Encyclopedia of Finance

860 Pages·2006·4.577 MB·English

by  Cheng-Few Lee, Alice C. Lee (eds.)

Encyclopedia of Finance
The Editors
Cheng-Few Lee, Rutgers University, USA
Alice C. Lee, San Franscisco State University, USA
ADVISORY BOARD
James R. Barth, Auburn University and Milken Institute, USA
Ivan Brick, Rutgers University, USA
Wayne Ferson, Boston College, USA
Joseph E. Finnerty, Universty of Illinois, USA
Martin J. Gruber, New York University, USA
George Kaufman, Layola University, USA
John Kose, New York University, USA
Robert A. Schwartz, City University of New York, USA
Encyclopedia of Finance
Edited by
CHENG-FEW LEE
Rutgers University
and
ALICE C. LEE
San Francisco State University
LibraryofCongressCataloging-in-PublicationData
Encyclopediaoffinance/editedbyCheng-FewLeeandAliceC.Lee
p.cm.
Includesbibliographicalreferencesandindex.
ISBN-13:978-0-387-26284-0(alk.paper)
ISBN-10:0-387-26284-9(alk.paper)
ISBN-10:0-387-26336-5(e-book)
1.Finance-Encyclopedias.I.Lee,ChengF.II.Lee,AliceC.
HG151.E6252006
332’.03-dc22 2005049962
(cid:1)2006SpringerScience+BusinessMedia,Inc.
Allrightsreserved.Thisworkmaynotbetranslatedorcopiedinwholeorinpartwithoutthewritten
permissionofthepublisher(SpringerScienceþBusinessMedia,Inc.,233SpringStreet,NewYork,NY
10013,USA),exceptforbriefexcerptsinconnectionwithreviewsorscholarlyanalysis.Useinconnection
with any form of information storage and retrieval, electronic adaptation, computer software, or by
similarordissimilarmethodologynowknownorhereafterdevelopedisforbidden.
Theuseinthispublicationoftradenames,trademarks,servicemarksandsimilarterms,eveniftheyare
notidentifiedassuch,isnottobetakenasanexpressionofopinionastowhetherornottheyaresubject
toproprietaryrights
PrintedintheUnitedStatesofAmerica.
9 8 7 6 5 4 3 2 1 SPIN11416555
springer.com
ABOUT THE EDITORS
Cheng-Few Lee is a Distinguished Professor of Finance at Rutgers Busi-
ness School, Rutgers University and was chairperson of the Department
of Finance from 1988–1995. He has also served on the faculty of the
University of Illinois (IBE Professor of Finance) and the University of
Georgia. He has maintained academic and consulting ties in Taiwan,
Hong Kong, China and the United States for the past three decades. He
hasbeenaconsultanttomanyprominentgroupsincluding,theAmerican
InsuranceGroup,theWorldBank,theUnitedNationsandTheMarmon
Group Inc., etc.
ProfessorLeefoundedtheReviewofQuantitativeFinanceandAccounting
(RQFA) in 1990 and the Review of Pacific Basin Financial Markets and
Policies (RPBFMP) in 1998, and serves as managing editor for both
journals. He was also a co-editor of the Financial Review (1985–1991)
and the Quarterly Review of Economics and Business (1987–1989).
In the past thirty-two years, Dr. Lee has written numerous textbooks
ranging in subject matter from financial management to corporate
finance,securityanalysisandportfoliomanagementtofinancialanalysis,
planning and forecasting, and business statistics. Dr. Lee has also pub-
lished more than 170 articles in more than twenty different journals in
finance, accounting, economics, statistics, and management. Professor
Lee has been ranked the most published finance professor worldwide
during 1953–2002.
Alice C. Lee is an Assistant Professor of Finance at San Francisco State
University. She has a diverse background, which includes engineering,
sales, and management consulting. Her primary areas of teaching and
research are corporate finance and financial institutions. She is coauthor
of Statistics for Business and Financial Economics, 2e (with Cheng-Few
Lee and John C. Lee) and Financial Analysis, Planning and Forecasting,
2e (with Cheng-Few Lee and John C. Lee, forthcoming in 2006). In
addition, she has co-edited other annual publications including Advances
in Investment Analysis and Portfolio Management (with Cheng-Few Lee).
