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Essay pecking order theory(2) by jonkjngy - issuu

The well-known way of limiting such risks is to buy a diversified share portfolio – a strategy that was analysed in detail in the 1950s by the economist Harry Markowitz . Markowitz reasoned that what matters is the riskiness of the portfolio rather than its components, and that the riskiness of the portfolio depended, not so much upon the riskiness of its components, as upon their , or the tendency of their prices rise and fall in concert. He went on to develop what has come to be known as "portfolio theory" concerning the problem of adjusting a portfolio mix to give the maximum return for a given level of risk. Complex procedures are involved in which assets are grouped according to their riskiness and their . The risk of holding an equity came to be categorised as consisting of "unsystematic risk", which can be reduced by diversification, and "systematic risk" which results from the rise and fall of the equity market as a whole. Modern portfolio theory now takes account of an extension of the Markowitz analysis to include cash, and the possibility of borrowing in order to invest, that was developed by James Tobin .Tobin demonstrated that the process of finding an optimum portfolio for a given level of risk involves two separate two decisions: first finding an optimal mix of equities, and then combining it with the amount of cash necessary to meet the risk requirement - a result known as "Tobin's Separation Theorem". He also argued that in a perfect market with only rational investors, the optimal mix of equities would consist of the entire market.

It is often set up as a competitor theory to the pecking order theory of capital structure.

The value of an asset is determined by its expected rate of return which, in turn, is related to its riskiness. Competition may be expected to ensure that equities earn greater returns than government bonds in order to compensate their purchasers for undertaking greater risks. The difference for any given share is termed its . A theorem developed by the economist William Sharpe proves that, under certain ideal circumstances, a share's risk premium will be equal to the equity market’s risk premium multiplied by a factor that he termed , which is related to the covariance of that share's rates of return with the corresponding rates for the equity market as a whole. The result is known as the (CAPM) . Sharpe's proof depends upon the assumption that all investors effectively free themselves of "unsystemic" risk by diversification and receive a risk premium only for the remaining "systemic risk" (he argued that rational investors in a perfect market would arbitrage away any premium gained in return for avoidable risks). Subsequent investigators have tried to establish whether, despite those somewhat unrealistic assumptions, the stock market behaves as predicted by the model. A 1972 study of the New York Stock Exchange during the period 1931-65 broadly confirmed the existence of proportionality between the prices of shares and their Betas , a 1992 study of the New York, American and NASDAQ stock exchanges during the period 1963-90 did not indicate any such proportionality, and the findings of a 1993 paper using a different methodology tended to confirm the CAPM prediction . The controversy continues, but many economists believe that Beta is a significant factor, although not the only factor, that influences share prices.

Ritual sacrifice as a pecking order ..

The pecking order hypothesis.

Henry R. Knipe
Alice B. Woodward

Scientists have puzzled for decades over pterosaurian details such as locomotion on the ground and posture in flight, and not all these issues are necessarily settled now. This early-20th-century depiction might be off in a few details — the pterosaurs' trunks look a bit stout and their necks a bit short — but the general picture is right. But paired with the prehistoric pteranodons are some very modern-looking birds: a seagull standing by the shore and what might be a cockatoo in flight.

"Awful Changes" print
and by Martin J.S. Rudwick
The author of this illustration was De la Beche. The target was Charles Lyell. Lyell argued for uniformitarianism: geologic processes occurring today, such as floods, earthquakes and erosion, are the same as those that occurred millions, even billions of years ago, and can account for landscapes as varied as the Alps and the Grand Canyon. Uniformitarianism is widely accepted among geologists today. Likewise, it's perfectly reasonable to think that, just as some parts of the globe were balmy or frigid millions of years ago, they may well be balmy or frigid millions of years in the future. But Lyell took that thinking an improbable step further, claiming, "huge might reappear in the woods, and the ichthyosaurs in the sea, while pterodactyle might flit again through umbrageous groves of tree ferns." It was this speculation — that the exact same animals that had lived in the distant past would recur in the distant future — that De la Beche lampooned, with an ichthyosaur lecturing students about the ancient human skull. The caption for this cartoon reads, "'You will at once perceive,' continued Professor Ichthyosaurus, 'that the skull before us belonged to some of the lower order of animals, the teeth are very insignificant the power of the jaws trifling, and altogether it seems wonderful how the creature could have procured food.'"

In natural sciences a law is lower on "pecking order ..

In natural sciences a law is lower on "pecking order" that ..

