Showing papers on "Market capitalization published in 1987"

The Volatility of Stock Market Prices

Abstract: If the volatility of stock market prices is to be understood in terms of the efficient markets hypothesis, then there should be evidence that true investment value changes through time sufficiently to justify the price changes. Three indicators of change in true investment value of the aggregate stock market in the United States from 1871 to 1986 are considered: changes in dividends, in real interest rates, and in a direct measure of intertemporal marginal rates of substitution. Although there are some ambiguities in interpreting the evidence, dividend changes appear to contribute very little toward justifying the observed historical volatility of stock prices. The other indicators contribute some, but still most of the volatility of stock market prices appears unexplained.

Forecasting stock market prices in a thin security market

Abstract: Stock market efficiency is a crucial concept when forecasting of future stock price behaviour is discussed. In the literature, a distinction is made between three potential levels of efficiency. Under a weak form of efficiency, information on historical price movements is of no value for predicting the future price development. Similarly, a semi-strong form of efficiency holds that no publicly available information can be successfully used in the prediction of prices. And finally, a strong form of efficiency means that the share prices fully reflect all relevant information including data not yet publicly available. Stock market efficiency has been extensively studied in different countries. On a thin security market, like in the Helsinki Stock Exchange, many anomalies and deviations from market efficiency have been obtained. This paper aims to contribute to that discussion. It is shown in the paper that both the monthly and quarterly stock market prices (the general stock market index) can be adequately forecasted using either univariate time-series analysis or multivariate econometric modelling. The univariate ARIMA-models seem to be slightly outperformed by the econometric models. It is further shown that the forecasting accuracy of the models can be improved when time-series and econometric forecasts are combined into a composite forecast. The empirical results obtained indicate an absence of efficiency on the Finnish security market.

The Informal Venture Capital Market: Aspects of Scale and Market Efficiency

Abstract: Examines the scale and market efficiency of the informal venture capital market. The performance of the informal venture capital market is of concern to entrepreneurs, venture capitalists, and public officials. This almost invisible informal market provides equity-type financing to entrepreneurs, which fills gaps in the institutional equity market. Private venture investors are likely to have created their own wealth, have business and financial experience, and have net worth of $1 million or more. There are about 100,000 active in any year. Private investors manage about $50 billion, about twice that managed by professional venture investors, and finance 20,000 or more firms, compared to the two to three thousand of professionals. The typical venture raised about $250,000 from three or more investors. The ventures funded by the informal market tend to be (1) technology inventors and start-ups requiring less than $1 million of seed capital, and (2) firms growing faster than cash flows can support. There is a perception that a gap exists in the funding of entrepreneurs. However, this anecdotal folklore overlooks the investment record and that angel investors do invest in the areas perceived as gaps. There is some evidence that there is little or no market imperfection. The effect of gaps (or inefficiency) is created when the flow of informal market capital is constrained by the high cost of the limited information about investors and investment opportunities; the market is also limited by unfamiliarity of investors and entrepreneurs about the usual techniques of successful venture financing. The usual channels for investment are informal networks of friends and businesspersons. The gaps between private and social returns from innovation, and the perceived inefficiency of the informal market suggest public and private initiatives to foster the market would be appropriate. Concludes with a report about an experimental project, the Venture Capital Network established at the University of New Hampshire to enhance the efficiency of the informal venture capital market. Lessons learned from the project are discussed: The informal investor population is diffuse and hard to reach. New concepts do not sell themselves. It takes time to build a track record. An investor's interest depends in part on familiarity with techniques of venture investing. The project's endurance would suggest market efficiency can be improved. (TNM)