On Relations among Stock Price Behavior and Changes in the Capital Structure of the Firm

Abstract

There now exists a formidable documentation of the hypothesis that time series of common stock prices follow random walks. Taking these empirical demonstrations as convincing, additional work has largely fallen into two classes: (a) direct theorizing and testing of the exact nature of the random price-generating process; and (b) theorizing and testing of the implications of random walks in common stock price for the values of related securities such as warrants and convertibles.