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Dividend Puzzle
The dividend puzzle, as originally framed by Fischer Black, Fischer Black (1976)"The dividend puzzle,"'' The Journal of Portfolio Management'', 1976.2.2:5-8. relates to two interrelated questions in corporate finance and financial economics: why do corporations pay dividends; and why do investors "pay attention" to dividends? A key observation here, is that companies that pay dividends are rewarded by investors with higher valuations (in fact, there are several dividend valuation models; see ''The Theory of Investment Value''). What is puzzling, however, is that it should not matter to investors whether a firm pays dividends or not: as an ''owner'' of the firm, the investor should be indifferent as to receiving dividends or having these re-invested in the business; see Modigliani–Miller theorem. A further and related observation is that these dividends attract a higher tax rate as compared, e.g., to capital gains from the firm repurchasing shares as an alternative pay ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Fischer Black
Fischer Sheffey Black (January 11, 1938 – August 30, 1995) was an American economist, best known as one of the authors of the Black–Scholes equation. Working variously at the University of Chicago, the Massachusetts Institute of Technology, and at Goldman Sachs, Black died two years before the Nobel Memorial Prize in Economic Sciences (which is not given posthumously) was awarded to his collaborator Myron Scholes and former colleague Robert C. Merton for the Black-Scholes model and Merton's application of the model to a continuous-time framework. Black also made significant contributions to the capital asset pricing model and the theory of accounting, as well as more controversial contributions in monetary economics and the theory of business cycles. Background Fischer Sheffey Black was born on January 11, 1938. He graduated from Harvard College with a major in physics in 1959 and received a PhD in applied mathematics from Harvard University in 1964. He was initially ex ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Institutional Investors
An institutional investor is an entity that pools money to purchase security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, state-owned enterprise, government-linked companies, Insurance, insurers, pension funds, sovereign wealth funds, charitable organization, charities, hedge funds, real estate investment trusts, registered investment adviser, investment advisors, financial endowment, endowments, and mutual funds. Operating companies which invest excess capital in these types of assets may also be included in the term. Activist shareholder, Activist institutional investors may also influence corporate governance by exercising voting rights in their investments. In 2019, the world's top 500 asset managers collectively managed $104.4 trillion in Assets under management, Assets under Management (AuM). Institutional investors appear to be more sophisticated than ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Appreciation
Capital appreciation is an increase in the price or value of assets. It may refer to appreciation of company stocks or bonds held by an investor, an increase in land valuation, or other upward revaluation of fixed assets. Capital appreciation may occur passively and gradually, without the investor taking any action. It is distinguished from a capital gain which is the profit achieved by selling an asset. Capital appreciation may or may not be shown in financial statements; if it is shown, by revaluation of the asset, the increase is said to be "recognized". Once the asset is sold, the appreciation since the date of initially buying the asset becomes a "realized" gain. When the term is used about valuation of companies publicly listed, capital appreciation is the goal of an investor seeking long-term growth. It is growth in the principal amount invested, but not necessarily an increase in the current income from the asset. In the context of investment in a mutual fund, capit ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Prospect Theory
Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing $1,000 could only be compensated by the pleasure of earning $2,000. Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people. In the original formulation of the theory, the term ''prospect'' referred to the predictable results of a lottery. However, prospect theory can also be applied to the prediction of other forms of behaviors and decisions. Prospect theory challenges the expected utility theory deve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Knightian Uncertainty
In economics, Knightian uncertainty is a lack of any quantifiable knowledge about some possible occurrence, as opposed to the presence of quantifiable risk (e.g., that in statistical noise or a parameter's confidence interval). The concept acknowledges some fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events. Knightian uncertainty is named after University of Chicago economist Frank Knight (1885–1972), who distinguished risk and uncertainty in his 1921 work ''Risk, Uncertainty, and Profit:''Knight, F. H. (1921Risk, Uncertainty, and Profit Boston, MA: Hart, Schaffner & Marx; Houghton Mifflin Company :"Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated.... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far- ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Behavioral Economics
