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A reappraisal of Modigliani's finance theories

  • Terenzio Cozzi

    ()

    (Università degli Studi di Torino, Dipartimento di Economia, Torino (Italy))

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    The paper examines the influence of Modigliani's contributions to the theory of finance. As for the term structure of interest rates, the preferred habitat theory, had a mixed fortune: it was utilized by financial managers for a rather long time, before being discarded in the 1980s and, perhaps, being somewhat resumed in our days. The Modigliani-Miller theorem is considered as a landmark in finance theory, even if the controversies over both its assumptions and conclusions had indeed been very strong. By contrast, financial managers completely disregarded the thesis of an irrational undervaluation of stocks in inflationary periods. But most economists appreciate the proof that, for rather long periods, the market can be inefficient in channelling the resources towards the most productive utilizations.

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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9855/9737
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    Article provided by Banca Nazionale del Lavoro in its journal BNL Quarterly Review.

    Volume (Year): 58 (2005)
    Issue (Month): 233-234 ()
    Pages: 215-235

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    Handle: RePEc:psl:bnlaqr:2005:212
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    1. Joseph E. Stiglitz, 1967. "A Re-Examination of the Modigliani Miller Theorem," Cowles Foundation Discussion Papers 242, Cowles Foundation for Research in Economics, Yale University.
    2. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
    3. Mark L. Gertler, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," NBER Working Papers 2559, National Bureau of Economic Research, Inc.
    4. Miller, Merton H, 1988. "The Modigliani-Miller Propositions after Thirty Years," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 99-120, Fall.
    5. Stiglitz, Joseph E, 1988. "Why Financial Structure Matters," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 121-26, Fall.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    7. Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, vol. 75, pages 569.
    8. Joel Lander & Athanasios Orphanides & Martha Douvogiannis, 1997. "Earnings forecasts and the predictability of stock returns: evidence from trading the S&P," Finance and Economics Discussion Series 1997-6, Board of Governors of the Federal Reserve System (U.S.).
    9. Charles Goodhart, 1989. "Money, Information and Uncertainty: 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262071223, June.
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