Showing papers on "Market capitalization published in 2008"
TL;DR: In this paper, the authors proposed modeling equity volatility as a combination of macro-economic effects and time series dynamics and found that the low-frequency component of volatility is greater when the macroeconomic factors of GDP, inflation, and short-term interest rates are more volatile or when inflation is high and output growth is low.
Abstract: Twenty-five years of volatility research has left the macroeconomic environment playing a minor role. This paper proposes modeling equity volatilities as a combination of macro- economic effects and time series dynamics. High-frequency return volatility is specified to be the product of a slow-moving component, represented by an exponential spline, and a unit GARCH. This slow-moving component is the low-frequency volatility, which in this model coincides with the unconditional volatility. This component is estimated for nearly 50 countries over various sample periods of daily data. Low-frequency volatility is then modeled as a function of macroeconomic and financial variables in an unbalanced panel with a variety of dependence structures. It is found to vary over time and across countries. The low-frequency component of volatility is greater when the macroeconomic factors of GDP, inflation, and short-term interest rates are more volatile or when inflation is high and output growth is low. Volatility is higher not only for emerging markets and markets with small numbers of listed companies and market capitalization relative to GDP, but also for large economies. The model allows long horizon forecasts of volatility to depend on macroeconomic developments, and delivers estimates of the volatility to be anticipated in a newly opened market.
606 citations
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TL;DR: This paper proposed a new measure of VC firm reputation and analyzed its performance implications on private companies, finding companies backed by more reputable VCs by initial public offering (IPO) capitalization share (based on cumulative market capitalization of IPOs backed by the VC), are more likely to exit successfully, access public markets faster, and have higher asset productivity at IPOs.
Abstract: I propose a new measure of venture capital (VC) firm reputation and analyze its performance implications on private companies. Controlling for portfolio company quality and other VC-specific factors including experience, connectedness, syndication, industry competition, exit conditions, and investment environment, I find companies backed by more reputable VCs by initial public offering (IPO) capitalization share (based on cumulative market capitalization of IPOs backed by the VC), are more likely to exit successfully, access public markets faster, and have higher asset productivity at IPOs. Further tests suggest VCs' IPO capitalization share effectively captures both VC screening and monitoring expertise. My findings have financial implications for limited partners and entrepreneurs regarding their VC-sorting activities.
480 citations
TL;DR: This paper proposed a new measure of VC firm reputation and analyzed its performance implications on private companies, finding companies backed by more reputable VCs by initial public offering (IPO) capitalization share (based on cumulative market capitalization of IPOs backed by the VC), are more likely to exit successfully, access public markets faster, and have higher asset productivity at IPOs.
413 citations
TL;DR: This article found no evidence that a bank holding company's market capitalization increases with its asset volatility prior to 1994 and showed a strong cross-sectional relation between capitalization and asset risk.
Abstract: Large U.S. banks dramatically increased their capitalization during the 1990s, to the highest levels in more than 50 years. We document this buildup of capital and evaluate several potential motivations. Our results support the hypothesis that regulatory innovations in the early 1990s weakened conjectural government guarantees and enhanced the bank counterparties’ incentive to monitor and price default risk. We find no evidence that a bank holding company’s market capitalization increases with its asset volatility prior to 1994. Thereafter, the data display a strong cross-sectional relation between capitalization and asset risk. Our estimates indicate that most of the bank capital buildup over the sample period can be explained by greater bank risk exposures and the market's increased demand that large banks’ default risk be priced.
268 citations
TL;DR: In this article, the authors compare the fees, expenses, and trading costs society pays to invest in the U.S. stock market with an estimate of what would be paid if everyone invested passively.
Abstract: I compare the fees, expenses, and trading costs society pays to invest in the U.S. stock market with an estimate of what would be paid if everyone invested passively. Averaging over 1980 to 2006, I find investors spend 0.67% of the aggregate value of the market each year searching for superior returns. Society's capitalized cost of price discovery is at least 10% of the current market cap. Under reasonable assumptions, the typical investor would increase his average annual return by 67 basis points over the 1980 to 2006 period if he switched to a passive market portfolio.
