Showing papers on "Stock exchange published in 1977"

A Comparative Analysis of Stock Price Behavior on the Bombay, London, and New York Stock Exchanges

Abstract: The object of the present study was to test the random-walk model, by runs analysis and spectral densities, against representative stock market indexes of the Bombay, New York, and London Stock Exchanges. The three indexes examined were the Bombay Variable Dividend Industrial Share Index (BVDISI), consisting of 603 industrial stocks, the New York Standard and Poor's 425 Common Stock Index (S & P 425), and the London Financial Times-Actuaries 500 Stock Index (London F.T.-A.). The test period covered 132 monthly observations for each index for the 11-year period 1963–1973.The general characteristics of the London F.T.-A. were found to be slightly different from the other two indexes studied. The first difference series the London F.T.-A. has higher mean and variance than BVDISI and S & P 425. However, the first differences of the log indexes did not show any significant differences. In this study, no effort was made to explain any inconsistencies between the London F.T.-A. and the other indexes, although previous studies [4, 12, 13, 20] have attributed such differences partly to institutional The behavior of the BVDISI is statistically indistinguishable from the London F.T.-A. and S & P 425 in terms of the tests of this paper. In runs analysis of consecutive price changes of the same sign, the study confirmed that the expected number of runs and observed number of runs are very close each other. For all the indexes, the actual and expected distribution of length turns out to be extremely similar, with probability equal to 0.5 rise or fall.Further, the spectral densities, estimated for the first difference (raw and log transformed) of each index, confirmed the randomness of the and no systematic cyclical component or periodicity was present. Based tests, it is evident that stocks on the Bombay Stock Exchange obey a random walk and are equivalent in this sense to the behavior of stock prices in markets of advanced industrialized countries examined in this article.

An industry study of the profitability of mergers in the united kingdom

Abstract: THE PRIMARY PURPOSE of this study is to obtain evidence from monthly London Stock Exchange share prices of abnormal gains or losses to shareholders in U. K. Breweries and Distilleries sector companies as a result of mergers within the industry. A secondary purpose is to determine whether one can draw any conclusions from this evidence about the distribution of such gains or losses between shareholders in acquiring and acquired companies. In the process of analysing abnormal gains and losses, one can also expect to accumulate some evidence concerning the efficiency of the London capital market in the pricing of equities in anticipation of public information about forthcoming mergers. This is the first published study to be based upon the London Business School Data Base of monthly London Stock Exchange share prices and thus provides an early indication of some of the empirical problems associated with the characteristics of the price data. Our findings may be summarised briefly as follows:

Stock Exchange Listings and Securities Returns

Abstract: The broad import of the evidence is that the application and qualification by a firm for listing on one of the two major American securities exchanges did, at least during the years encompassed by our investigation, constitute an event with which were associated abnormal positive investment returns on the shares involved. Even though a portion of those returns seem subsequently to have been surrendered, the initial net effect from application through listing date was quite substantial, and the later correction thereto was much more modest. The average combined impact visible in Table 3 during the six-month period beginning with the listing application, for example, was a net positive annualized return approximately 17 percent above that enjoyed concurrently by the general run of comparable-systematic-risk securities in the market. The explicit consideration of such risk distinguishes the present investigation from earlier studies in the area [7] [8] [10] [12] [13] [18].On balance, then, it appears not unreasonable to conclude that listing did indeed “have value” for the companies examined. While one could argue that it was, intrinsically, the corporate developments (and the dissemination of the news thereof) which led to listing that were the real sources of value, the observed concentration of excess returns in the close proximity of the various application and listing dates would suggest that those actions provided useful market signals which did, in themselves, have a detectable favorable payoff—perhaps if only by way of accelerating the investment community's appreciation of the improvement in the applying firm's underlying operating circumstances. We interpret the evidence as supportive of that hypothesis.The implications of the same evidence for questions of market efficiency, however, are somewhat more ambiguous. There would seem, as noted, to be in the data indications of certain possible information-response time lags that are not totally consistent with efficiency; and there is an apparent systematic initial price overreaction to application-cum-listing which is later remedied. Transactions costs, on the other hand, have not been considered here, and these clearly would impede the adjustment process by raising the threshold for investor action. Despite some cause for suspicion, therefore, a definitive judgment about efficiency must await further investigation.

