Showing papers on "Stock exchange published in 1976"

On the efficiency of competitive stock markets where trades have diverse information

Abstract: I HAVE SHOWN elsewhere that competitive markets can be "over-informationally" efficient. (See Grossman [1975] for this and a review of other work in this area.) If competitive prices reveal too much information, traders may not be able to earn a return on their investment in information. This was demonstrated for a market with two types of traders, "informed" and "uninformed." "Informed" traders learn the true underlying probability distribution which generates a future price, and they take a position in the market based on this information. When all informed traders do this, current prices are affected. "Uninformed" traders invest no resources in collecting information, but they know that current prices reflect the information of informed traders. Uninformed traders form their beliefs about a future price from the information of informed traders which they learn from observing current prices. In the above framework, prices transmit information. However, it is often claimed that prices aggregate information. In this paper we analyze a market where there are n-types of informed traders. Each gets a "piece of information." In a simple model we study the operation of the price system as an aggregator of the different pieces of information. We consider a market where there are two assets; a risk free asset and a risky asset. Each unit of the risky asset yields a return of P1 dollars. P1 will also be referred to as the price of the risky asset in period 1. In period 0 (the current period), each trader gets information about P1 and then decides how much of risky and non-risky assets to hold. This determines a current price of the risky asset, P0, which will depend on the information received by all traders. We assume that the ith trader observes yj, where yi = PI + ,E. There is a noise term, 'E, which prevents any trader from learning the true value of P1. The current equilibrium price is a function of (Y1Y25 ... Yn); write it as PO(Y,Y2, ... 5Yn). The main result of this paper is that when there are n-types of traders (n > 1), PO reveals information to each trader which is of "higher quality" than his own information. That is, the competitive system aggregates all the market's information in such a way that the equilibrium price summarizes all the information in the

Insiders' Activity and Inside Information: A Multivariate Analysis

Abstract: The Securities and Exchange Commission (SEC) and the New York Stock Exchange are concerned with the full disclosure of information insiders normally would be expected to possess about their company, including any facts that would materially affect the market's valuation of the firm's worth if they were publicly known. At present, the regulatory agencies have limited their activities to the collection and dissemination of historical information and facts. The motives of insiders, based in large part, presumably, on their knowledge regarding future operating results are hidden from the public eye. The SEC in compiling the Official Summary of Stock Transactions does not require insider to reveal his motivation for trading.

Competition, Scale Economies, and Transaction Cost in the Stock Market

Abstract: The opponents and proponents of competitive brokerage commission rates for the New York Stock Exchange have, for nearly a decade, been dueling in the hearing rooms of Congress and the Securities and Exchange Commission (SEC). The contest developed because financial institutions, in attempting to skirt the New York Stock Exchange (NYSE) and its fixed commission rates, had used a variety of trading practices that were sharply criticized by the government overseers of the securities markets. The securities industry, the government overseers, and scholars have debated what would be the most effective regulatory approach to improving the social performance of the securities marketplace. Would it be through initiating even more stringent federal regulation of exchange behavior? Or, would it be through selective deregulation to increase competition, particularly in the determination of commissions? Competitive forces might constrain and direct that behavior. The policy that has been developing would deregulate and restructure the marketplace to create a “central market system.†Competition would replace regulation to whatever extent may be possible, in determining both commission rates and the quality of marketplace services provided [6]. But, the contest has been long and often heated. From the thrusts and parries, there can be identified some fundamental issues concerning the economics of the stock exchange as a form of marketplace organization.

Asset pricing in the Australian industrial equity market

Abstract: The two-moment, mean-variance model of asset pricing is tested against data from the Melbourne stock exchange The model appears to describe the data quite well, though there are problems in experimental design which are yet to be cleared up Neither variance nor skewness appears to explain additional price behaviour to that explained by covariance, as is predicted by the two-moment model

Stock Price Movement Associated with Temporary Trading Suspensions: Bear Market versus Bull Market

Abstract: A temporary trading suspension in a listed security represents a temporal discontinuity in a continuous auction market. Although the SEC occasionally suspends trading in specific securities, the NYSE itself administratively halts trading in individual NYSE issues. The latter occur quite frequently (almost three per day on average), and typically last about two hours. NYSE-initiated suspensions are the focus of the present paper.

The Predictive Power of Stock Market Indicators

Abstract: Empirical research has cast so much doubt on chart readers that most capital theorists have about as much faith in charts as astronomers have in astrology. Certainly there is overwhelming evidence that attempting to predict future price changes on the basis of past price behavior is unproductive. There is, however, another aspect of technical analysis which has received much less attention from academicians. In its narrow form technical analysis seeks to forecast the direction of price movements of individual securities from past price and volume data. A second and somewhat broader type of technical analysis concentrates on the prediction of general market movements and trends relying on a broader set of information. Various market indicators are said to offer signals useful in forecasting future prices. One type seeks to measure investor sentiment through what might be called mood variables. A second type of indicator is more closely related to fundamental factors affecting future supply and demand for securities. Both types of indicators, however, are designed to be used in predicting future market movements rather than the movements of individual stock prices. This is to be contrasted with fundamental analysis which is concerned with predicting future prices of individual securities by analyzing the underlying factors related to the firm's future profitability. Most of the prior work with market indicators takes one or another proposed market indicator and examines the historical relation, between the indicator and some market index such as the Dow Jones Industrial Average.

