultaneous pricing problem and primary security prices depend on the contractual characteristics of the derivative assets available.

Bernard Frieden and Lynne Sagalyn provide an in-depth analysis of public-private partnerships that have resulted in several large downtown retail redevelopment projects. These projects were dependent in part on an improvement in underlying factors such as the revitalization of the downtown office market. But, more important, these projects owe their existence to innovative entrepreneurial urban policy. This essay shows how current city policies evolved from the experience gained from redevelopment efforts launched under federal auspices.