Context.-Measures of physical and cognitive function are strong prognostic predictors of hospital outcomes for older persons, but current risk adjustment and burden of illness assessment indices do not include these measures. Objective.-To evaluate and validate the contribution of functional measures to the ability of 5 standard burden of illness indices (Charlson, Acute Physiology and Chronic Health Evaluation [APACHE] II, Disease Staging, All Patient Refined Diagnosis Related Groups, and a clinician's subjective rating) in predicting 90-day and 2-year mortality among older hospitalized patients. Design.-Two prospective cohort studies. Setting.-General medicine service, university teaching hospital. Patients.-For the development cohort, 207 consecutive patients aged 70 years or older, and for the validation cohort, 318 comparable patients. Main Outcome Measure.-Death within 90 days and 2 years from the index admission.Results.-In the development cohort, 29 patients (14%) and 81 patients (39%) died within 90 days and 2 years, respectively. A functional axis was developed using 3 independent risk factors: impairment in instrumental activities of daily living, Mini-Mental State Examination score of less than 20, and shortened Geriatric Depression Scale score of 7 or higher, creating low-, intermediate-, and high-risk groups with associated mortality rates of 20%, 32%, and 60%, respectively (PϽ.001); the C statistic for the final model was 0.69. The corresponding mortality rates in the validation cohort, in which 59 (19%) and 138 (43%) died within 90 days and 2 years, respectively, were 24%, 45%, and 60% (PϽ.001); the C statistic for the final model was 0.66. For each burden of illness index, the functional axis contributed significantly to the predictive ability of the model for both 90 days and 2 years. When the functional axis and each burden of illness measure were analyzed in cross-stratified format, mortality rates increased progressively from low-risk to high-risk functional groups within strata of burden of illness indices (double-gradient phenomenon). The contributions of functional and burden of illness measures were substantive and interrelated.Conclusions.-Functional measures are strong predictors of 90-day and 2-year mortality after hospitalization. Furthermore, these measures contribute substantially to the prognostic ability of 5 burden of illness indices. Optimal risk adjustment for older hospitalized patients should incorporate functional status variables.

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Recently, there has been considerable interest among accounting researchers in the relation between asymmetric information and cost of capital. A number of empirical studies document associations between risk premiums and proxies for asymmetric information such as earnings quality. However, the theoretical foundation for these studies has yet to be fully established. In this study, we consider the effects of private signals that are informative of both systematic factors and idiosyncratic shocks affecting asset payoffs in a competitive, noisy, rational expectations setting. Taking a large economy limit, we show that (1) risk premiums equal products of betas and factor risk premiums, irrespective of information asymmetries; (2) holding total information constant, greater information asymmetry leads to higher factor risk premiums and, thus, higher costs of capital; and (3) controlling for betas, there is no cross-sectional effect of information asymmetries on cost of capital. These results provide guidance in interpreting the findings of existing empirical work and suggest specifications helpful for future research.

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Bias against coding of chronic or comorbid conditions on the computerized discharge abstracts of patients who die best explains these results. Efforts to improve diagnosis coding completeness solely by increasing the number of available coding spaces may not succeed.

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Regulation requiring insiders to publicly disclose their stock trades after the fact complicates the trading decisions of informed, rent-seeking insiders. Given this requirement, we present an insider's equilibrium trading strategy in a multiperiod rational Ž . expectations framework. Relative to Kyle 1985 , price discovery is accelerated and insider profits are lower. The strategy balances immediate profits from informed trades against the reduction in future profits following trade disclosure and, hence, revelation of some of the insider's information. Our results offer a novel rationale for contrarian trading: dissimulation, a phenomenon distinct from manipulation, may underlie insiders' trading decisions.