The financing choices open to companies are determined by the choices open to investors - and that is true of choices concerning the issue of shares or bonds. A company's shareholders become its true owners only after all its debts have been repaid. In principle, therefore, their view of a company's debts should depend upon the opportunity they have to repay them. If they could do so costlessly, using money borrowed at the same rate as that paid by the company, then shareholders should be indifferent to the existence of debt. It should not matter to them whether they have shares in a company with no debt, or in a similar company with debt that could be costlessly repaid. That was the insight into the economics of company finance that was put forward by Modigliani and Miller in 1958. . On those assumptions the view of a company taken by the finance market would be unaffected, even by unlimited levels of . Reality differs in several respects. Gearing increases the risk that the company's income might fall to a level at which it could not make its contractual income payments - at which point it would become insolvent. On the other hand, it usually gives the company a tax advantage because most tax systems treat interest payments as an expense that can be deducted from income before calculating tax liability. According to the "trade-off theory" of corporate finance, the appropriate decision- making procedure under those circumstances is to increase gearing to the point at which the tax advantage offsets the risk-adjusted cost of insolvency. . The rival "pecking order" theory suggests that companies prefer the cheapest available form of finance, choosing retained profits, debt and equity in that order of preference. Most of the empirical evidence appears to favour the trade-off theory. Much of the evidence also suggests that high gearing can have a negative effect upon corporate growth, but the exceptions in both cases suggest that there are other factors that have to be taken into account. Among possible additional factors are the possibilities of arising from conflicts of interest between shareholders and managers and assymmetry of information between shareholders and managers , but it has been suggested that the threat of a hostile takeover, leading to replacement of an existing management, may mitigate such costs .

The importance of the lies not so much in what it says about investment analysts, as in the implications of its embodiment in subsequent theories: a risk-assessment procedure that is based upon a hypothesis that only holds true most of the time may be expected to have limited reliability. Questions about its usefulness in such applications arise mainly from the known incidence of irrational behaviour. The existence in the market of "noise traders" need not invalidate the hypothesis, provided that most traders act rationally and that those who do not, make only random mistakes. But two events suggest that, even if it nearly always holds true, there can be important exceptions in which those provisos are breached. They are the and the of the 1990s. In defence of the hypothesis, Burton Malkiel argues that the 1987 crash can be explained mainly (but not entirely) in terms of rational behaviour, notes that professional analysts were very much involved in the creation of the internet bubble, and rests his defence upon the observation that bubbles are exceptional . The findings of studies suggest, however, that occurrences of that sort are to be expected. The innate characteristics of the human mind have been shown to be responsible for habitual and persistent judgmental mistakes , of which some, such as "information cascades" might be expected to lead to non-random price-movements - and there have been many instances of cascades and behaviour in financial markets.

The pecking order theory has ..
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an empirical investigation of the pecking order hypothesis W 118th ..

Many have advocated a sudden, catastrophic event causing this unexpected change in the global climate, at the forefront of which is the Younger Dryas impact hypothesis involving the alleged airburst or impact of cometary fragments above or into the extensive northern ice cap (5). In his new book, Hancock logs the growing body of scientific papers presented in support of an extinction-level cosmic event ~12,900 B.P. (1), beginning with the 2007 paper by Firestone, Kennett and West which first proposed the ‘Clovis Comet’ (6). He also outlines the rearguard action of the gradualists to contain or debunk this hypothesis, and how this increasingly tired fight-back continues to lose ground.

theory instead of pecking order ..

There’s a pecking order within the arena of intellectual debate. That hierarchy is very structured and formalised within academia. Free-thinkers like Graham Hancock generate great book sales through their easy-to-access writing styles and exciting out-of-left-field ideas, but barely register within the ivory tower circles that count (at least in terms of the educational dissemination of knowledge). So, academics interested in such matters as these might highlight their work to researchers like Hancock, knowing that it fans the flame of the broader publicity they might seek, but don’t necessarily seek his approval. This theme is also a trademark of the book. That self-same pecking order exists outside academia – in the little-leagues, as it were. So, what I might suggest here won’t necessarily meet the approval of Mr Hancock (indeed, it most certainly will not), but I think it’s pertinent nonetheless. That’s because my ideas about cosmic catastrophism within the solar system centre around (but are not necessarily exclusive to) Planet X, Nibiru… call it what you will.

(often referred to as a pecking order), ..

Since these original proposals, scientists like Peter Kappelerhave modified and integrated other ideas. However, in the case oflemurs, there is no single hypothesis that can fully explain female at thistime and all three are likely to play a role.

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