250 citations
TL;DR: In this paper, the authors investigate the effects of terrorism on the financial markets and show that terrorism has a significant impact on both stock markets and the stock market volatility, and the magnitude of these effects are larger in emerging markets.
242 citations
TL;DR: In this paper, the authors examined how macroeconomic indicators affect the performance of stock markets by using the Ghana Stock Exchange as a case study and found that lending rates from deposit money banks have an adverse effect on stock market performance and particularly serve as major hindrance to business growth in Ghana.
Abstract: Purpose – The study aims at examining how macroeconomic indicators affect the performance of stock markets by using the Ghana Stock Exchange as a case study.Design/methodology/approach – Quarterly time series data covering the period 1991‐2005 were used. Cointegration and the error correction model techniques are employed to ascertain both short‐ and long‐run relationships.Findings – Findings of the study reveal that lending rates from deposit money banks have an adverse effect on stock market performance and particularly serve as major hindrance to business growth in Ghana. Again, while inflation rate is found to have a negative effect on stock market performance, the results indicate that it takes time for this to take effect due to the presence of a lag period; and that investors benefit from exchange‐rate losses as a result of domestic currency depreciation.Originality/value – The single most important contribution of this study is its emphasis on macroeconomic variables and stock market performance i...
155 citations
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TL;DR: Li et al. as mentioned in this paper study the asset pricing mechanism in Chinese stock markets, with the objective of identifying variables that capture the cross-sectional variation in average stock returns, and find that while the market risk (beta) is not priced, there is a significantly negative relationship between firm-specific risk and expected returns.
Abstract: China's stock markets have grown rapidly since their inception and have become an increasingly important emerging market for international investors. However, there are few systematic studies on how asset prices are formed in Chinese domestic equity markets; popular financial media even depict the market as irrational. In this paper, we study the asset pricing mechanism in the nascent Chinese stock markets, with the objective of identifying variables that capture the cross-sectional variation in average stock returns. We focus on the effects of various market imperfections in China. We find that while the market risk (beta) is not priced, there is a significantly negative relationship between firm-specific risk and expected returns. Chinese investors are willing to pay a significant premium for more liquid stocks or for dividend-paying stocks. Furthermore, investors value local A-shares more if there are offshore counterparts (e.g., B- and H- shares) for foreigners, implying that a Chinese firm with a foreign shareholder base has a lower cost of capital, ceteris paribus. Lastly, as with U.S. and other mature markets, firm size and the book-to-market ratio are systematically related to stock returns. Given market imperfections, stocks are priced rather rationally in China, despite the widespread perception to the contrary.
155 citations
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01 Jan 2008
TL;DR: In this paper, the authors analyzed the impact of sovereign wealth funds (SWFs) on global financial markets and found that SWFs behave as CAPM-type investors and allocate foreign assets according to market capitalisation rather than liquidity considerations, leading to more capital flows "downhill" from rich to less wealthy economies.
Abstract: This paper analyses the impact of sovereign wealth funds (SWFs) on global financial markets. It presents back-of-the-envelope calculations which simulate the potential impact of a transfer of traditional foreign exchange reserves to SWFs on global capital flows. If SWFs behave as CAPM-type investors and thus allocate foreign assets according to market capitalisation rather than liquidity considerations, official portfolios reduce their “bias” towards the major reserve currencies. As a result, more capital flows “downhill” from rich to less wealthy economies, in line with standard neoclassical predictions. More specifically, it is found that under the assumption of SWFs investing according to market capitalisation weights, the euro area and the United States could be subject to net capital outflows while Japan and the emerging markets would attract net capital inflows. It is also shown that these findings are sensitive to alternative assumptions for the portfolio objectives of SWFs. Finally, the paper discusses whether a change in net capital flows triggered by SWFs could have an impact on stock prices and bond yields. Based on an event study approach, no evidence can be found for a stock price impact of non-commercially motivated stock sales by Norway’s Government Pension Fund. JEL Classification: F30, F40, G15.
144 citations
TL;DR: In this paper, the authors assess the potential of small-cap stocks as a vehicle for international portfolio diversification during the period 1980-1999 and show that the extra gains from the augmented diversification with smallcap funds are statistically significant for both in-sample and out-of-sample periods.
