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.

Institutional Investors and Equity Prices

Abstract: We analyze institutional investors' preferences for stocks and the implications that these preferences have for stock-market prices and returns. We find that -- a category including all managers with greater than $100 million under discretionary control -- have nearly doubled their share of the common-stock market from 1980 to 1996 most of this increase driven by the growth in holdings of the largest one-hundred institutions. Large institutions, when compared with other investors, prefer stocks that have greater market capitalizations, are more liquid, and have higher book-to-market ratios and lower returns for the previous year. We discuss how institutional preferences, when combined with the rising share of the market held by institutions, induce changes in the relative prices and returns of large stocks and small stocks. We provide evidence to support the in-sample implications for prices and realized returns and we derive out-of-sample predictions for expected returns.

Investor Sentiment and Noise Traders: Discount to Net Asset Value in Listed Property Companies in the U.K.

Abstract: There are parallels between the operation of closed-end funds and in the United Kingdom property companies. In both types of corporations, the market capitalization is commonly less than the net as...

Explaining the migration of stocks from exchanges in emerging economies to international centers

Abstract: The authors study the determinants of the growing migration of stock market activity to international financial centers. They use a sample of 77 countries and document that higher economic growth and more macroeconomic stability help stock market development. Countries with higher income per capita, sounder macroeconomic policies, more efficient legal systems, better shareholder protection, and more open financial markets tend to have larger and more liquid stock markets. The authors show that these factors also drive the degree with which capital raising, listing, and trading have been migrating to international financial centers. As fundamentals improve and technology advances, this migration will likely increase and domestic stock market activity may become too little to support local markets. For many emerging economies, the best policy is to establish sound fundamentals but not necessarily the trading, or even listing of securities locally.

Company Stock in Pension Plans: How Costly Is It?

Abstract: Firms' matching contributions to employees' defined contribution pension plans are an important spur to employee retirement savings. Firms frequently match employees' defined contribution pension plan using company stock and prohibit employees from selling; employees sometimes voluntarily invest their own contributions in company stock. But their concomitant loss in diversification is extremely risky and costly. While one might reason that employees willing to take on the increased risk should do so, holding company stock is inefficient for all employees, even risk tolerant ones. This paper investigates the extent of company stock ownership and estimates its cost, finding that employee investors sacrifice an average 42% of their company stock's market value by taking on risk that could otherwise have been "diversified away." By matching with cash rather than stock, firms could reduce this lost value, making both employees and the firm better off. Indeed, with such savings, firms could afford to increase their matching contributions. Risk tolerant employees who want to "swing for the fences" would be better off by investing in a diversified portfolio and levering it to their desired risk levels. The findings in this paper call into question the wisdom of requiring or allowing company stock holding within retirement plans.