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Examples
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M-M assumes that it is possible to arbitrage in debt and equity markets.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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Indeed, anyone who borrows money and invests it in financial stocks (the relevant arbitrage trade under M-M to narrow the spread between total return on equity and total return on debt) is a dummy.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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In any case, the really dubious assumption of M-M is not the no-arbitrage condition — none of the people you mentioned in recent history have been able to successfully arbitrage between vanilla stocks and bonds as far as anyone knows.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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Ah, another point: The M-M theorem is based on the fact that at times it is substantially cheaper to borrow money to put together a company from existing resources than to build those resources from scratch.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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Indeed, anyone who borrows money and invests it in financial stocks the relevant arbitrage trade under M-M to narrow the spread between total return on equity and total return on debt is a dummy.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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Ah, another point: The M-M theorem is based on the fact that at times it is substantially cheaper to borrow money to put together a company from existing resources than to build those resources from scratch.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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It looks like the Chicago Fair were built especially for M-M fans.
2008 April 2008
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I never met Scott face-to-face, but enjoyed speaking with him when he phoned after returning from his trip to Africa to search for M-M.
Archive 2008-03-01 2008
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M-M assumes that it is possible to arbitrage in debt and equity markets.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
-
In any case, the really dubious assumption of M-M is not the no-arbitrage condition — none of the people you mentioned in recent history have been able to successfully arbitrage between vanilla stocks and bonds as far as anyone knows.
The Volokh Conspiracy » Greenspan’s ‘The Crisis’ and Modigliani and Miller 2010
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