Market capitalization

About: Market capitalization is a research topic. Over the lifetime, 3583 publications have been published within this topic receiving 77288 citations. The topic is also known as: market cap & market value.

Valuation Ratios and the Long-Run Stock Market Outlook

Abstract: The use of price–earnings ratios and dividend-price ratios as forecasting variables for the stock market is examined using aggregate annual US data 1871 to 2000 and aggregate quarterly data for twelve countries since 1970. Various simple efficient-markets models of financial markets imply that these ratios should be useful in forecasting future dividend growth, future earnings growth, or future productivity growth. We conclude that, overall, the ratios do poorly in forecasting any of these. Rather, the ratios appear to be useful primarily in forecasting future stock price changes, contrary to the simple efficient-markets models. This paper is an update of our earlier paper (1998), to take account of the remarkable behavior of the stock market in the closing years of the twentieth century.

Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock

Abstract: About a third of the assets in large retirement savings plans are invested in company stock, and about a quarter of the discretionary contributions are invested in company stock. From a diversification perspective, this is a dubious strategy. This paper explores the role of excessive extrapolation in employees’ company stock holdings. I find that employees of firms that experienced the worst stock performance over the last 10 years allocate 10.37 percent of their discretionary contributions to company stock, whereas employees whose firms experienced the best stock performance allocate 39.70 percent. Allocations to company stock, however, do not predict future performance. ROUGHLY A THIRD OF THE ASSETS in large retirement savings plans are invested in company stock ~i.e., stocks issued by the employing firm! .I n extreme cases, such as Coca-Cola, the allocation to company stock reaches 90 percent of the plan assets. From a diversification perspective, it is even more puzzling that Coca-Cola employees allocate 76 percent of their own discretionary contributions to Coca-Cola shares. This strategy seems dubious, and it is in complete contrast to Markowitz ~1952! and Sharpe ~1964!, who predict that people will hold well-diversified portfolios. This paper examines whether excessive extrapolation of past returns could explain at least part of the discretionary allocations to company stock. 1 The empirical analysis utilizes a unique database of SEC filings that describes the variation in investment elections across companies for 1993. There are at least two reasons why the allocation to company stock is an interesting topic to study. First, the costs of insufficient diversification can be substantial. For example, with the assumption of a constant relative risk aversion of two, Brennan and Torous ~1999! find that the certainty equivalent of investing one dollar in a single stock over a 10-year period is only 36 cents! In the case of company stock, the costs of insufficient diversification

Stock markets, corporate finance, and economic growth : an overview

Abstract: The research presented here focuses on four issues. First, it constructs more measures or criteria of stock market development than any previous study. It compares liquidity, concentration, volatility, institutional development, and international integration across forty-four industrial and developing countries from 1976 to 1993. Besides identifying general characteristics of these measures and defining stock market development empirically, these data facilitate further research into the relationship between stock market development and financial intermediaries, corporate finance decisions, and economic growth. These measures, ranked for each country, can be used for inter country comparisons of the level of stock market development. In addition, the data provide a basis for gauging the success of capital market development projects using objective criteria. Second, with these new data the research investigates the relationships between stock markets and financial intermediaries. Third, the research analyzes the relationship between stock market development and long-run economic growth. Fourth, the research studies the ties between stock market development and financing choices of firms. This overview puts this research in context and reviews the main results of the study. Section I provides a brief review of the role of stock markets in economic development and documents the evolution of debt and equity markets during the growth process. Section II defines stock market development and presents summary data on the development of financial intermediaries and stock markets. Section III presents evidence on the effect of stock market development on economic growth. Section IV summarizes the empirical results on how stock market development affects firm financing decisions. Section V concludes by discussing policy implications.