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A total of 12 papers in this volume represent some current research on important topics in finance. The contributions include analyses of issues relating to the recent reforms on corporate governance, the behavior of stock returns, the option pricing models, the financial regulation and banking theory, and the international finance. Kensinger and Poe argue that the legal status of corporations and the higher costs of Sarbanes-Oxley will accelerate further hollowing of public corporations. Using stock price reactions to the information in joint venture announcements, Keown, et al. find that the market considers relevant information for valuing the firms apart from the joint venture itself. Based upon data from a large sample of global financial markets, Cao and Wei find empirical evidence strongly supporting the negative relationship between stock returns and temperature. Kang and Ding find differential results of stock returns on the financial signals in Asian financial markets. Chen et al. develop a binomial-tree pricing model for Stock Participation Accreting Redemption Quarterly pay Securities (SPARQS), and show the pricing performance of the model. Lai and Soumare analyze the investment incentives in project finance in the presence of government financial guarantees. Chang et al. develop option-pricing models with price limits and market illiquidity and show that both of these market imperfections have significant impact on the option values.

It is hard to believe that I have edited 20 volumes of Research in Finance since 1985. The Series has made significant contributions to the literature by publishing many chapters on important topics in the fields of finance and economics. A total of 12 chapters in this volume represent some current research on interesting and important topics. Kane stresses the ideas that the character of a country's financial safety nets should be dynamic and its design must address differences in transparency, deterrency, and accountability that develop across time and across countries. Based upon a simple game-theoretic model, Panyagometh and Roberts show that a contingent purchase and assumption policy is the most effective choice for an acquirer of a failed bank in reducing moral hazard problems. In a subsequent chapter, Panyagometh and Roberts extend their analysis to show that a mandatory subordinated debt policy (MSDP) can be used with a contingent purchase and assumption policy to further reduce the probability of future bank failure. Chen et al. argue that it is fundamental to good corporate governance that the corporate managers must provide owners with accurate, timely, and complete disclosure of the firm's real options. O’Neill et al. use vector autoregressive models to examine the interrelationship between housing activity and general economic activity and find that the relationship has changed in some OECD countries.

A total of 12 chapters in this volume represent some current research on important topics in finance and economics. Bajaj et al. demonstrate through a time series analysis that the IPO underwriting spreads seem to be competitive, in contrast to the findings of Chen and Ritter (2000). Sealey argues that it is necessary for the regulator and deposit insurer to be an integral part to mitigate the moral hazard problem in bank regulation. Lee develops a multi-period pricing model to examine the impact of forbearance and potential moral hazard behavior on the cost of deposit insurance. Hao and Roberts show that lead lenders have significant positive influence on loan yield spreads. Daly et al. show that coincident indicators developed to track a state's gross outputs have significant influence on state-level aggregate bank performance.

Chen and Ritter (2000) documented that underwriter spreads for recent US initial public offerings (IPOs) in $20 million range as well as much larger IPOs in the $80 million range are clustered at 7%. This observation has led to a Department of Justice (DOJ) enquiry into potential price fixing by underwriters. We demonstrate through a times series analysis that IPOs have tripled in size and become much riskier over time. A pooled data analysis can therefore mask evidence of competition in the market. We find that spread clustering is not a recent phenomenon. Over time, clustering at 7% has increased as clustering above 7% has declined. IPO spreads have declined significantly over time as the firms going public more recently are riskier, underwriting efforts have increased and recent IPOs are much larger than IPOs in the past. Controlling for time trends, larger IPOs have lower average spreads. The market for underwriting IPOs seems to be competitive with entry of new firms during the hot markets.

Eleven papers in this volume present some current interesting and important research in finance. Based upon the CAPM, Chen and Kane show that double taxation and differential tax rates on personal and capital-gains income affect corporate stock values and financial policies in nonneutral ways. Sengupta shows tax evasion decisions of a monopolist in a price-ceiling regulatory environment. In their paper, Osterberg and Thomson empirically examine the impact of state-level depositor preference laws on resolution type and costs for all operating FDIC-BIF insured commercial banks that were closed or required FDIC financial assistance from January 1986 through December 1992. Peek and Wilcox show that during periods of international financial crises or of domestic economic stress, the government-sponsored enterprises (GSEs) are well suited to stabilize mortgage markets. In their paper, Chen, Robinson and Siems empirically show the association between banks’ subordinated debt and their loan sales activities and its implications in the transmission mechanism of monetary policy.

This paper provides a fuller characterization of the analytical upper bounds for American options than has been available to date. We establish properties required of analytical upper bounds without any direct reliance on the exercise boundary. A class of generalized European claims on the same underlying asset is then proposed as upper bounds. This set contains the existing closed form bounds of Margrabe, (1978) and Chen and Yeh (2002) as special cases and allows randomization of the maturity payoff. Owing to the European nature of the bounds, across-strike arbitrage conditions on option prices seem to carry over to the bounds. Among other things, European option spreads may be viewed as ratio positions on the early exercise option. To tighten the upper bound, we propose a quasi-bound that holds as an upper bound for most situations of interest and seems to offer considerable improvement over the currently available closed form bounds. As an approximation, the discounted value of Chen and Yeh's (2002) bound holds some promise. We also discuss implications for parametric and nonparametric empirical option pricing. Sample option quotes for the European (XEO) and the American (OEX) options on the S&P 100 Index appear well behaved with respect to the upper bound properties but the bid–ask spreads are too wide to permit a synthetic short position in the early exercise option.