Abstract: To the extent that investors diversify internationally, large-cap stocks receive the dominant share of fund allocation. Increasingly, however, returns to large-cap stocks or stock market indices tend to comove, mitigating the benefits from international diversification. In contrast, stocks of locally oriented, small companies do not exhibit the same tendency. In this paper, we assess the potential of small-cap stocks as a vehicle for international portfolio diversification during the period 1980–1999. We show that the extra gains from the augmented diversification with small-cap funds are statistically significant for both in-sample and out-of-sample periods and remain robust to the consideration of market frictions.
133 citations
TL;DR: In this paper, the authors examined whether financial development has "caused" economic growth in India since 1996 and examined the dynamic interactions between the growth of real Gross Domestic Product and indicators of financial development.
Abstract: This article examines whether financial development has ‘caused’ economic growth in India since 1996. The dynamic interactions between the growth of real Gross Domestic Product and indicators of fi...
TL;DR: In this article, the authors investigate the intellectual capital disclosure trends and disclosure category differences of top 20 listed firms in a developing nation, Sri Lanka, and moderately developed nation, Singapore, and highlight the differences in IC disclosure practice between developing and developed nations.
Abstract: Purpose – The purpose of this paper is to investigate the intellectual capital (IC) disclosure trends and disclosure category differences of top 20 listed firms in a developing nation, Sri Lanka, and moderately developed nation, Singapore. The paper aims to highlight the differences in IC disclosure practice between developing and developed nations.Design/methodology/approach – The study investigates the top 20 firms by market capitalization listed on the Colombo stock exchange in 1998‐2000. Using the content analysis method, it reviews the annual reports of these firms to determine IC disclosure trends in Sri Lanka. It then compares these findings with a similar unpublished study undertaken in Singapore during the same period.Findings – The study identified IC disclosure differences between Sri Lankan and Singapore firms, and suggest reasons for differences from country perspectives. The paper highlights the need for a uniform methodology in intellectual disclosure framework to establish consistent discl...
TL;DR: This paper found that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when their estimates of intangible capital are included.
Abstract: "What is a company really worth?" is a question asked repeatedly during the recent financial crisis. Attention has been focused on short-term valuation issues, like the "mark-to-market" controversy. Sorting out these issues is complicated by the fact that the market puts a value on shareholder equity that is consistently more than twice the reported book value of a company. Numerous observers have pointed to the absence of most intangible assets from financial statements as an important source of this puzzle. We use Compustat financial data for 617 R&D intensive firms to test this possibility. We find that conventional book value alone explains only 31 percent of the market capitalization of these firms in 2006, and that this increases to 75 percent when our estimates of intangible capital are included. The debt-equity ratio also falls from 1.46 to 0.61. These findings suggest that financial reports tend to substantially understate the long-run intrinsic value of corporate America.
TL;DR: In this article, the authors analyzed contributions by companies before an election and stock market performance after the election for the presidential elections from 1992 until 2004, and found that the percentage of contributions given to the winner in a presidential election and the total contribution (divided by market capitalization) have a significant positive impact on a company's stock market after an election.
Abstract: In the U.S. campaign contributions by companies play a major role in financing election campaigns. We analyze contributions by companies before an election and stock market performance after the election for the presidential elections from 1992 until 2004. We find that (i) the percentage of contributions given to the winner in a presidential election and (ii) the total contribution (divided by market capitalization) have a significant positive impact on a company's stock market performance after an election. While under Clinton both factors were equally important, during the Bush-presidency the total contribution had comparatively more impact.
TL;DR: This paper investigates stock market investment issues on Taiwan stock market using a two-stage data mining approach and proposes several possible TaiwanStock market portfolio alternatives under different circumstances.
Abstract: One of the most important problems in modern finance is finding efficient ways to summarize and visualize the stock market data to give individuals or institutions useful information about the market behavior for investment decisions. The enormous amount of valuable data generated by the stock market has attracted researchers to explore this problem domain using different methodologies. This paper investigates stock market investment issues on Taiwan stock market using a two-stage data mining approach. The first stage Apriori algorithm is a methodology of association rules, which is implemented to mine knowledge and illustrate knowledge patterns and rules in order to propose stock category association and possible stock category investment collections. Then the K-means algorithm is a methodology of cluster analysis implemented to explore the stock cluster in order to mine stock category clusters for investment information. By doing so, this paper proposes several possible Taiwan stock market portfolio alternatives under different circumstances.
