https://rady.ucsd.edu/faculty/directory/valkanov/pub/classes/mfe/docs/fama_french_jfe_1993.pdf

Common risk factors in the returns on stocks and bonds

Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market 3, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in 3 that is unrelated to size, the relation between market /3 and average return is flat, even when 3 is the only explanatory variable. THE ASSET-PRICING MODEL OF Sharpe (1964), Lintner (1965), and Black (1972) has long shaped the way academics and practitioners think about average returns and risk. The central prediction of the model is that the market portfolio of invested wealth is mean-variance efficient in the sense of Markowitz (1959). The efficiency of the market portfolio implies that (a) expected returns on securities are a positive linear function of their market O3s (the slope in the regression of a security's return on the market's return), and (b) market O3s suffice to describe the cross-section of expected returns. There are several empirical contradictions of the Sharpe-Lintner-Black (SLB) model. The most prominent is the size effect of Banz (1981). He finds that market equity, ME (a stock's price times shares outstanding), adds to the explanation of the cross-section of average returns provided by market Os. Average returns on small (low ME) stocks are too high given their f estimates, and average returns on large stocks are too low. Another contradiction of the SLB model is the positive relation between leverage and average return documented by Bhandari (1988). It is plausible that leverage is associated with risk and expected return, but in the SLB model, leverage risk should be captured by market S. Bhandari finds, howev er, that leverage helps explain the cross-section of average stock returns in tests that include size (ME) as well as A. Stattman (1980) and Rosenberg, Reid, and Lanstein (1985) find that average returns on U.S. stocks are positively related to the ratio of a firm's book value of common equity, BE, to its market value, ME. Chan, Hamao, and Lakonishok (1991) find that book-to-market equity, BE/ME, also has a strong role in explaining the cross-section of average returns on Japanese stocks.

http://www.business.unr.edu/faculty/liuc/files/badm742/fama_french_1992.pdf

The Cross‐Section of Expected Stock Returns

计量经济分析 = Econometric analysis

SEQUELS ARE RARELY AS good as the originals, so I approach this review of the market efficiency literature with trepidation. The task is thornier than it was 20 years ago, when work on efficiency was rather new. The literature is now so large that a full review is impossible, and is not attempted here. Instead, I discuss the work that I find most interesting, and I offer my views on what we have learned from the research on market efficiency.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1540-6261.1991.tb04636.x

Efficient Capital Markets: II

This paper studies the cross-sectional properties of return forecasts derived from Fama-MacBeth regressions. These forecasts mimic how an investor could, in real time, combine many firm characteristics to obtain a composite estimate of a stockâs expected return. Empirically, the forecasts vary substantially across stocks and have strong predictive power for actual returns. For example, using ten-year rolling estimates of Fama- MacBeth slopes and a cross-sectional model with 15 firm characteristics (all based on low-frequency data), the expected-return estimates have a cross-sectional standard deviation of 0.87% monthly and a predictive slope for future monthly returns of 0.74, with a standard error of 0.07.

/pdf/the-cross-section-of-expected-stock-returns-3oji85htnb.pdf

The Cross-section of Expected Stock Returns

Trading by corporate officers, directors, and large stockholders, who are commonly called insiders, commands widespread attention in the financial community. Academicians are interested in the amount of special information insiders possess, as well as in the profit they earn from such knowledge. The average investor seeks out useful information in the Official Summary of Insider Trading,' the monthly report listing the transactions of corporate officials. Previous research on corporate insiders has focused on the profitability of their trading. Some researchers, examining months of intensive insider activity, have concluded that insiders can predict stock price movement up to 6 months subsequent to trading. Rogoff for example, examines 45 companies in which, within a single month, three or more insiders buy their company's stock and no insiders sell the stock.2 He finds that the returns to the insiders of these companies in the following 6 months are on average 91/2 percent greater than the return to the stock market as a whole. Glass examines 14 different calendar months and selects the eight securities with the greatest excess of buyers to sellers among insiders within a month.3 He finds that the average return on these securities is 10 percent above the return on the stock market as a whole in the 7 months following the individual months of intensive buying. Lorie and Niederhoffer investigate stock performance following months in which there are at least two more buyers than sellers or at least two more sellers than buyers among the insiders of a company.4 They find that a security experiencing an intensive buying month is more likely to advance than to decline relative to the market in the 6 months subsequent to the event. Conversely, a security experiencing an intensive selling month is more likely to decline than to advance relative to the market in the 6 months subsequent to the event. Driscoll examines the trading by insiders prior to dividend changes