TABLE OF CONTENTS
PREFACE ................................................ xiii
LIST OF CONTRIBUTORS ................................ xv
PART I: TERMINOLOGY AND ESSAYS .................... 1
Cheng-Few Lee, Rutgers University, USA
Alice C. Lee, San Francisco State University, USA
PART II: PAPERS ......................................... 297
1. Deposit Insurance Schemes ................................ 299
James R. Barth, Auburn University and Milken Institute, USA
Cindy Lee, China Trust Bank, USA
Triphon Phumiwasana, Milken Institute, USA
2. Gramm-Leach-Bliley Act: Creating a New Bank for a
New Millennium ......................................... 307
James R. Barth, Auburn University and Milken Institute, USA
John S. Jahera, Auburn University, USA
3. Comparative Analysis of Zero-coupon and Coupon-pre-funded
Bonds .................................................. 314
A. Linda Beyer, Alaska Supply Chain Integrators, USA
Ken Hung, National Dong Hwa University, Taiwan
Suresh C. Srivatava, University of Alaska Anchorage, USA
4. Intertemporal Risk and Currency Risk ....................... 324
Jow-Ran Chang, National Tsing Hua University, Taiwan
Mao-Wei Hung, National Taiwan University, Taiwan
5. Credit Derivatives ........................................ 336
REN-RAW CHEN, Rutgers University, USA
Jing-Zhi Huang, Penn State University, USA
6. International Parity Conditions and Market Risk .............. 344
Thomas C. Chiang, Drexel University, USA
7. Treasury Inflation-Indexed Securities ........................ 359
Quentin C. Chu, University of Memphis, USA
Deborah N. Pittman, Rhodes College, USA
viii TABLEOFCONTENTS
8. Asset Pricing Models .................................... 364
Wayne E. Ferson, Boston College, USA
9. Conditional Asset Pricing ................................ 376
Wayne E. Ferson, Boston College, USA
10. Conditional Performance Evaluation ....................... 384
Wayne E. Ferson, Boston College, USA
11. Working Capital and Cash Flow .......................... 393
Joseph E. Finnerty, University of Illinois, USA
12. Evaluating Fund Performance within the Stochastic
Discount Factor Framework .............................. 405
J. Jonathan Fletcher, University of Strathclyde, UK
13. Duration Analysis and Its Applications ..................... 415
Iraj J. Fooladi, Dalhousie University, Canada
Gady Jacoby, University of Manitoba, Canada
Gordon S. Roberts, York University, Canada
14. Loan Contract Terms ................................... 428
Aron A. Gottesman, Pace University, USA
15. Chinese A and B Shares ................................. 435
Yan He, Indiana University Southeast, USA
16. Decimal Trading in the U.S. Stock Markets ................ 439
Yan He, Indiana University Southeast, USA
17. The 1997 Nasdaq Trading Rules .......................... 443
Yan He, Indiana University Southeast, USA
18. Reincorporation ........................................ 447
Randall A. Heron, Indiana University, USA
Wilbur G. Lewellen, Purdue University, USA
19. Mean Variance Portfolio Allocation ....................... 457
Cheng Hsiao, University of Southern California, USA
Shin-Huei Wang, University of Southern California, USA
20. Online Trading ......................................... 464
Chang-Tseh Hsieh, University of South Mississippi, USA
TABLEOFCONTENTS ix
21. A Note on the Relationship among the Portfolio Performance
Indices under Rank Transformation ........................ 470
Ken Hung, National Dong Hwa University, Taiwan
Chin-Wei Yang, Clarion University, USA
Dwight B. Means, Jr., Consultant, USA
22. Corporate Failure: Definitions, Methods, and Failure
Prediction Models ....................................... 477
Jenifer Piesse, University of London, UK and University of
Stellenbosch, South Africa
Cheng-Few Lee, National Chiao Tung University, Taiwan and
Rutgers University, USA
Hsien-chang Kuo, National Chi-Nan University and Takming
College, Taiwan
Lin Lin, National Chi-Nan University, Taiwan
23. Risk Management ....................................... 491
Thomas S.Y. Ho, Thomas Ho Company, Ltd., USA
Sang Bin Lee, Hanyang University, Korea
24. Term Structure: Interest Rate Models ...................... 501
Thomas S.Y. Ho, Thomas Ho Company, Ltd., USA
Sang Bin Lee, Hanyang University, Korea
