Showing papers on "Stock exchange published in 1969"

Investor Experience with New Stock Issues

Abstract: (1969). Investor Experience with New Stock Issues. Financial Analysts Journal: Vol. 25, No. 5, pp. 73-80.

The History of the Commercial Crisis, 1857-1858 and the Stock Exchange Panic of 1859

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Stock market valuation and acquisitions: an empirical test of one component of managerial utility

Abstract: BETWEEN I948 and 196I, 735 public companies quoted on the London Stock Exchange were taken over by other quoted companies, or one-quarter of the original population. There also appears to have been two or three hundred unsuccessful bids during this period. It is the object of this paper to examine the effects the threat of take-over may exert on a firm's behaviour within the theoretical constructs of the managerial theories of the firm. The behavioural revisions to the theory of the firm, recognizing the importance of the separation of ownership and control in modern corporations, have attempted an examination of managerial motivations in order to explain the firm's behaviour. There is, however, little agreement to be found in the literature as to the nature of the ingredients in the objective function which are to replace the profit maximization assumption. For example, Baumol' believed managers sought to maximize dollar sales; Marris2 saw the primary motivation in terms of an attempt to maximize the growth rate of the firm; while Williamson3 included a variable for pecuniary and non-pecuniary emoluments and staff size in the objective function. In all approaches, however, managers are seen as constrained from making decisions which could lead to loss of employment or bankruptcy because of a competing desire for security. Baumol and Williamson impose this security constraint by requiring that profits do not fall below some minimum level which satisfies the owners in terms of dividends and provides for financial safety. Marris, on the other hand, views the constraint as being imposed directly by the firm's valuation on the stock market which reflects not only shareholder approval of the firm's financial policies (by way of both satisfactory dividends and capital gains), but also affects the likelihood that the firm will receive a take-over bid. Since it is usual for all or part of the existing manage-

The treatment of risk in the stock market

Abstract: IN SEPTEMBER 1965, an article appeared in the Journal of Finance on the subject of "Risk Aversion in the Stock Market."' In this study, W. F. Sharpe examined the behavior of the annual return on a number of open-end mutual funds over a ten year period of time. The first part of this paper proposes an alternative treatment of risk to that applied in the Sharpe model. The second part reports on an empirical study which uses British unit trust data. The original Sharpe model is used to enable a direct comparison to be made between the performances of the similar investments in the two countries. The results obtained by using the British data in the alternative model are also presented.

A Preliminary Evaluation of the Wednesday Closings

Abstract: O N MARCH 16, 1830, total transactions on the New York Stock Exchange (NYSE) amounted to 31 shares.' In contrast to this record-low volume, total transactions of 20,410,000 shares on April 10, 1968 represented to that point the highest volume in the history of the NYSE as well as the first 20 million share day. These dates, spanning over thirteen decades, serve to emphasize (1) the growing importance of the New York Stock Exchange as a market for equity securities, and (2) the role of total volume as a popular index of exchange activity and also as a business barometer. The NYSE together with the other organized exchanges have also become focal points for economic inquiry within academia by virtue of their "approximation" to truly competitive markets. Much of the recent controversy concerning the securities markets and the investigation of potential regulations for these markets has centered around the question of just how well do the securities markets exhibit these idealistic conditions of competition. During 1968, a major change occurred in the operating procedures of the New York Stock Exchange and certain of the other exchanges. Because of the rapidly increasing volume of market activity, many of the member finns who provide brokerage and other services-have become engulfed with a growing backlog of paperwork and administrative detail. Beginning in early June 1968, therefore, these exchanges adopted the policy of remaining closed on Wednesdays in order to give member firms an opportunity to reduce this unmanageable backlog. Whether or not the "Wednesday closing" achieved this goal is relatively uninteresting except to those firms directly concerned. Of more interest to the investment community is the question of how Wednesday closings have affected the activity of the securities markets. Such a question provided the motivation for the empirical study presented here. In particular, the purpose of this study was to test empirically certain hypotheses concerning the effect of the Wednesday closings on one of the basic services provided by the securities industry. The hypotheses are developed in Section II and the research design used to test them is explained in Section III along with the basic data which were used. Results of the empirical test are presented in Section IV. The paper concludes in Section V with a discussion of the implications of the Wednesday closings.

