Showing papers on "Market capitalization published in 2005"

In Search of Distress Risk

Abstract: This paper explores the determinants of corporate failure and the pricing of financially distressed stocks using US data over the period 1963 to 2003. Firms with higher leverage, lower profitability, lower market capitalization, lower past stock returns, more volatile past stock returns, lower cash holdings, higher market-book ratios, and lower prices per share are more likely to file for bankruptcy, be delisted, or receive a D rating. When predicting failure at longer horizons, the most persistent firm characteristics, market capitalization, the market-book ratio, and equity volatility become relatively more significant. Our model captures much of the time variation in the aggregate failure rate. Since 1981, financially distressed stocks have delivered anomalously low returns. They have lower returns but much higher standard deviations, market betas, and loadings on value and small-cap risk factors than stocks with a low risk of failure. These patterns hold in all size quintiles but are particularly strong in smaller stocks. They are inconsistent with the conjecture that the value and size effects are compensation for the risk of financial distress.

In Search of Distress Risk

Abstract: This paper explores the determinants of corporate failure and the pricing of financially distressed stocks using US data over the period 1963 to 2003. Firms with higher leverage, lower profitability, lower market capitalization, lower past stock returns, more volatile past stock returns, lower cash holdings, higher market-book ratios, and lower prices per share are more likely to file for bankruptcy, be delisted, or receive a D rating. When predicting failure at longer horizons, the most persistent firm characteristics, market capitalization, the market-book ratio, and equity volatility become relatively more significant. Our model captures much of the time variation in the aggregate failure rate. Since 1981, financially distressed stocks have delivered anomalously low returns. They have lower returns but much higher standard deviations, market betas, and loadings on value and small-cap risk factors than stocks with a low risk of failure. These patterns hold in all size quintiles but are particularly strong in smaller stocks. They are inconsistent with the conjecture that the value and size effects are compensation for the risk of financial distress.

Ownership concentration, firm performance, and dividend policy in Hong Kong

Abstract: We analyze a sample of 412 publicly listed Hong Kong firms during 1995–1998 in order to answer three questions. Does concentrated family ownership affect firm operating performance and value? Does it affect dividend policy? What is the impact of corporate governance on performance, value, and dividend payouts? Our results do not show a positive relationship between family ownership and return on assets, return on equity or the market-to-book ratio. In addition, we find a negative relationship between CEO duality and performance (where CEO duality is much more likely in family-controlled firms). We also find little relationship between family ownership and dividend policy. Only for small firms there is a significant negative relationship between dividend payouts and family ownership up to 10% of the company's stock and a positive relationship for family ownership between 10 and 35%. Dividend payouts in small firms also show little sensitivity to performance. Finally, the composition of the board of directors (proportion of independent non-executive directors, outsider-dominated board, presence of audit committees) has little impact on firm performance and dividend policy, particularly for small market capitalization firms. Our results for Hong Kong are in line with both Demsetz and Lehn (1985) [Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93, 1155–1177] and Himmelberg et al. (1999) [Himmelberg, C.P., Hubbard, R.G., Palia, D., 1999. Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics 53. 353–384], who show that concentrated ownership is not associated with better operating performance or higher firm valuation.

Intellectual capital disclosure and market capitalization

Abstract: Purpose – This paper aims to develop a descriptive framework of the components of intellectual capital in annual reports. The paper also aims to investigate the effects of disclosure of intellectual capital on market capitalization.Design/methodology/approach – The components of intellectual capital are used as units of analysis to content analyze the annual reports of a sample of 58 Fortune 500 companies over the five‐year period of 1993‐1997.Findings – The frequency of disclosure of information about brand and proprietary processes has increased over the study period. The results also point to significant differences between the “new” and “old” economy sectors with respect to intellectual capital categories of brand and partnerships where there is more disclosure by “old” economy sector and information technology and intellectual property where there is more disclosure by the “new” economy sector. Finally, the results show a highly significant effect for the intellectual capital disclosure on market cap...

Stock Market Development and Economic Growth in Belgium

Abstract: This paper investigates the long-term relationship between financial market development and economic development in Belgium. We use a new data set of stock market development indicators to argue that financial market development substantially affected economic growth. We find strong evidence that stock market development caused economic growth in Belgium, especially in the period between 1873 and 1935. Institutional changes affecting the stock exchange explain the time-varying nature of the link between stock market development and economic growth.