25. Review of REIT and MBS ................................ 512
Cheng-Few Lee, National Chiao Tung University, Taiwan and
Rutgers University, USA
Chiuling Lu, Yuan Ze University, Taiwan
26. Experimental Economics and the Theory of Finance .......... 520
Haim Levy, Hebrew University, Israel
27. Merger and Acquisition: Definitions, Motives, and Market
Responses ............................................. 541
Jenifer Piesse, University of London, UK and University of
Stellenbosch, South Africa
Cheng-Few Lee, National Chiao Tung University, Taiwan and
Rutgers University, USA
Lin Lin, National Chi-Nan University, Taiwan
Hsien-Chang Kuo, National Chi-Nan University and Takming
College, Taiwan
x TABLEOFCONTENTS
28. Multistage Compund Real Options: Theory and Application ... 555
William T. Lin, Tamkang University, Taiwan
Cheng-Few Lee, National Chiao Tung University, Taiwan
and Rutgers University, USA
Chang-Wen Duan, Tamkang University, Taiwan
29. Market Efficiency Hypothesis ............................ 585
Melody Lo, University of Southern Mississippi, USA
30. The Microstructure/Micro-finance Approach to Exchange Rates 591
Melody Lo, University of Southern Mississippi, USA
31. Arbitrage and Market Frictions ........................... 596
Shashidhar Murthy, Rutgers University, USA
32. Fundamental Tradeoffs in the Publicly Traded
Corporation ........................................... 604
Joseph P. Ogden, University at Buffalo, USA
33. The Mexican Peso Crisis ................................ 610
Fai-Nan Perng, The Central Bank of China, Taiwan
34. Portfolio Performance Evaluation ......................... 617
Lalith P. Samarakoon, University of St. Thomas, USA
Tanweer Hasan, Roosevelt University, USA
35. Call Auction Trading .................................... 623
Robert A. Schwartz, Baruch College, USA
Reto Francioni, Swiss Stock Exchange, Switzerland
36. Market Liquidity ....................................... 630
Robert A. Schwartz, City University of New York, USA
Lin Peng, City University of New York, USA
37. Market Makers ........................................ 634
Robert A. Schwartz, City University of New York, USA
Lin Peng, City University of New York, USA
38. Structure of Securities Markets ........................... 638
Robert A. Schwartz, City University of New York, USA
Lin Peng, City University of New York, USA
39. Accounting Scandals and Implications for Directors:
Lessons from Enron ..................................... 643
TABLEOFCONTENTS xi
Pearl Tan, Nanyang Technology University, Singapore
Gillian Yeo, Nanyang Technology University, Singapore
40. Agent-Based Models of Financial Markets .................. 649
Nicholas S. P. Tay, University of San Francisco, USA
41. The Asian Bond Market ................................. 655
Khairy Tourk, Illinois Institute of Technology, USA
42. Cross-Border Mergers and Acquisitions ..................... 664
Geraldo M. Vasoncellos, Lehigh University, USA
Richard J. Kish, Lehigh University, USA
43. Jump Diffusion Model ................................... 676
Shiu-Huei Wang, University of Southern California, USA
44. Networks, Nodes, and Priority Rules ....................... 689
Daniel G. Weaver, Rutgers University, USA
45. The Momentum Trading Strategy ......................... 700
K.C. John Wei, Hong Kong University of Science
and Technology, Hong Kong
46. Equilibrium Credit Rationing and Monetary Non Neutrality in
a Small Open Economy .................................. 705
Ying Wu, Salisbury University, USA
47. Policy Coordination between Wages and Exchange Rates in
Singapore .............................................. 715
Ying Wu, Salisbury University, USA
48. The Le Chatelier Principle of the Captial Market
Equilibruim ............................................ 724
Chin-Wei Yang, Clarion University of Pennsylvania, USA
Ken Hung, National Dong Hwa University, Taiwan
John A. Fox, The Fox Consultant Incorporated, USA
49. MBS Valuation and Prepayments .......................... 729
C. H. Ted Hong, BeyondBond Inc., USA
Wen-Ching Wang, Robeco Investment Management, USA
50. The Impacts of IMF Bailouts in International Debt Crises ..... 744
Zhaohui Zhang, Long Island University, USA
Khondkar E. Karim, Rochester Institute of Technology, USA