Dutch Auction Rate Preferred Stock (DARPS) was created in the 1980s as a way for fully taxable corporate investors and tax-exempt issuers to share the tax benefits of the dividends received deduction. DARPS dividend yields were reset every few weeks through an auction, minimizing price risk and...

In February of 2008, the $330 billion auction-rate security market began to fall apart. Brokerage houses that managed the periodic auctions refused to support their issues, so that auctions failed and liquidity disappeared. Investors had a wake-up call: an asset they had thought was a...

Introductory investments courses revolve around Harry Markowitz's modern portfolio theory and William Sharpe's Capital Asset Pricing Model. Nonetheless, the textbook versions of these seminal contributions tend to obscure their economic insights, focusing instead on their mathematical...

Intraportfolio correlation (IPC), a measure of portfolio diversification, is becoming increasingly popular among investment practitioners. However, despite the assertions of these adherents, IPC is far from a free lunch. Instead, it is a simplistic and flawed measure that ignores material...

Many consumer advocates consider payday loans — short-term, uncollateralized loans with high interest rates — to be predatory. The demand for short-term funding has spurred the quest for a substitute, an effort encouraged and supported by regulators like the Federal Deposit Insurance...

Students of corporate finance must learn the basics of capital structure theory. However, most textbook discussions are confusing and include too many equations. We present a simple model of tax-related capital structure basics that incorporates only three components: a market-value balance...

It is difficult to achieve financial stability without access to traditional banking services. “Unbanked” and “underbanked” groups therefore face significant financial hurdles, making them targets for predatory fringe lenders. In this paper, we present the results of a credit survey...

Finance students can experience real-world challenges and enhance their learning by running an investment fund. However, most of the student-managed funds that currently exist are relatively large, equity-focused portfolios; few funds concentrate on debt, since fixed-income investing usually...

Creating a portfolio that consistently generates alpha - market-adjusted abnormal returns - is the holy grail of active management. Given that excess returns can come both from manager skill and from luck, some advocates of active management suggest that active funds should be combined into...

In this paper, we present a model in which higher-valued managers signal their value by voluntarily submitting to shareholder oversight. If a manager is willing to sell enough stock to release voting control, he is perceived to be of higher quality than if he had defensively maintained control....