Behavioral economics is the study of the psychological (e.g. cognitive, behavioral, affective, social) factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by traditional economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. Behavioral economics began as a distinct field of study in the 1970s and 1980s, but can be traced back to 18th-century economists, such as Adam Smith, who deliberated how the economic behavior of individuals could be influenced by their desires. The status of behavioral economics as a subfield of economics is a fairly recent development; the breakthroughs that laid the foundation for it were published through the last three decades of the 20th century. Behavioral economics is still growing as a field, being used increasingly in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Dividend Policy
Dividend policy, in financial management and corporate finance, is concerned with Aswath Damodaran (N.D.)Returning Cash to the Owners: Dividend Policy/ref> the policies regarding dividends; more specifically paying a cash dividend in the present, as opposed to, presumably, paying an increased dividend at a later stage. Practical and theoretical considerations will inform this thinking. Management considerations In setting dividend policy, management must pay regard to various ''practical'' considerations, Ken Garrett (ND)Dividend theory Association of Chartered Certified Accountants often independent of the theory, outlined below. In general, whether to issue dividends, and what amount, is determined mainly on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power: when cash surplus exists and is not needed by the firm, then management is expected to pay out some or all of those surplus earnings in the fo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Information Asymmetry
In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient, causing market failure in the worst case. Examples of this problem are adverse selection, moral hazard,Dembe, Allard E. and Boden, Leslie I. (2000). "Moral Hazard: A Question of Morality?" New Solutions 2000 10(3). 257–79 and monopolies of knowledge. A common way to visualise information asymmetry is with a scale, with one side being the seller and the other the buyer. When the seller has more or better information, the transaction will more likely occur in the seller's favour ("the balance of power has shifted to the seller"). An example of this could be when a used car is sold, the seller is likely to have a much better understanding of the car's condition and hence its market value than the buy ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Insider Information
Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information are illegal. The rationale for this prohibition of insider trading differs between countries and regions. Some view it as unfair to other investors in the market who do not have access to the information, as the investor with inside information could potentially make larger profits than an investor without such information. However, insider trading is also prohibited to prevent the director of a company (the insider) from abusing a company's confidential information for the director's personal gain. The rules governing insider trading are complex and vary significantly from country to country as does the extent of enforcement. The definition of insider in one jurisdiction can be broad and may cover not only insiders themselves but also ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
London School Of Economics
The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded by Fabian Society members Sidney Webb, Beatrice Webb, Graham Wallas and George Bernard Shaw, LSE joined the University of London in 1900 and offered its first degree programmes under the auspices of the university in 1901. LSE began awarding degrees in its own name in 2008, prior to which it awarded degrees of the University of London. It became a university in its own right within the University of London in 2022. LSE is located in the London Borough of Camden and Westminster, Central London, near the boundary between Covent Garden and Holborn. The area is historically known as Clare Market. As of 2023/24, LSE had just under 13,000 students, with the majority being postgraduate students and just under two thirds coming from outsid ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Signalling (economics)
Signalling (or signaling; see American and British English spelling differences#Doubled consonants, spelling differences) in contract theory is the idea that one party (the law of agency, agent) credibly conveys some information about itself to another party (the principal (commercial law), principal). Signalling was already discussed and mentioned in the seminal Theory of Games and Economic Behavior, which is considered to be the text that created the research field of game theory. Although signalling theory was initially developed by Michael Spence based on observed knowledge gaps between organisations and prospective employees, its intuitive nature led it to be adapted to many other domains, such as Human Resource Management, business, and financial markets. In Spence's job-market signaling model, (potential) employees send a signal about their ability level to the employer by acquiring education credentials. The informational value of the credential comes from the fact that ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Clientele Effect
The clientele effect is the idea that the set of investors attracted to a particular kind of security will affect the price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ... of the security when policies or circumstances change. For instance, some investors want a company that doesn't pay dividends but instead invests that money in growing the business, whereas other investors prefer a stock that pays a high dividend, and still others want one that balances payout and reinvestment. If a company changes its dividend policy substantially, it is said to be subject to a clientele effect as some of its investors (its established clientele) decide to sell the security due to the change. Although commonly used in reference to dividend or coupon (interest) rates, it can also be used in th ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