Forecasting stock market prices

Abstract: building techniques to publicly available information could have permitted an investor to earn a portfolio return in excess of the return which was commensurate with the portfolio risk The question of equity market efficiency over time is an area of constant disagreement, especially between practitioners and theoreticians The disagreement is really a matter of degree Practitioners believe there is enough inefficiency in price adjustment to offer the diligent analyst the opportunity of excess returns net of transactions costs Academicians maintain that it is precisely the actions of these astute analysts that cause consistent trading opportunities to be non-existent This issue can only be answered empirically and it is hoped that this study will bring new evidence to bear The study undertakes an extensive statistical investigation of aggregate quarterly stock prices (the Standard and Poors Index of Five Hundred Common Stocks) and their relationship to a leading indicator of business activity1 The Box-Jenkins methodology is utilized to build a transfer function model relating changes in the National Bureau of Economic Research Leading Composite Index to subsequent stock price changes The model is tested in a fifty quarter holdout sample and found to be successful at forecasting stock price changes one quarter ahead The study covers the period 1948 to 1974 Model parameters are estimated in the first half of the period and tested in the second The model is evaluated with respect to predicted R 2, hit rate for forecasts of "up" and "down" markets, and accumulated wealth of a stock market/treasury bills trading rule, compared to a buy and hold strategy for various levels of transactions costs The following conclusions are drawn from this research: (1) stock prices move in

On the independence of transactions on the New York Stock exchange

Abstract: This paper presents empirical tests of a model of intraday transaction price walks haveior events both the existence of price reversal's in transaction price sequence with random, New York daily. and longer different intervlas. In genral, we find that trasaction of independ events both with respect to their time execution and the siem and (bid or ask) or whick thaye are executed. Over very short intervals times, however, transapction tend to cluster in time and on a particular side of the market. We conjecture that this latter phenomenon is a consequence of market procedures on the New York Stock Exchange.

The Johannesburg Stock Exchange as an efficient market

Abstract: This note reviews the evidence for and against the assumption that The Johannesburg Stock Exchange is an efficient market. After considering the results of statistical tests and trading rule simulations on share price sequences, and analysing the performance of mutual fund portfolios, it concludes that the evidence supports the assumption. This conclusion has important practical implications for portfolio managers.

Public regulation of national securities exchanges: a test of the capture hypothesis

Abstract: This paper tests the hypothesis that members of national securities exchanges have received net benefits from the regulatory activities of the Securities and Exchange Commission. The prices of stock exchange seats are analyzed in time periods of major changes in the regulation of the securities industry during the 1926-1972 period. Time series regression models are used to identify changes in seat prices which are unrelated to changes in stock prices or share trading volume. Empirical analysis of the unexpected changes in seat prices indicates that the most important regulatory change occurred in March, 1934, when the Securities and Exchange Act was first considered by Congress; both New York and American Stock Exchange seat prices fell unexpectedly by about 50 percent in one month. There is no evidence that this capital loss was ever recouped after March, 1934. There is also evidence that recent changes in the fixed commission rate structure of the brokerage industry have had a negative impact on seat prices. Thus, there is evidence which contradicts the hypothesis that securities brokers have benefited by capturing control of the regulators of the securities industry.

The Role of the Stock Market

Abstract: The major socio-economic role of a stock exchange is the valuing of securities and the provision of a well-run market-place where investors can buy and sell shares. The ‘proper’ valuation of securities is important as it provides signals for the allocation of scarce capital resources. Thus investment funds are channelled towards those companies which can use them most profitably (and, from the viewpoint of a capitalist economy, most usefully). The provision of a well-run market-place — along with accurate pricing — is required if individuals are going to invest in private enterprise, either via some investment institution, for example a unit trust, or on their own. If the market is not well run and securities are incorrectly priced, then many individuals will stop investing and this will seriously reduce the availability of funds to expanding companies.

The limited efficiency of The Johannesburg Stock Exchange

Abstract: A brief, critical evaluation of the evidence for and against the Efficient Market Hypothesis on The Johannesburg Stock Exchange indicates that, at most, the hypothesis applies to half of the shares listed on the Exchange: those with average annual trading volumes in excess of at least a quarter million.