A Stock Is a Company Is People

Abstract: A Company Is People /A8 Stock is a Company is t~t People." There are only three or four really salient factors which determine whether a stock is an attractive investment opportunity. Some of these factors are objective; they relate to a particular company's configuration in its overall market. Other factors are subjective; they relate to the kind of people who are running the company. Let me discuss the objective factors first. In analyzing what makes a specific company grow at a dynamic pacewhich is the only kind of companies we're interested in-the first thing we try to establish is whether the business makes good, economic sense or whether a sharp upswing in profits is merely the result of some passing fad. We are looking for companies whose growth is built on solid foundations and not for the makers of this year's hullahoop. Having convinced ourselves that the company's growth has a sound basis-that its products or services fill real economic needs-we then start to analyze the business in great detail. The purpose of this in-depth analysis is to cut through the 50, 60 or 70 extraneous factors and get to the crux of things-the three or four objective characteristics that actually make the company tickand keep such good time. We call these key factors the "profit parameters". The profit parameters are always different for each company. They are determined by its particular stage of development and the degree of uniqueness of its products or services. In other words, the profit parameters relate to the company's specific position at a given point in time as viewed against the background of the business in which it operates. To take an oversimplified example, the addition of 25 new stores will have a far greater impact on a retail chain with 100 units than the same number of store openings would have on a 500 unit chain. In the retail field, profit parameters also are affected by the length of time it takes the company in question to move a new store into the black. These figures are then measured against the growth rates and profit margins of older stores in the chain. Thus, if we know how many new outlets a company plans to open over the next year or two, we can make reasonably dependable projections of its future earning power for that period. In the case of manufacturing companies, the profit parameters are determined primarily by the uniqueness of the product line. Aeroquip presents a dramatic illustration of this concept. The company is in a rather mundane business: it makes plastic and rubber pipe and tubing, which is sold as a commodity, by the yard. This is a tremendously competitive market, and yet, Aeroquip really has no competition. The explanation for this apparent paradox is that Aeroquip has succeeded in developing pipe and tubing with certain proprietary features, and because its products have these unique features, the company does not have to sell them as commodities. Instead, it is able to command premium prices for its line. For mass marketing companies like Procter & Gamble or Revlon, product uniqueness hinges importantly on how much management is willing to spend on research and promotion. General Foods, for instance, in recent years has been plowing back a hefty portion of sales into new products, and this program has resulted in about two dozen new items of consequence. One measure of how these efforts are paying off is that in 1968 while advertising and promotion costs rose only 5 per cent, the company's sales climbed 7 per cent. Thus in defining profit parameters we are attempting to pinpoint those companies which, because of their unique characteristics, are most likely to demonstrate explosive earnings growth in the future. And the better LAWRENCE A. RADER iS Senior Vice President and Director of Shareholders Management Company where his responsibilities are primarily in portfolio management.

Odd Lotter Trading of High and Low Quality Stocks

Abstract: THANKS LARGELY to the New York Stock Exchange Public Transactions Studies' and the pioneering efforts of Charles 0. Hardy2 and Garfield Drew,3 there is a certain amount of information available about how odd lot investors behave as a group. Generally speaking we know they favor high quality stocks, prefer buying to selling, prefer to hold stocks for the long run, avoid margin, and could be a lot better in their timing. While considerable information has been generated concerning the aggregate buying and selling proclivities of the odd lotter, there is comparatively little known of his behavior concerning individual stocks. Since October, 1964, data on purchase and sales of a 75, and more recently, a 100 common stock sample have been made available by the Securities Exchange Commission,4 thereby permitting examination of odd lotter trading in individual securities. Garfield Drew's odd lot studies suggest that, in the aggregate odd lotters buy more than they sell when prices are low and sell more than they buy when prices are high. To the extent that this is true, they demonstrate what we can call "a search for value" -a buying of what seems to them to be undervalued and a selling of what seems to them to be overvalued stocks. At the very extremes of price variation, the odd lotter apparently yields increasingly to the temptation to switch from value and seek "performance" by increasing his relative buying at the tops and selling at the bottoms. Drew emphasizes, however, that this is a relative phenomenon. While the ratios of selling to buying decline just before market tops, they nevertheless do remain on the sell side. Similarly, at the bottoms, while the ratios rise somewhat, they nevertheless remain on the buy side. At the turns, the odd lotter is on the correct side of the market, although to a lesser degree than he might have been.5 But these are aggregate data that are compared to indexes of aggregate prices. Do they describe how the odd lotter behaves with regard to all sorts of individual securities, or are they characteristic only of the over all averages? With regard to lesser quality securities we might anticipate that odd lotter behavior would be different. Investors buying and selling these stocks at all would tend to be more risk oriented than those trading in the blue chips. Given the assumption of different people, or at least different motivations for trading in these securities it is a logical extension to hypothesize different behavior. One might anticipate more emphasis on "performance" and less on "value." A speculative vehicle that is bought for shorter term capital gains might well be bought when prices are high in anticipation of them going higher with money derived from the sale of stocks that are low and expected to go lower.

The impact of forced conversion on stock prices

Abstract: THIS PAPER REPORTS the results of an empirical test designed to determine if there is a significant negative stock price change associated with the forced conversion of convertible bonds after controlling for fundamental factors, stock market trends and stock price volatility. Part I is a discussion of the background of the study. The methodology is discussed in Part II, followed by the results and conclusions in Parts III and IV.

Market Behaviour and the Stock Exchange

Abstract: Factors affecting the market for securities are reviewed, special attention being given to economic forces and Government controls. In the light of this discussion the possibilities for forecasting future trends in market prices are considered. The chapter is concluded with an account of the role of the Stock Exchange and a summary of some of the more important procedures.

Liquidity Preference and Stock Market Speculation

Abstract: J. M. Keynes' theory of portfolio management (modified and refined by Tobin)occupied an important role in his analysis of the demand for money. According to this theory, financial investors were thought to vary the composition of their portfolios between money and securities on the basis of expected yields on securities. When yields were expected to rise, investors would shift out of securities and into money. Conversely, when yields were expected to fall, investors would shift out of money and into securities. Hence, the asset, or portfolio, demand for money was argued to be negatively related to the expected yields on securities.