Showing papers on "Market capitalization published in 1991"

Discounts on Restricted Stock: The Impact of Illiquidity on Stock Prices

Abstract: A simple statistical model explains price differences between securities that differ in resale provisions-in particular, restricted securities, which can be sold only after a two-year holding period, are compared with publicly traded securities of the same company. The discount on restricted stock varies directly with the amount of restricted stock relative to publicly traded stock and inversely with the credit-worthiness of the issuing company. That credit-worthy companies must offer price discounts of more than 30 per cent to sell a significant block of restricted stock illustrates the importance of liquidity to the valuation of common stock.

Stock market dispersion and business cycles

Abstract: Do stock market movements predict business cycles? Opinions differ Focusing on the link between movements in the Standard and Poor's (S&P) 500 and the economy, Fisher and Merton (1984, p 72) find that "stock price changes are the best single variable predictor of the business cycle" And Barro (1988, p 1) concludes that "considering how difficult it is to make accurate macroeconomic forecasts, the explanatory power of the stock market is outstanding" Other economists are not so impressed Samuelson (1966) aptly sums up the opposing view: "The stock market has predicted nine of the last five recessions" More recently, Stock and Watson (1988) find the forecasting ability of aggregate stock market indices to be uneven and they exclude them from their new index of leading economic indicators This article looks at another way to analyze stock price data that can help forecast business cycles This kind of analysis is motivated by Black (1987, p 113-114) who argued that the behavior of an industry's stock price can be used to forecast the industry's subsequent investment expenditures Increases in an industry's stock price are generally followed by an increase in that industry's expenditures on plant and equipment If stock prices are increasing in some industries but declining in others, it suggests that in subsequent years capital and labor will have to be reallocated from the contracting industries to the expanding ones While beneficial in the long run, this reallocation of resources imposes short-run costs, that is, temporary declines in real activity as the resources move across industries The greater the divergence in the fortunes of different industries, the more resources must be moved, and so the larger will be the resulting unemployment and fall in output As Black suggests, stock market data provide a way of measuring the extent of this divergence, or dispersion, in industry fortunes In a well-functioning stock market, stock prices represent the discounted sum of present and expected future industry profits As stock market participants forecast the contraction of some industries and the expansion of others, the price of stocks in the contracting industries will fall, while stock prices in the expanding industries will rise The greater the predicted difference in the industries' prospects, the greater will be the dispersion in these industries' stock prices Thus, an increase in the dispersion of stock prices should be followed by an increase in unemployment and a decline in real economic activity

Is There a Gift from Small-Stock Investing?

Abstract: Small stocks are widely believed to provide higher rates of return than larger-capitalization stocks. But early research into small-stock returns failed to consider certain economic aspects of small-stock investing-namely, the extra risk and additional illiquidity associated with small stocks. These may very well explain the mysterious return to smallness. Adjusting the returns on a broad universe of equity portfolios for risk and transaction costs gives a more realistic picture of the returns actually available to small-stock portfolios. While adjustment for risk significantly reduces the raw total returns to small-stock portfolios, transaction costs do the most damage. This result is a function, not only of the higher cost of trading smaller, less liquid stocks, but of the turnover required. Turnover rates increase systematically as portfolio market capitalization decreases and as rebalancing frequency increases. For all but the very smallest decile of market capitalization, a strategy of rebalancing every six months results in zero or negative excess returns. The actual returns available to practicable small-stock portfolios are much smaller than those documented in previous studies and apparently expected in practice.

The 1991 handbook of world stock and commodity exchanges

Abstract: This guide to world stock and commodity exchanges provides information about exchanges in 50 countries. Each entry includes the official exchange name, the official address, telephone, fax and telex numbers, details of overseas representative offices, a brief history of the exchange, the structure of the exchange and prospective developments. There are also details of opening hours, the number of listed domestic and foreign shares, market capitalization, the percentage capitalization of the top 20 shares, types of shares traded, the trading system used, the way in which instruments are traded, settlement and transfer, taxation and regulations affecting foreign investors, commission rates and other client costs, investor protection codes, and principle indices and their constituents. There is a similar range of information for future markets with the emphasis on delivery details.