The behavior of equity securities on the German Stock Exchange

Abstract: This is the first major empirical study of the German Stock Exchange and involves the analysis of monthly data for ninety German companies from 1960 to 1970. Whereas previous studies had suggested that German securities were peculiar, this analysis showed that, except for the high positive serial correlation of returns for the larger companies, German securities had very similar properties to securities elsewhere. Betas for German companies were fairly stationary over time, with the interperiod correlation for company betas ranging from 0.2 to 0.4. When the effect of measurement error was reduced, the perceived stationarity increased and a significant regression tendency towards the mean was observed. Further, it was found that the behaviour of German securities did not conflict with the domestic capital asset pricing model and indeed supported it during the bull market of the early 1960s.

Estimates of capital stock by industries in the federal republic of germany

Abstract: The main purpose of this paper is to discuss some of the measurement problems in connection with the perpetual inventory method applied for estimates of capital stock. In the Federal Republic of Germany, highly aggregated capital stock data by business sector are compiled by the Federal Statistical Office within its national accounts calculations, while more detailed capital stock estimates by industrial sectors are published by the German Institute of Economic Research (DIW) in Berlin. Because of various gaps in the statistical sources, the accuracy of the capital stock calculations is not yet entirely satisfactory. Aside from the problem of establishing long time series for gross fixed capital formation in constant prices for all sectors, it is difficult to obtain reliable data on the inter-sectoral transactions in secondhand capital goods. In addition, there are problems of determining price indices and service life distributions of the fixed assets in the various parts of the economy. This paper shows a way to arrive at a reasonably close approximation to the latter problem.

Capital Shortage: Myth and Reality

Abstract: A couple of years ago a New York Stock Exchange study (1974) pointed to a "capital shortage" of some $650 billion by 1985. Treasury Secretary William E. Simon, comparing his estimates of capital requirements in current dollars over the next decade with capital expenditures in current dollars over the last decade, came out with a gap of over 2-1/2 trillion dollars without noting the noncomparability of prices (p. 3871). We have indeed a host of estimates from a number of econometric models, government bodies and private institutions, from Barry Bosworth, James Duesenberry and Andrew Carron and many others. A major Bureau of Economic Analysis study under the direction of Vaccara projected a total of $986.6 billion, in 1972 prices, for business fixed investment from 1975 to 1980, or 12.0 percent of cumulative gross national product, "in order to insure a 1980 capital stock sufficient to meet the needs of a full employment economy, and the requirements for pollution abatement and for decreasing dependence on foreign sources of petroleum" (p. 7). Scarcities are sometinmes seen in terms of sources of financing. Benjamin Friedman wrote in 1975, "To an unusually great extent, financial considerations may act during this period [1977-811 as effective constraints on the amount of fixed investment which the economy in aggregate is able to do" (1975, p. 52). In May 1976, however, Allen Sinai declared, "There are no financial shortages of any consequence" (p. 2). But with the plethora of articles, studies, claims and warnings, what meaning can we attach to the notion of a capital "shortage'"? In what sense can there be a shortage in a free economy where markets are cleared by the impetus of price movements? In an uncontrolled, competitive system, the rate of investment is not imposed as a prior constraint. Business investment, in particular, is the resultant of the utility-maximizing saving propensities of households and the profit or wealth-maximizing production decisions of business. These are subject to the constraints of the general economic atmosphere determined by the monetary and fiscal authorities of government, particular tax and monetary influences, and general currents of the world. Any argument that there is a capital shortage must either imply a literal failure of market clearing or some standard external to the economic system. A failure of markets to clear in an equilibrium sense implies fixed or sticky prices. If government were to control prices and set those for capital goods too low, the quantity of capital goods demanded could exceed the quantity of capital goods supplied. Perhaps more to the point, government regulatory agencies might hold prices of certain products, such as electric power, so low that, while the quantity of electric power demanded might be very high, firms anticipating continued low prices would not find it profitable to invest in the capacity to meet future needs. Similarly, there may be price fixing in financial markets. If the monetary authority and/or inflation force up interest rates while regulatory *Williarn R. Kenan Professor of Economics, Northwestern University, and Senior Research Associate, National Bureau ot Economic Research. I amil indebted to Martin Feldstein, Benjamin Friedman, Marc Nerlove and Beatrice Vaccara for helpful commiients.