Does Risk Seeking Drive Stock Prices? A Stochastic Dominance Analysis of Aggregate Investor Preferences and Beliefs

Abstract: We use various stochastic dominance criteria that account for (local) risk seeking to analyze market portfolio efficiency relative to benchmark portfolios formed on market capitalization, book-to-market equity ratio and price momentum. Our results suggest that reverse S-shaped utility functions with risk aversion for losses and risk seeking for gains can explain stock returns. The results are also consistent with a reverse S-shaped pattern of subjective probability transformation. The low average yield on big caps, growth stocks, and past losers may reflect investors' twin desire for downside protection in bear markets and upside potential in bull markets. Copyright 2005, Oxford University Press.

The Latest Movement to Going Private: An Empirical Study

Abstract: The number of firms going private is increasing at an unprecedented rate in the current decade. The ratio of companies going private to IPOs is in the 20%-30% range. My survey includes 110 of the 236 that went private between January 2001 and July 2003 (a 46.6 percent response rate). The cost of being public is the number one reason for going private by smaller firms. This relates directly to the passage of the Sarbanes-Oxley Act in 2002. A null hypothesis of no relationship between market capitalization and going private because of cost could be rejected at an alpha level of 0.01. Of significance is that a number of smaller firms actually went private under a Form 15 deregistration by reducing their number of shareholders to under 300, but without buying in the other shares outstanding. We now have a number of private companies with public shareholders holding the majority of the shares.

Is Debt Relief Efficient

Abstract: When developing countries announce debt relief agreements under the Brady Plan, their stock markets appreciate by an average of 60% in real dollar terms—a $42 billion increase in shareholder value. There is no significant stock market increase for a control group of countries that do not sign Brady agreements. The stock market appreciations successfully forecast higher future resource transfers, investment, and growth. Since the market capitalization of U.S. commercial banks with developing country loan exposure also rises—by $13 billion—the results suggest that both borrower and lenders can benefit from debt relief when the borrower suffers from debt overhang.

Malaysian companies’ use of the internet for investor relations

Abstract: Purpose – This study focuses on Malaysian companies because of the confidence shown by the international business community in what is considered to be the best country for corporate governance practice. Additionally, the Malaysian stock market is considered to be the largest stock market in terms of market capitalization in Asia. The primary objective of this study is to investigate the utilization of the internet by Malaysian‐listed companies for investor information or communication. It also examines the content of such investor relations (IR) information compared with similar web sites from other parts of the world.Design/methodology/approach – The sample for the study consists of 100 stock market index‐linked firms listed on the Kuala Lumpur Stock Exchange.Findings – Using a disclosure index for measuring investor information disclosure published in the companies’ web sites, this study revealed that only 70 firms provided investor‐related materials on their web sites. The highest‐ranking investor‐rel...

The immediate price impact of trades on the Australian Stock Exchange

Abstract: We study the immediate price impact of a single trade executed in the Australian Stock Exchange (ASX). By ordering the top 300 stocks on the ASX in order of their free float market capitalization, a clear pattern emerges, with higher cap stocks experiencing lower price impact than lower cap stocks for the same traded volume. We investigate this relationship in detail, and show that the price impact and liquidity scale as a power of the market capitalization. This relationship is used to obtain a single market impact curve which shows average price shift as a function of volume traded. We obtain similar results for every year from 2001 to 2004.

REIT Returns and Pricing: The Small Cap Value Stock Factor

Abstract: This study employs a variance decomposition approach to explore the investment characteristics of equity REITs within a multi‐factor model relating REIT returns to returns to small capitalization value stocks, small cap growth stocks, large cap stocks, bonds and private real estate. It also examines the changing nature of the return process over time, utilizing a finer partition of the stock market factor than many previous researchers have by distinguishing between small capital growth and small capital value stocks. This decomposition allows the effect of small stocks to be measured more accurately. In addition, this study is unique in that it incorporates a real estate factor at the monthly frequency, constructed from monthly REIT share price premium to NAV estimates. Our results show that REITs have a significant small capital value component, yet also exhibit a large sector‐specific component that has increased in importance in recent years. Conversely, REIT return volatility is not highly related to...

