New Releases by Burton Gordon Malkiel

One of the best documented propositions in the field of finance is that, on average, investors have received higher rates of return on in- vestment securities for bearing greater risk. This paper looks at the historical evidence regarding risk and return, explains the fundamentals of portfolio and asset pricing theory, and then goes on to take a new look at the relationship between risk and return using some unexplored risk measures that seem to capture quite closely the actual risks being valued in the market. The paper concludes that the best single risk proxy is not the traditional beta calculation but rather the dispersion of analysts'' forecasts. Companies for which there is broad consensus with respect to future earnings and dividends seem to be less risky (and hence have lower expected returns) than companies for which there is little agreement among security analysts. It is possible to interpret this result as contradicting modern asset pricing theory, which suggests that total variability per se will not be relevant for valuation. As is shown in the paper, how- ever, this dispersion of forecasts could well result from different companies being particularly susceptible to systematic risk elements and thus the dispersion measure may be the best individual proxy available to capture the variety of systematic risk elements to which securities are subject

This is a study using a unique body of expectations data collected over the decade of the 1960s. After describing the data, this paper first looks at the extent of consensus among those financial institutions providing the forecasts and measures the accuracy of the forecasts. We then ask if the forecasts are consistent with the hypothesis that tile expectations are "rational". We then turn to the relationship of the forecasts to security valuation. We develop our own variant of the popular capital asset pricing model using a framework suggested by Ross for this arbitrage model. Alternative specifications are developed relating expected returns to risk variables and relating securities prices to expectations and risk variables. We find that the expectations data of the sort we have collected do appear to influence security prices in the manner suggested by the theory. We also find that the expected security returns implied by the expectations data are related to "systematic" risk measures appropriately defined. Nevertheless, we find that, even when a variety of systematic influences are used, other risk measures, possibly related to their own variance of the securities, appear to play some role in security valuation.

This paper analyzes the effects of the federal tax structure on corporate financial and investment behavior. We first develop a model of corporate behavior given taxes, taking into account both uncertainty and costs of bankruptcy. Simpler models abstracting from bankruptcy costs had clear counterfactual implications. The forecasts from our model proved to be consistent with both the observed cross-sectional variation in debt-equity ratios and the time series pattern of debt-equity ratios (data that were constructed in the paper). We then attempted to measure the efficiency costs created by corporate tax distortions as implied by the model. The forecasted efficiency cost of the distortion favoring debt finance seemed to be quite large, while the tax distortion affecting investment seemed to be less important than others have claimed. The paper concludes with a study of the efficiency implications of various proposed corporate tax changes