Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis

Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors towards risk. Our empirical resuts support the hypothesis that the stock market suffers from money illusion.

The Value Spread

We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20%) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.

The Price is (Almost) Right

Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the level of stock prices. First, we find that cash-flow betas (measured by regressing firms' earnings on the market's earnings) explain the prices of value and growth stocks well, with a plausible premium. Second, we use a present-value model to decompose the cross-sectional variance of firms' price-to-book ratios into two components due to risk-adjusted fundamental value and mispricing. When we allow the discount rates to vary with cash-flow betas, the variance share of mispricing is negligible.

Principles to Guide the Office of Legal Counsel

Former members of Office of Legal Counsel ( OLC ) in the Department of Justice offer guidance for their successors. Among the document\u27s recommendations are suggestions that the OLC provide an accurate and honest appraisal of applicable law, even if that advice will constrain the administration’s pursuit of desired policies; and publicly disclose its written legal opinions in a timely manner, absent strong reasons for delay or nondisclosure

World Wind 3D Earth Viewing

World Wind allows users to zoom from satellite altitude down to any place on Earth, leveraging high-resolution LandSat imagery and SRTM (Shuttle Radar Topography Mission) elevation data to experience Earth in visually rich 3D. In addition to Earth, World Wind can also visualize other planets, and there are already comprehensive data sets for Mars and the Earth's moon, which are as easily accessible as those of Earth. There have been more than 20 million downloads to date, and the software is being used heavily by the Department of Defense due to the code s ability to be extended and the evolution of the code courtesy of NASA and the user community. Primary features include the dynamic access to public domain imagery and its ease of use. All one needs to control World Wind is a two-button mouse. Additional guides and features can be accessed through a simplified menu. A JAVA version will be available soon. Navigation is automated with single clicks of a mouse, or by typing in any location to automatically zoom in to see it. The World Wind install package contains the necessary requirements such as the .NET runtime and managed DirectX library. World Wind can display combinations of data from a variety of sources, including Blue Marble, LandSat 7, SRTM, NASA Scientific Visualization Studio, GLOBE, and much more. A thorough list of features, the user manual, a key chart, and screen shots are available at http://worldwind.arc.nasa.gov

Risk Management for Ag Families: An Extension Model for Improving Family Business Success

A risky business environment for agricultural producers coupled with human risk elements unique to family businesses, points to the need for extension programs that integrate traditional risk management concepts into curriculums focused on the potentially unique educational needs of family farm management teams. Results in this paper indicate that a multi-state, grant funded program entitled "Risk Management for Ag Families" had impact and provides a model that traditional risk management education programs could benefit from.Risk and Uncertainty, Teaching/Communication/Extension/Profession,

Aerial Inventories of Waterfowl in Illinois and Estimation of Moist-soil Plant Seed Abundance for Waterfowl on Lands Managed by Illinois Department of Natural Resources

Grant/Contract No: W-43-R 53-54-55Reports on progress and results of inventories of waterfowl along the Illinois and central Mississippi rivers during fall and winter and estimation of moist-soil plant seed abundance for waterfowl on lands managed by Illinois Department of Natural ResourcesINHS Technical Report Prepared for U.S. Fish & Wildlife Service, Illinois Department of Natural Resource

Global CO2 Distributions over Land from the Greenhouse Gases Observing Satellite (GOSAT)

January 2009 saw the successful launch of the first space-based mission specifically designed for measuring greenhouse gases, the Japanese Greenhouse gases Observing SATellite (GOSAT). We present global land maps (Level 3 data) of column-averaged CO2 concentrations (X(sub CO2)) derived using observations from the GOSAT ACOS retrieval algorithm, for July through December 2009. The applied geostatistical mapping approach makes it possible to generate maps at high spatial and temporal resolutions that include uncertainty measures and that are derived directly from the Level 2 observations, without invoking an atmospheric transport model or estimates of CO2 uptake and emissions. As such, they are particularly well suited for comparison studies. Results show that the Level 3 maps for July to December 2009 on a lO x 1.250 grid, at six-day resolution capture much of the synoptic scale and regional variability of X(sub CO2), in addition to its overall seasonality. The uncertainty estimates, which reflect local data coverage, X(sub CO2) variability, and retrieval errors, indicate that the Southern latitudes are relatively well-constrained, while the Sahara Desert and the high Northern latitudes are weakly-constrained. A probabilistic comparison to the PCTM/GEOS-5/CASA-GFED model reveals that the most statistically significant discrepancies occur in South America in July and August, and central Asia in September to December. While still preliminary, these results illustrate the usefulness of a high spatiotemporal resolution, data-driven Level 3 data product for direct interpretation and comparison of satellite observations of highly dynamic parameters such as atmospheric CO2