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.

Margin Requirements, Margin Loans, and Margin Rates: Practice and Principles

Abstract: The Board of Governors of the Federal Reserve System establishes initial margin requirements under Regulations T, U, and X Recent margin loan increases, both in aggregate value and relative to market capitalization, have rekindled the debate about using margin requirements as an instrument to affect the prices of common stocks Proponents of a more active margin requirement policy see the regulations as instruments for affecting the level and volatility of stock prices by influencing investors' demand for common stocks Others believe that the announcement effects of increased margin requirements would have a stabilizing effect on the stock market and on the economy ; This article discusses the historical background, accounting mechanics, regulation, and economic principles of margin lending The author analyzes the data on the volume of margin loans, and he describes the history and practice of margin requirements as well the accounting framework He assesses the extent to which initial margin requirements restrict the amount of margin lending, and he reviews the economics of margin loans, focusing on margin loans to the customers of broker-dealers The author also develops a model of the link between the value of the put option embedded in margin loans and the margin loan rate, which he applies to determine the characteristics that should explain the high margin loan rates that typically prevail

Are Capital Market Anomalies Common to Equity and Corporate Bond Markets? An Empirical Investigation

Abstract: A significant fraction of firms' financing occurs via public debt markets. Accordingly, we investigate whether financial statement characteristics and other variables that predict equity returns also predict corporate bond returns. Profitability, asset growth, and equity market capitalization negatively predict corporate bond returns, but other predictors, like accruals and earnings surprises, do not. Since smaller, unprofitable firms should be more risky, and firms with high asset growth (or high real investment) should have lower required returns, the evidence indicates that corporate bond returns accord with the risk-reward paradigm. Stock markets lead bond markets, consistent with equities aggregating diverse information and transmitting it to bonds. Overall, we find that accounting for transaction costs, bonds are efficiently priced.

Know Your VMS Exposure

Abstract: One of the ongoing debates in equity market research is the set of common factors that explains the cross section of individual stock returns. With the influential backing of Fama and French [1993], a three-factor model that includes the market, size, and value factors is frequently cited in academic research and widely used in portfolio management. More recently, momentum has joined the list of accepted factors, resulting in references to a four-factor model. Lately, security volatility has begun to be used, along with the factors just mentioned, in describing portfolio risk. The authors introduce a specific measure of the idiosyncratic volatility factor that mirrors the Fama–French methodology, calling it VMS for volatile-minus-stable stocks. VMS is calculated for the entire span of the CRSP database and found to have strong credentials. VMS seems to be more important than SMB (small-minus-big market capitalization) and HML (high-minus-low book-to-market ratio), and similar to UMD (up-minus-down past return) in explaining the covariance structure of stock returns. The relative importance of VMS holds over the entire history for which it can be measured in the U.S. market (1931–2008) and continues to be an important factor in the covariance structure of stock returns in recent decades (1983–2008). Volatility, however, is not very orthogonal to the more well-known factors, a desirable property for new factors. Specifically, VMS is highly correlated to the general market (e.g., volatile stocks outperform stable stocks when the general equity market goes up) despite the fact that the authors measure security volatility in a market-idiosyncratic setting. VMS is also positively correlated with SMB (e.g., volatile stocks tend to outperform when small-cap stocks outperform) despite the Fama–French process of double sorting on market capitalization. Finally, VMS is negatively correlated with HML (e.g., volatile stocks tend to outperform when growth stocks outperform) although this correlation was not pronounced until the last few decades. In contrast to the other Fama–French factors, the average return of the VMS factor has been close to zero over time and negative in recent decades.

Opening a Stock Exchange

Abstract: Nearly sixty countries have opened their first national stock exchanges since 1950. I investigate the effects on economic growth of these openings in two ways. First, economic growth histories of at least five years are available for seventeen of these countries. On average, the countries that opened stock markets grew faster than a priori similar countries that did not open exchanges; however, the growth rate of investment was lower in the countries opening exchanges over periods of five and ten years. Second, I use two stage least squares to account for possible endogeneity of the decision to open a stock market. Even controlling for this endogeneity, the estimated correlation between opening a stock exchange and economic growth is positive and statistically significant.