Characterization of options

Abstract: The 1970s have witnessed a rapid expansion in the trading of options. In April 1973 trading commenced on the Chicago Board Options Exchange. It has been followed by the opening of additional facilities on the American Stock Exchange, Pacific Stock Exchange, Philadelphia-Baltimore--Washington Exchange, and others: This reflects the growing interest of investors and portfolio managers in this investment medium; and as might have been expected, the subject has also attracted the attention of the academic community. The latter find the characteristics of options a convenient vehicle to explain the risk-return relationship in the market for various financial assets. The reemergence of this relatively complex investment medium 2 constitutes a major challenge to financial managers who often find the theoretical exposition relating to options somewhat less than transparent. The purpose of this paper, whose primary emphasis is pedagogical, is twofold. Firstly, by clearly defining the significant characteristics of an option contract, much of the confusion regarding the interpretation of the economic role of option trading in an organized security market can be eliminated. To this end a call option will be shown to contain elements of both leverage and insurance) Secondly, it will be demonstrated that the above analysis can be extended to additional financial assets, e.g. warrants, bank deposit insurance, pension obligations, etc. This will be accomplished by showing that such assets can be analyzed in terms of the basic elements of option contracts, i.e. insurance and leverage. The recent financial literature is surveyed

Multinationality and stock market valuation: an empirical study of u.s. markets and companies

Abstract: It should be noted that this growth in overseas profits took place in spite of increasing nationalism in host countries leading to restrictions on overseas operations and increasing uncertainty in world financial markets especially in the seventies. The rewards of going overseas or the penalties of not going overseas must have been more than the difficulties encountered. The reasons for undertaking foreign direct investment are numerous2, and for some companies they certainly include the need to go overseas to stay competitive in the U.S. Whatever the reasons for a particular company, more and more companies must and are becoming multinational while companies that are already multinational are not likely to reduce their overseas involvement significantly. The purpose of this paper is to examine if on the average U.S. investors reward U.S. companies for going overseas. It has traditionally been assumed that a multinational company (MNC) should have a higher Price/Earnings (P/E) ratio than a comparable company that is purely domestic because of the opportunity for international risk diversification offered to investors by MNCs. While recent results of Solnik and others support that hypothesis3, the conclusions drawn by Adler and some others question the optimality of companies diversifying internationally as contrasted to such diversification by investors themselves.4 This paper attempts to provide empirical evidence regarding the stock market valuation of multinationality. The overseas involvement of U.S.-based multinational companies as measured by the percentage of foreign sales, foreign income, and foreign assets are related to the company's cost of equity capital, systematic risk, P/E ratio, and other variables. In the first part of the paper, some of the issues relevant to determining the optimality of international diversification by U.S. multinationals are discussed in view of other investment opportunities available to U.S. investors. Next, the results of other related empirical studies are examined as to U.S. investor reaction to multinationality among U.S. companies, as well as where this study fits in. The second part of this paper details the data

The Efficient-Markets Theory

Abstract: In Chapter 1 we reviewed the raison d’etre of the stock market and especially its role in the setting of share prices. Academics and practising investors have sought to ‘measure’ the performance of the pricing mechanism and to apply a description to the market. The currently prevailing description is the efficient-markets theory (E.M.T.). The E.M.T. has gained a broad level of acceptance as a description of the major stock markets, notably the New York Stock Exchange, the American Stock Exchange (both of the United States) and the United Stock Exchange (United Kingdom); the description has also been applied to other well-regulated markets although there has been a lesser amount of empirical testing.