Economic Foundations of Stock Market Regulation

Abstract: Before considering the economic impact of stock regulation in the United States, which has pioneered in this area, it is desirable to review briefly the general purposes of such regulation. The two basic aims of the original legislation — the Securities Act of 1933 and the Securities and Exchange Act of 1934 — were protection of investors and promotion of the broader public interest as this interest is affected by trading in securities. The first aim has a fairness orientation and the second an economic orientation, since the public interest in the area of securities regulation relates largely to the impact of regulation on the economic performance of securities markets.

Risk and Liquidity: The Keys to Stock Price Behavior

Abstract: (1976). Risk and Liquidity: The Keys to Stock Price Behavior. Financial Analysts Journal: Vol. 32, No. 3, pp. 35-45.

Comment: Assessing the Impact of Stock Exchange Specialists on Stock Volatility

Abstract: In a recent article in this Journal, Amir Barnea [1] proposes a criterion for assessing the market-making efficiency of New York Stock Exchange specialists. The appealing aspects of Barnea's method are that it uses publicly available data (common stock prices) and operates on a variable of primary concern to investors, the variance of returns on common stock. The difficulty we see in applying his approach, however, is that Barnea's performance criterion can be sensitive to a number of factors in addition to any impact the specialist might have, and that effective specialist intervention might have either a positive or negative impact on the performance measure. Thus, his specialist ranking seems to be quite misleading, and his empirical findings appear to be amenable to a substantially different interpretation than that which he provides.

A Suggestion for Changing the Definition Of the U.S. Money Stock

Abstract: This paper proposes a modest change in the definition of the demand deposit component of the U.S. money stock. The proposed change would not in principle affect the size of the money stock; however, it would improve the accuracy of money stock estimates and thereby contribute to the ability of the Federal Reserve authorities to control the money stock. There are some rather complicated aspects of money stock measurement which involve Edge Act corporations, branches and agencies of foreign banks in New York, and New York state investment companies. The proposal contained in this paper is not primanly directed at these aspects of money stock measurement. Therefore, in order to keep the argument for the proposal as simple and straightforward as possible, the complexities connected with these international banking institutions are ignored throughout the first three sections of the paper. Section 1 presents both the current and proposed approaches to measuring the demand deposit component of the money stock. Section 2 explains why the proposed approach would result in more accurate estimates of the money stock. Section 3 explains why the proposed approach would contribute to more precision in money stock control. The complexities of money stock measurement resulting from international financial transactions are discussed in Section 4.

N.Y.S.E.: A History of the New York Stock Exchange 1935–1975 . By Robert Sobel. New York, Weybright and Talley, 1975. Pp. xi + 398. $15.00.

Abstract: everyone \"to get theirs, and hold it.\" I was unable at the time to determine if Professor Greene was serious or speaking facetiously, but the comment aptly describes the thrust of the argument in this book. Johnson demonstrates that both Hamiltonians and Jeffersonians supported the concept of an open market economy, with governmental interference tolerable for sound and necessary reasons; the disputes between competing groups arose in the process of identifying the exceptional circumstances that justified government involvement. Beyond the fact that the manuscript is woefully outdated, Johnson's work is flawed because he misleadingly, and perhaps unintentionally, implies that the nation's storehouse of economic thought on public policy was stocked almost exclusively in the so-called Age of Washington. Many of these ideas had either existed throughout the colonial period or evolved over decades, and by failing to reveal the continuity of American economic and political thought, Johnson overemphasizes and thus distorts the importance of events in the 1790s. It is an ironic criticism since Johnson had earlier, back in 1932, published an extensive review of economic thought in the seventeenth century. Apparently, this book was originally planned as a sequel, and he may have assumed that readers would be familiar with his previous volume and would make the connection on their own. [Editor's note: Professor Perkins volunteered to review this book upon learning that the person who originally agreed to do so failed to carry out his commitment.]

Monetary Policy and the Stock Market: Is There a Direct Link?

Abstract: Recent years have witnessed the birth of a revolutionary idea: Monetary policy and the money supply can affect the stock market directly-without first influencing the economy or investor expectations. The previous explanation for the market soaring in the midst of recession or plummeting in the midst of boom was that investors were correctly forecasting the coming trough or peak in business activity and attempting to anticipate by changing their portfolios. This was never a very satisfactory model because it did not fit the behavior of real investors. A new explanation suggests that changes in the money supply, caused by the Federal Reserve's expanding the supply in recessions and restricting it in booms, can create excessive or deficient liquidity among investors. Such excesses or deficiencies, according to this theory, cause investors to increase or decrease holdings of stocks irrespective of the investment outlook. At first glance, the new explanation has great appeal. It explains why investors act in the stock market before turns in the business cycle, without imputing to them superior forecasting ability. And it is wrapped in the mantle of monetary economics, which is currently enjoying a vogue among economic theorists. When one looks deeper, however, he may find it hard to specify exactly what the links are by which monetary policy directly influences the stock market. At this point he can either accept the explanation on a "black box" basis or ignore it. A better alternative is to seek an understanding of these missing links. Beryl Sprinkel's pioneering work, Money and Markets: A Monetarist View, offers one theory:

Economic Efficiency and the Stock Exchange

Abstract: The belief that the London Stock Exchange is a near‐perfect market is common both among economists and the lay public The main basis for this belief is that stock and share prices are very sensitive to the influence of supply and demand in the market But undoubtedly the belief is also influenced by the very effective public relations efforts of the Stock Exchange Council and also the members of the exchange—the brokers and jobbers who operate the market mechanism