Market capitalization and efficiency. Does it matter? Evidence from the Athens Stock Exchange

Abstract: The efficient market hypothesis (EMH) is tested in the case of the Athens Stock Exchange (ASE) after the introduction of the euro for three different indices. The underlying assumption is that stock prices would be more transparent; their performance easier to compare; the exchange rate risk eliminated and as a result we expect the new currency to strengthen the argument in favour of the EMH. The FTSE/ASE20, which consists of ‘high capitalization’ companies, the FTSE/ASE Mid 40, which consists of medium sized companies and the FTSE/ASE Small Cap, which covers the next 80 companies, are used. Five statistical tests are employed to test the residuals of the random walk model: the BDS, McLeod–Li, Engle LM, Tsay and Bicovariance test. Bootstrap as well as asymptotic values of these tests are estimated. The random walk hypothesis is rejected in all three cases and alternative GARCH models are estimated.

Non-capitalization weighted fundamental indexing system, method and computer program product

Abstract: A passive investment system based on indices created from various metrics is disclosed. The indexes may be built with metrics other than market capitalization weighting, price weighting or equal weighting. These metrics may include, but are not limited to book value, sales, revenue, earnings, earnings per share, income, income growth rate, dividends, dividends per share, earnings before interest, tax, depreciation and amortization, etc. Non-financial metrics may also be used to build indexes to create passive investment systems. Additionally, a combination of financial non-market capitalization metrics may be used along with non-financial metrics to create passive investment systems. Once the index is built, it may be used as a basis to purchase securities for a portfolio. As the data underlying the indexes changes because of, e.g., economic activity, the index may be updated and may be used as a basis to rebalance the portfolio. Alternatively, the index can be rebalanced when a pre-determined threshold is reached. Specifically excluded are widely-used capitalization-weighted indexes and price-weighted indexes, in which the price of a security contributes in a substantial way to the calculation of the weight of that security in the index or the portfolio. Valuation indifferent indexes of the present invention avoid overexposure to overvalued securities and underexposure to undervalued securities, as compared with conventional capitalization-weighted and price-weighted. Also specifically excluded are equal weighting weighted indexes.

The Rise and Decline of the Irish Stock Market, 1865-1913

Abstract: Little is known about the size and performance of the Irish stock market in the half-century before 1914. Using data obtained from the Investors' Monthly Manual, we calculate total market capitalisation and construct a stock market index for the period 1865 to 1913. In addition, we also calculate dividend yields, and examine the performance of the market for company debentures. The results show that the Irish stock market grew steadily up until 1897; thereafter it declined markedly. We speculate that this decline may be explained by political developments.

Factors Affecting the Implementability of Stock Market Trading Strategies

Abstract: A substantial body of academic literature provides evidence of stock market trading strategies that generate appreciable abnormal returns. However, there are a number of factors that could partially or fully mitigate the ability of market participants to implement these trading strategies, such as price pressure, restrictions against short sales, and incentives to hold no more than 5% ownership in a firm. We investigate the extent to which these factors account for the evidence of abnormal returns found in seven trading strategies documented in prior research. We find that the size and return reversal trading strategies do not perform well in the presence of the various constraints, whereas the cash flow-to-price, return momentum, post-earnings announcement drift, and operating accrual strategies generally continue to generate significant positive abnormal returns. We find that the book-to-market strategy generates significant positive abnormal returns in about 50% of the scenarios we examine. We find that all of the strategies generate positive abnormal returns in the presence of the restriction against short sales, but that price impact adjustments and constraints on holding more than a 5% stake in any portfolio firm each have a large negative effect on portfolio returns. We also find that equally-weighted portfolio allocations generally perform better than value-weighted allocations and funds with a greater number of stocks and/or lower initial market capitalization also generally produce higher returns. Finally, we find that portfolios that engage in short positions perform worse than long-only portfolios due primarily to the sustained increase in stock prices during the sample period.

Efficiency in the Market for REITs: Further Evidence

Abstract: Executive Summary. This paper tests the efficiency of the market for Real Estate Investment Trusts (REITs) from 1972 to the present. The data is segmented chronologically to take into account the effect of the Tax Reform Act of 1986 and the effect of the explosive growth in market capitalization that began in the early 1990s. The findings indicate that efficiency increases over time for Equity REITs and the Russell 2000 Index of small capitalization stocks. Some predictability, but not necessarily inefficiency, persists for Mortgage REITs and Hybrid REITs.