Trading in warrants by mechanical systems

Abstract: A FILTER TECHNIQUE IS A mechanical rule which attempts to apply sophisticated criteria to identify movements in prices. The "system" is based on the notion that if a security's price has been moving up (down) it will continue moving up (down). The system involves following a list of securities, buying those that are moving up and selling those that are moving down. If there are genuine trends in the price series, the filter analysis will show returns on average greater than a policy of simply buying and holding. If trends do not exist, returns on average should be more favorable for buy and hold. Tests of filter systems-particularly those of Alexander [1] [2], Fama and Blume [7] and Jensen and Benington [9]-have usually focused on common stock data but have generally demonstrated that an investor following this kind of strategy will not make excess returns. In contrast to the widely held beliefs of professional analysts, these tests support the efficient market model (EMM). This hypothesis implies that an efficient capital market cannot allow the formulation of trading systems which earn excess profits. Competition among profit-maximizing investors will insure that current and past information is "fully reflected" in current security prices so that investors will not be able to develop any type of profitable trading rule based on this information. The time sequence of "fully reflected" prices will consist of competitively determined equilibrium prices which leave investors able to earn "on the whole and on the average" returns which are commensurate with levels of risk. In other words, no mechanical trading rules applied to individual securities should consistently outperform a policy of simple buying and holding the security. But do option prices conform to the EMM? In a previous paper by Leabo and Rogalski [11], statistical methods of analysis were applied to daily warrant price series from both the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE). Their results were generally surprising because they cast doubt on the validity of the efficient market hypothesis for the option segment of capital markets. Not surprisingly, the results suggested other interesting phenomena deserving further investigation. In particular, these statistical tests have suggested the rejection of the notion that successive warrant price changes are independent random variables. From this, one might infer that there may be mechanical trading rules based solely on properties of past histories of warrant price changes that could be used to make expected profits for a trader greater than they would be

Corporate Policy, Uncertainty, and the Stock Market

Abstract: The extension of economic theory to conditions of uncertainty has been pioneered by Arrow [1] and Debreu [2]. The basis of their attempts to analyse environmental or technological uncertainty is the redefinition of a commodity. In their models commodities are distinguished not only by physical and spatial characteristics, and by the date at which the commodity is made available, but also by the ‘state of the world’ in which it is found. A ‘state of the world’ is defined by assigning values to all the uncertain variables which are relevant to the economy; for example, specifying the rainfall in the next year. To quote Malinvaud [18, p. 275], “the complete characterisation of a commodity must specify the states in which it is available”. Commodities are now defined as contingent on the occurrence of certain events, and the market system comprises markets in all these contingent commodities.

Modeling & stabilization policies in financial systems

Abstract: Relationships between (perceived) profit maximization strategies and stabilization policies of financial intermediaries in securities markets are investigated, and bases for developing quantitative models are established. Such model development forms a necessary first step in formulating a variety of interesting problems in stochastic games. In financial markets such as, for instance, the New York Stock Exchange, market makers (termed 'specialists' in the case of the NYSE) are employed for the purpose of insuring fair and orderly market clearing operations. Factors such as supply/demand imbalances tend to effect price fluctuations, and one of the primary tasks of the market maker is to stabilize the system in the face of such disturbances. The market maker serves as an agent for both buyer and seller, and in many cases (e.g., the NYSE is a prominent example) trades for his own account. This leads to several very interesting questions dealing with the formulation of "equitable" operating policies, the inference of actual operating policies from observed data, etc. Previous interest (e.g., see [1-6]) in such problems has been limited to developing statistical comparisons and qualitative discussions involving operational objectives, constraints, conjectures, etc. The approach employed in this paper is motivated somewhat by ideas such as in [7]; however, the extreme complexity of the problem consider ed herein does not at present allow the formalization of useful game theoretic situations.

The Role of the Capital Market and the Purposes which it Serves

Abstract: A market provides a focus for the activities of buyers and sellers of a particular commodity or service. In the course of the dealings the price or series of prices is settled. The participants in the U.K. capital market include businessmen, central and local government, financial intermediaries such as insurance companies and pension funds, and private investors. The capital market has no confined location: it is in progress all over the land, wherever suppliers and users of capital get together to do business. Much business is transacted over the telephone, so that there need be no geographical site at all for certain activities. However, parts of the market are concentrated in certain well-known centres, the most renowned of these being the Stock Exchange at Throgmorton Street which deals in company securities and those issued by governments and local authorities.

Company‐Related Information: Some Ancillary Sources

Abstract: In this survey, we would be concerned, not so much with the sources that provide information directly on companies themselves, as on those which contain composite statistical and other types of data, often required in evaluating corporate and market performance. Some of them relate to corporate reorganizations and taxation, stock prices, price averages and indices, capital adjustments and business and financial ratios. We may also look at some books which explain the organization and functions of national and regional stock exchanges, stock market timing and forecasting techniques, statistical publications describing market activity, and some general guidebooks used often by investors.