TL;DR: The authors found that the stock market increased significantly in value in the post-Famine period in Ireland and this finding is consistent with an increase in demand for financial assets as well as the rapid commercialisation of the Irish economy.
Abstract: The market for company stock in Ireland entered its formative period in the mid 1820s with the incorporation of banks and railways. Using data obtained from stockbroker lists, we estimate market capitalisation and construct weighted and unweighted monthly stock market indices for the period 1825–64. Our findings show that the market appears to have been relatively unaffected by the Famine. We suggest that an efficient-market explanation may better explain this finding than a dual-economy explanation. Our findings also show that the stock market increased significantly in value in the post-Famine period. This finding is consistent with an increase in demand for financial assets as well as the rapid commercialisation of the Irish economy.
TL;DR: The empirical results show that international fund managers who invest in newly emerging stock markets need to evaluate the value and stability of domestic currencies as part of their stock market investment decisions.
TL;DR: In this paper, Shefrin et al. found that salient events taking place during a stock holding period influence investors' perceptions and make them update the stock's reference point, and that the reference point updating process is more reactive to events when information flow is low and prices are sensitive to market fluctuations.
Abstract: The disposition effect [Shefrin, H., Statman M., 1985, The disposition to sell winners too early and ride losers too long. Journal of Finance, 40, 777–790], investors’ tendency to sell gaining assets and hold on to loosing assets, relies on the notion of a reference point distinguishing between losses and gains. While literature using aggregated market data documented the existence of such a reference point affecting investors’ decisions, it had not pinpointed it. The main goal of our work is to shed light on the mechanism of reference point formation. We hypothesize that salient events taking place during a stock’s holding period influence investors’ perceptions and make them update the stock’s reference point. Using analysts’ earnings forecasts, stock price data, and firms’ quarterly earnings announcements, we document that company-specific events indeed affect the reference points. We discover that the earnings announcements played a role in reference point formation when they were not anticipated, i.e., when (i) analysts’ earnings forecasts failed to provide accurate predictions; and (ii) the earnings announcements were followed by market price reactions. Moreover, the reference points were affected more profoundly for low market capitalization, high beta firms, pointing that the reference point updating process is more reactive to events when information flow is low and prices are sensitive to market fluctuations. Our results also corroborate the attention hypothesis, i.e., the observation that agents facing numerous alternatives may consider primarily those that have caught their attention.
TL;DR: In this article, the authors provide evidence on market surveillance from exchanges and securities commissions from twenty-five jurisdictions in North, Central and South America, Western and Eastern Europe, Africa, and Asia.
Abstract: This paper provides evidence on market surveillance from exchanges and securities commissions from twenty-five jurisdictions in North, Central and South America, Western and Eastern Europe, Africa, and Asia. Exchanges as SROs engage in a greater range of single-market surveillance of market manipulative practices than securities commissions, but the scope of cross-market surveillance activity is very similar among exchanges and securities commissions. Cross-market surveillance is more effective with information-sharing arrangements, and securities commissions are more likely to engage in information sharing than exchanges are. Relative to the scope of single-market surveillance, the scope of cross-market surveillance shows a stronger positive association with trading velocity, the number of listed companies, and market capitalization. The data also indicate that as at 2005, there is ample scope for jurisdictions to expand their cross-market surveillance and thereby stimulate investor confidence and trading activity.
TL;DR: It is argued that prediction markets designed to forecast post-initial public offering (IPO) valuations before a particularly unique IPO: Google could provide useful information for understanding the IPO process with repetition.
Abstract: We conducted prediction markets designed to forecast post-IPO valuations before a particularly unique IPO: Google. The prediction markets forecast Google's post-IPO market capitalization relatively accurately. While Google's auc-tion-based IPO price fell 15.3% below the first-day, closing market capitalization, the final prediction market forecast was only 4.0% above it. The forecast also accorded with the level of over-subscription in the IPO auction. Evidence available to both outsiders (from the prediction market forecasts) and insiders (through the orders in Google's auction) predicted similar degrees of underpricing. We argue that, with repetition, such markets could provide useful informa-tion for understanding the IPO process.