What Cost “Noise”?

Abstract: We have no way of knowing “true fair value” for any asset because we cannot see all future cash flows. But few would dispute that market prices differ wildly from the ultimate true fair value. The implications for capitalization-weighted indexes are profound. If market capitalization is equal to true fair value, plus or minus a large error term, then the largest-cap stocks will predominantly be those with a large true fair value and a positive error term. History supports this view: The largest-cap stocks underperform the average stock with some regularity—and by a startlingly large margin.

Internationalization and the Evolution of Corporate Valuation

Abstract: By documenting the evolution of Tobin's "q" before, during, and after firms internationalize, this paper provides evidence on the bonding, segmentation, and market timing theories of internationalization. Using new data on 9,096 firms across 74 countries over the period 1989-2000, we find that Tobin's "q" does not rise after internationalization, even relative to firms that do not internationalize. Instead, "q" rises significantly one year before internationalization and during the internationalization year. But, then "q" falls sharply in the year after internationalization, relinquishing the increases of the previous two years. To account for these dynamics, we show that market capitalization rises one year before internationalization and remains high, while corporate assets increase during internationalization. The evidence supports models stressing that internationalization facilitates corporate expansion, but challenges models stressing that internationalization produces an enduring effect on "q" by bonding firms to a better corporate governance system.

The Growth of U.S. Executive Pay

Abstract: This paper examines both empirically and theoretically the growth of U.S. executive pay during the ten-year period 1993-2002. During this period, pay has grown much beyond the increase that could be explained by changes in market capitalization and industry mix. Had the relationship of compensation to market capitalization and industry classification remained the same, mean compensation would have increased by less than 20% of its actual increase. During this period, there has been a great increase in the amount of equity-based compensation in both new economy and old economy firms that was not accompanied by a substitution effect, i.e., a reduction in the growth of other types of compensation. In addition, the connection between high compensation and weak shareholder rights has strengthened during the period. Aggregate compensation to top-five executives paid by public companies during the decade has added up to about 250 billion, with the economic significance of pay steadily increasing; during 1998-2002, the aggregate compensation paid by public firms to their top-five executives was about 10% of the aggregate profits of public firms, up from about 6% during 1993-1997. After presenting evidence about the growth of pay during the considered decade, we discuss alternative explanations for it. We examine how this growth could be explained under either the arm’s length bargaining model of executive compensation or the managerial power model. Among other things, we discuss the relevance of the parallel rise in market capitalizations and in the use of equity-based compensation.

Corporate governance in Europe: current status and future trends

Abstract: Purpose – To provide a comprehensive overview of corporate governance practices in the top listed companies in ten European countries.Design/methodology/approach – Presents comparative empirical research based on public data from public companies. This survey has been published biennially ever since 1999. We selected the top companies by market capitalization from national indexes (e.g. CAC 40, DAX 30). Each of the 294 companies was rated individually in order to produce a country average, from which we generate a European average. The weighted rating criteria as the same as in our 3 previous surveys, and take into account the working and composition of the board, and disclosure levels.Findings – The study shows significant progress and more convergence in corporate governance practices. The best‐performing countries in the three previous surveys – the UK, the Netherlands and France – are still at the top, and there is a reduced variance within countries. Boards also continue to work harder, partly explai...

Economic Impact of 'Regulation on Corporate Governance': Evidence from India

Abstract: India, with its 20 million shareholders, is one of the largest emerging markets in terms of the market capitalization. In order to protect the large investor base, the Securities and Exchange Board of India (SEBI) has enforced a regulation effective from April 2001, requiring mandatory disclosure of information and a change in the corporate governance mechanisms of the listed companies. This study empirically examines the economic impact of the Regulation on the stock market variables. The experimental group exhibits significant reduction in their beta consistent to the notion that increased information and better corporate governance mechanism reduces the risk of these companies.