Special Information and Insider Trading

The existing literature on the post-merger performance of acquiring firms is divided We re-examine this issue, using a nearly exhaustive sample of mergers between NYSE acquirers and NYSE/AMEX targets We find that stockholders of acquiring firms suffer a statistically significant loss of about 10% over the five-year post-merger period, a result robust to various specifications Our evidence suggests that neither the firm size effect nor beta estimation problems are the cause of the negative post-merger returns We examine whether this result is caused by a slow adjustment of the market to the merger event Our results do not seem consistent with this hypothesis MERGERS ARE ONE OF the most researched areas in finance, yet some basic issues still remain unresolved While most empirical research on mergers focuses on daily stock returns surrounding announcement dates, a few studies also look, in passing, at the long-run performance of acquiring firms after mergers Some conclude that these firms experience significantly negative abnormal returns over one to three years after the merger (for example, Langetieg (1978), Asquith (1983), and Magenheim and Mueller (1988)) These findings led Jensen and Ruback (1983, p '20) to remark: "These post-outcome negative abnormal returns are unsettling because they are inconsistent with market efficiency and suggest that changes in stock prices during takeovers overestimate the future efficiency gains from mergers" Ruback (1988, p 262) later writes: "Reluctantly, I think we have to accept this result-significant negative returns over the two years following a merger-as a fact" However, a conclusion of underperformance is not clearly warranted based on prior research First, the results are not all one-sided Langetieg (1978) finds that post-merger abnormal performance is not significantly different

The Post-Merger Performance of Acquiring Firms: A Re-examination of an Anomaly

This paper examines the daily stock market returns for four foreign countries. We find a so-called "week-end effect" in each country. In addition, the lowest mean returns for the Japanese and Australian stock markets occur on Tuesday. The remainder of the paper answers four questions. Are seasonal patterns in foreign stock markets independent of those previously reported in the U.S.? Do Japan and Australia exhibit a seasonal one day out of phase due to different time zones? Do settlement procedures across countries bias week-end effects? Does the seasonal pattern in foreign exchange offset the week-end effect in stocks for Americans investing overseas? SOME OF THE MOST ANOMALOUS empirical findings in finance are associated with the sample distributions of daily common stock returns. Cross [1], French [2], Gibbons and Hess [3], and Keim and Stambaugh [4] have documented that the average return on Friday is abnormally high, and the average return on Monday is abnormally low. To our knowledge, this so-called "day-of-the-week effect" or "week-end effect" has yet to be explained. Because this anomaly has been reported primarily for U.S. stock returns, it is appropriate to investigate whether similar results occur for other countries. Positive findings would strongly support the proposition that the weekly seasonal effect is a general, world-wide phenomenon rather than the result of a special type of institutional arrangement in the U.S. To shed more light on this proposition, our paper examines stock market returns in the U.K., Japan, Canada, and Australia. Since we find a week-end effect in each country, we can examine a set of interesting questions. For example, are these seasonals independent of the previously reported seasonal in the U.S.? Due to different time zones, do Far Eastern countries exhibit a seasonal one day out of phase? Do different settlement procedures across countries influence weekend effects? Does the seasonal in foreign exchange fluctuations (see McFarland, Pettit, and Sung [7] and Levi [6]) offset the week-end effect in stock market returns for Americans investing overseas?

The Week‐End Effect in Common Stock Returns: The International Evidence

THE NOTION OF a "hot issue" has been widely discussed and examined in the financial community during the past decade Hot issues usually refer to particular stock issues that have risen from their offering prices to higher than average premia in the aftermarket1 The most well-known investigations of these issues were the Securities and Exchange Commission (SEC) Report on the Special Study of Security Markets (28) and the SEC "hot issue" hearings of 1972 This paper focuses on the prediction of "hot issue" markets These markets are defined as periods in which the average first month performance (or aftermarket performance) of new issues is abnormally high Although no other academic research has examined hot issue markets, the predictability of these periods is commonly asserted in the financial community2 Furthermore, the SEC has focused on the years 1959-61 and 1968-69 as periods in which an extraordinary number of "hot issues" were allegedly offered This paper first tests the dependency of new issue premia (and aftermarket performance) in a given month on the premia (and aftermarket performance) of other new issues in past months Then the relationships between new issue premia, aftermarket performance, the frequency of offerings, and the performance of the market are examined Finally, implications of these results to investors, issuers, and researchers are analyzed In particular our findings may help investors and issuers decide when to purchase or issue the securities Also, we show that the results

"hot issue" markets

Earlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E/P) is not clear-cut. This paper re-examines these two effects with (a) a substantially longer sample period, 1951-1986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven months. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings.

Jeffrey F. Jaffe

Papers

Special Information and Insider Trading

The Post-Merger Performance of Acquiring Firms: A Re-examination of an Anomaly

The Week‐End Effect in Common Stock Returns: The International Evidence

"hot issue" markets

Earnings Yields, Market Values, and Stock Returns