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TL;DR: In this paper, the authors provide evidence on market surveillance from exchanges and securities commissions from twenty-five jurisdictions in North, Central and South America, Western and Eastern Europe, Africa, and Asia.
Abstract: This paper provides evidence on market surveillance from exchanges and securities commissions from twenty-five jurisdictions in North, Central and South America, Western and Eastern Europe, Africa, and Asia. Exchanges as SROs engage in a greater range of single-market surveillance of market manipulative practices than securities commissions, but the scope of cross-market surveillance activity is very similar among exchanges and securities commissions. Cross-market surveillance is more effective with information-sharing arrangements, and securities commissions are more likely to engage in information sharing than exchanges are. Relative to the scope of single-market surveillance, the scope of cross-market surveillance shows a stronger positive association with trading velocity, the number of listed companies, and market capitalization. The data also indicate that as at 2005, there is ample scope for jurisdictions to expand their cross-market surveillance and thereby stimulate investor confidence and trading activity. Copyright 2008, Oxford University Press. (This abstract was borrowed from another version of this item.)
TL;DR: In this article, the authors examined the capitalization of property taxes in real property and found that property values depend on the level of public services and taxes within a communi cation.
Abstract: This study examines the capitalization of property taxes in real property. Capitalization theory would suggest that property values depend on the level of public services and taxes within a communi...
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TL;DR: In this paper, the authors attempt to test if there is a size effect in Indian stock market and find a strong size premium using six alternative measures of company size viz Market capitalization, Enterprise Value, Net Fixed Assets, Net Annual sales, Total Assets and Net Working Capital.
Abstract: In this study we attempt to test if there is a size effect in Indian stock market The data comprises of top 482 Indian companies for the period 1990-2003 We find a strong size premium using six alternative measures of company size viz Market capitalization, Enterprise Value, Net Fixed Assets, Net Annual sales, Total Assets and Net Working Capital Further the size based investment strategy seems to be economically feasible as it provides extra normal returns on risk adjusted basis Frequent re balancing of size based portfoilo is however found to be undesirable The size effect does not seem to be owing to any seasonality or business cycle factors The study has strong implications for mutual funds managers, investment analysts as well as small investors who are continuously on lookout for trading strategies that beat the market The presence of a strong size premium also raises doubts about the informational efficiency of Indian equity market
TL;DR: In this paper, the authors examined the impact of ownership structure on the corporate performance of the Malaysian public listed companies (PLC) and found that insider and institutional shareholding do not influence corporate performance.
Abstract: The main objective of this study is to examine the impact of ownership structure on the corporate performance of the Malaysian public listed companies (PLC) Empirical evidence suggests that insider and institutional shareholding do not influence the corporate performance of the Malaysian PLC The results seem to suggest that institutional shareholders have failed in their monitoring role and principal agent problem will not be solved by increasing the director's shareholding in the company Despite segmenting the company according to market capitalization, results do not differ significantly The relationship between corporate performance and insider and institutional shareholding is only significant in big market capitalization companies
TL;DR: In this article, the authors examined the price-volume movements in the Arab stock markets, in order to determine the impact of changes in trade volume on the volatility of stock prices as expressed by the unified MAF stock price index.
Abstract: This study intends to examine the price-volume movements in the Arab stock markets, in order to determine the impact of changes in trade volume on the volatility of stock prices as expressed by the unified MAF stock price index. The research covers a sample of eight out of the fifteen Arab stock markets included in the Arab Monetary Fund database, using monthly data from 1994 to 2006. The study found that there is an increasing in both trading volume and stock price volatility, which may be considered as a recent phenomenon in the majority of the Arab stock markets. The study also found that the volume-stock price movements are significantly integrated for all selected markets, while the highest correlation coefficient between volume and stock price movement was found in Saudi stock market, Amman stock market, Muscat stock market and Kuwait stock market respectively. Finally, the correlation between volume and prices movement is higher in the stock markets of the oil Arab states compared to the non-oil Arab states.