The Determinants of Stock Market Development in the MENA Region

Abstract: Since few decades, a wide theoretical debate is concerned with the fundamental relationship between financial development and economic growth. An efficient financial system leads to a sustainable economic growth. In this study, we are interested especially with stock markets as a main component of the financial system according to the increasing role of financial markets in economies. So, their evolution plays an important role in economic growth. We shed some light on the macroeconomic determinants which must have an important influence on stock markets development. It is recognized that real or financial variables such as real income, saving rate, credit to private sector, M3, value traded, turnover, etc. could have a significant impact on market capitalization. The empirical study is conducted using an unbalanced panel data from twelve MENA region countries. Econometric issues are based on estimation of some fixed and random effects specifications. With such specifications in mind, peculiarities of MENA region countries are detected as well as differentiations among them. Thus, differences in market capitalization are explained. The empirical expected results must reinforce the idea which suggest the important role of economic development in promoting stock market development. Explaining power of variables such as real income, saving rate, inflation, financial intermediary development and stock market liquidity is confirmed. Banks and stock markets seem to be complements instead of substitutes.

The Impact of Information Transparency and Market Capitalisation on Out-Performance in Asian Property Companies

Abstract: With an increased emphasis on international property investment and an improved economic outlook for Asia, Asian property companies potentially provide an important property investment opportunity for international property fund managers. Using an information transparency index, 180 property companies in 10 Asian countries are assessed over 1997-2003 for their levels of information transparency. Whilst information transparency is seen to be important, market capitalisation is seen to be more significantly associated with Asian property company out-performance. Investing more in the larger property companies than the smaller property companies in Asia is seen to be a more effective property investment strategy for international property fund managers over this period.

Dynamic Linkages Among the Emerging Middle Eastern and the United States Stock Markets

Abstract: Vector Auto Regression (VAR) and Bayesian Vector Auto-Regression (BVAR) models are used to trace the dynamic linkages across daily returns of stock market indexes in the Middle East and the United States, and to investigate how a shock in one market is transmitted to other markets. The Middle East Countries include Egypt, Israel, Jordan, Lebanon, Morocco, Oman, and Turkey. The dynamic linkages among these stock markets are found to be relatively small. The conclusion is that although markets are efficient, there are dynamic linkages that can be explored and exploited to benefit the diversified international investors. JEL: C32, F0, G0, N2, O5 Keywords: Middle East; Stock market indices; Vector auto-regressions; Bayesian vector auto-regression; Dynamic linkages; Egypt, Israel; Jordan; Lebanon; Morocco; Oman; Turkey I. INTRODUCTION The process of globalization is creating a new world. The benefits and costs of international portfolio diversification need to be considered by anyone holding a financial portfolio. Similarly, the firm that is considering raising new resources needs to address the requirements of the global marketplace. The globalization process is being driven by technical changes and falling barriers to international transactions. It is further characterized by the exchange of knowledge and information among countries. These exchanges are encouraged by the unprecedented decrease of information costs. In the recent decade, markets, businesses, regions, and continents have become more interdependent upon one another. This phenomenon encourages a wide range of financial services and fundraising throughout the world. The globalization of economic activity, the increased world wealth, and the reduction in transaction costs associated with the information revolution all direct investors to consider the newly emerging financial markets. This process has led to the introduction of public share offerings to (do you want to say "to nearly two dozen countries" or "of nearly two dozen countries" nearly two-dozen countries and spawned a global market culture among millions of new investors. At the end of the second millennium, the global stock market capitalization has surpassed the world gross domestic product. Morgan Stanley Capital International estimates the market value of stock traded on the world's 48 largest markets at $31.7 trillion at the end of November 1999. Global GDP, the value of world's total output of goods and services, is estimated by the International Monetary Fund to be at $30.1 trillion. At the end of the century, more countries than ever were participating in capital markets. Moreover, companies all around the globe increasingly rely on the stock market to raise funds. This process is aided by the progression of countries to privatize their holdings and to transfer ownership from the state to private investors. This phenomenon is not restricted to the United States, where the number of listed companies has increased by more than five times since 1990 to more than 10,000, or Western Europe, where governments auctioned off large portions of state-owned enterprises to the public. Estimates by Morgan Stanley Capital International reveal that the combined market capitalization for the United Kingdom, Germany and France increased by 250% in the last decade. Moreover, only ten years ago, countries such as China, the Soviet Union and its former Eastern Block of satellite countries which had just abandoned command economies and were lacking any stock market, had enlisted more than 1,300 publicly traded counties at the end of 1998 exchanges. This paper uses Vector Auto Regression (VAR) and Bayesian VAR models to trace the dynamic linkages across daily returns of the national stock market indexes in the Middle East and major world stock market indexes in the United States. The fate of the economy of a country is intertwined with the performance of its stock markets. …

Testing Random Walk Hypothesis For Istanbul Stock Exchange

Abstract: The primary objective of this study is to testing weak form market efficiency of Istanbul Stock Exchange. A random walk test is performed for weakform efficiency. The testing of market efficiency of the market it was used istanbul stock exchange's daily stock returns for random walk over the period from January-1995 to January-2004. Istanbul stock exchange is the well known the growing emerging market. We used in the survey Istanbul stock exchange's ISE National-30 index companies. ISE 30 indices were tested using Dickey-Fuller unit root test. For the market efficiency, a model is used that explains the market inefficiencies. We accept that ISE is inefficient because the level of trade volume and market market capitalization of shares are mostly low. In order to test weak form efficiency hypothesis, we analyzed runs tests. It is also tested Dickey-Fuller unit root test wich is well known populer test for the testing of the market efficiency. The run test is also used as a powerful tool to test of random walk in the stock market indicies. It is concluded that both the results of Dickey-Fuller tests and the results of run tests are similar and rejected random walk in ISE. Presented at the 15th International Conference,Istanbul, Turkey, May 2005.

Commonalities in the Order Book

Abstract: More and more trading venues throughout the world operate as open order book markets. In those exchanges, liquidity is supplied voluntarily by market participants who provide an inflow of limit buy and sell orders. Non-executed orders constitute the limit order book which consists of distinct, sorted limit price-depth pairs. This paper uses data from one of the most important European stock markets and shows that, in line with predictions from theoretical market microstructure, a small number of latent factors captures most of the variation in stock specific order books. We show that these order book commonalities are much stronger than liquidity commonality across stocks. The result that bid and ask side as well as the visible and hidden parts of the order book exhibit quite specific dynamics is interpreted as evidence that open order book markets attract a heterogeneous trader population in terms of asset valuations and impatience. The paper also shows that the information share attributable to the extracted factors with respect to the long run evolution of the asset price is non-negligible. In other words, shifts and rotations of the order book carry informational content. The information shares are considerably different across stocks. While for the group of most actively traded stocks (which are also the biggest in terms of market capitalization) we estimate an average information share attributable to the extracted factors of about 5 percent, the number doubles for the group of least frequently traded stocks. On the other hand, the hidden part of the book does not carry economically significant informational content.

Testing random walk hypothesis for istanbul stock exchange

Abstract: The primary objective of this study is to testing weak form market efficiency of Istanbul Stock Exchange. A random walk test is performed for weakform efficiency. The testing of market efficiency of the market it was used istanbul stock exchange's daily stock returns for random walk over the period from January-1995 to January-2004. Istanbul stock exchange is the well known the growing emerging market. We used in the survey Istanbul stock exchange's ISE National-30 index companies. ISE 30 indices were tested using Dickey-Fuller unit root test. For the market efficiency, a model is used that explains the market inefficiencies. We accept that ISE is inefficient because the level of trade volume and market market capitalization of shares are mostly low. In order to test weak form efficiency hypothesis, we analyzed runs tests. It is also tested Dickey-Fuller unit root test wich is well known populer test for the testing of the market efficiency. The run test is also used as a powerful tool to test of random walk in the stock market indicies. It is concluded that both the results of Dickey-Fuller tests and the results of run tests are similar and rejected random walk in ISE. Presented at the 15th International Conference,Istanbul, Turkey, May 2005.

On style momentum strategies

Abstract: Barberis and Shleifer (2003) suggest that US investors classify assets into different styles based on, for example, market capitalization or B/M ratios. They find that prices can deviate substantially from fundamental values as a style's popularity changes over time. In this paper, we discuss implications of this prediction and empirically investigate the profitability of style momentum strategies for the UK stock market. Results suggest that a simple trading rule can generate significant positive returns, but for our sample of FTSE 350 stocks those strategies are less profitable and more risky compared to regular momentum strategies.