TL;DR: In this paper, the authors examined the links between institutional factors and stock market development in a sample of eight Asian countries with developing as well as mature stock markets, and found that institutional quality is an integral part of enhancing the development of stock markets in a country.
Abstract: This paper examines the links between institutional factors and stock market development in a sample of eight Asian countries with developing as well as mature stock markets. Five indicators of institutional quality are chosen: government effectiveness, rule of law, regulatory quality, control of corruption and political stability, together with some control variables. Our estimation procedure, utilising three different estimation methods, including the fixed effects model correcting for AR (1) errors, produced consistent results. The results obtained here provide strong evidence that economic growth, diffusion of technology, rule of law and political stability positively aid Asia's stock market expansion. On the other hand, poor regulatory quality and government effectiveness seem to be working against Asia's stock market development. Our results support the proposition that institutional quality is an integral part of enhancing the development of stock markets in a country. Thus, institutional quality matters for stock market development.
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01 Jan 2008
TL;DR: In this paper, the factors determining corporate performance of listed companies in Indonesia, especially due to the 1997 financial crisis, have been investigated, and the main results are fairly interesting in which firm size is positively related to firm profitability, but it is not related to market capitalization.
Abstract: This paper is basically concerned with the factors determining corporate performance of listed companies in Indonesia, especially due to the 1997 financial crisis. The main results are fairly interesting in which firm size is positively related to firm profitability, but it is not related to market capitalization. It means that firm size is matter on the fundamental value of the firms, but it should not be important variable for market value of the firms. By employing panel data of 238 listed companies in Jakarta Stock Exchange (JSX) in the period 1994 – 2004 as the sample, we also find that macro factors are more important variables inducing firm performance, rather than firm-specific factors. It could be due to the 1997 great crisis. Our results also show that ownership factor matters on firm performance by the evidence that firms with majority foreign ownership have much higher performance in both measurements namely return on asset (ROA) and market capitalization growth than domestically-owned firms. Ordinary Least Square (OLS) is employed for the estimation procedure in this paper.
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TL;DR: The dynamics of foreclosure auction of homes is an example of negative headlines, stressing that the suboptimal organization of these auctions prohibits distressed sellers from earning a fair price for their home as mentioned in this paper.
Abstract: Real estate markets around the world have earned a complicated reputation. On the one hand, real estate markets offer investors a wide spectrum of profitable investments opportunities, investments that nowadays can be executed by simply buying shares of stock listed by real estate investment companies. In the first half of this inaugural address, the boom of these real estate stocks is discussed. In less than three decades, the listed real estate market developed into a sector with almost 400 listed firms worldwide, representing a sum aggregate market capitalization of around one trillion dollars by the end of 2007. Three relevant lessons regarding these international real estate stocks are discussed in the first fifteen pages of this booklet, lessons offered by real estate research from the Rotterdam School of Management. On the other hand, real estate markets are notorious for attracting entrepreneurs with bad intentions, seeking for opportunities to circumvent the strong arm of the law. These activities have yielded many headlines in the daily press and have given real estate a gloomy reputation. The dynamics of foreclosure auction of homes is an example of a source of negative headlines, stressing that the suboptimal organization of these auctions prohibits distressed sellers from earning a fair price for their home. In the second part of this address, I focus on an empirical test of the matter. By analyzing over 700 auctioned homes the dynamics of the auction system is discussed objectively. This offers a fair view on the problems at hand and searches for way to improve the system in the near future.
TL;DR: In this article, the authors test the efficiency of China's stock market and show that such mechanisms are incomplete and ineffective due to the prevalence of institutional deficiencies, and propose a complete set of macro and micro mechanisms to realize efficient markets.
Abstract: The dramatic movements of China's stock market in the past two and a half years have renewed debate among academics over the efficiency of China's stock market. The present paper tests the efficiency of China's stock market. The realization of efficient markets requires the effective operation of a complete set of macro and micro mechanisms. However, such mechanisms are not only incomplete in China's stock market, but are also ineffective because of the prevalence of institutional deficiencies.