Showing papers on "Stock exchange published in 1979"

The Investment Performance of Mutual Funds: An Empirical Investigation of Timing, Selectivity, and Market Efficiency

Abstract: The empirical evidence in Jensen (1968, 1969) is consistent with the joint hypothesis that the Sharpe (1964)-Lintner (1965)-Mossin (1966) (hereafter referred to as SLM) capital asset pricing model is valid and that mutual fund managers on average are unable to forecast future security prices. These studies have been cited as support for the strong form of the Efficient Markets Hypothesis (EMH);' that is, whether any investor has monopolistic access to any information relevant for price formation. In recent years the capital asset pricing model has undergone extensive empirical investigation. Friend and Blume (1970) generated random portfolios from New York Stock Exchange securities to determine the usefulness of risk-adjusted performance measures. They discovered that these performance measures are dependent upon This paper evaluates mutual fund stock selectivity performance and the implications for the Efficient Markets Hypothesis (EMH) when management is simultaneously engaged in market timing activities. Both the SharpLintner-Mossin and Black models of market equilibrium are employed as benchmarks. The empirical evidence indicates that many of the funds in the sample significantly change their risk levels during the measurement interval. This behavior also results in significantly different stock selectivity performance and portfolio diversification. The evidence on selectivity performance pertinent to the EMH is mixed. * The authors are grateful to A. Chen, D. Hester, J. Hickman, N. Kiefer, E. H. Kim, P. Lau, M. Miller, E. Parzen, L. Rosenthal, G. Schlarbaum, M. Scholes, and especially M. Hartley and R. Haugen for helpful comments and discussions. This paper has also benefited from comments by an anonymous referee and discussions with participants of the Finance Workshops at the University of Chicago, State University of New York at Buffalo, and the University of Wisconsin-Madison. The first author was visiting the Graduate School of Business at the University of Chicago during this project and gratefully acknowledges their financial support. 1. For example, see Fama 1970, pp. 410-13.

Marketplace Fragmentation, Competition, and the Efficiency of the Stock Exchange

Abstract: on the volatility of daily returns for those stocks. Off-board trading potentially has two opposite effects. The first is a competitive effect. Greater off-board trading increases the number of marketplaces and dealers transacting the listed stocks. Increased competition from these marketplaces and dealers might stimulate the exchange to supply better or cheaper transactions. Specialists might narrow their bid-ask spreads (the prices of marketability) and trade more against price movements, damping daily stock returns fluctuations. The second is a fragmentation effect: off-board trading "fragments" the market for NYSE-listed stocks. A given group of stocks could be traded primarily on an exchange or in some other form of marketplace. If an exchange has lower prices of marketability and lower daily returns variance for those stocks than would other marketplace forms, the reason would be that the exchange centralizes transacting. Off-board trading reduces exchange trading volume, which would reduce exchange efficiency, if centralization has economies of scale. Prices of marketability might be greater. Daily stock returns might have a larger variance. The net effect of increasing off-board trading might, therefore, be to increase competition by reducing exchange efficiency. On the other hand, reducing fragmentation to protect marketplace efficiency might reduce competition. The Special Study [16] recognized that any assessment of the social value of multiple marketplaces requires an appraisal of the trade-off between the fragmentation and competitive effects.2 Recently, the potential trade-off between the competitive and fragmentation effects of off-board trading has affected the Congressional and the Securities and Exchange Commission (SEC) reorganization

The risk-return relationship and stock prices

Abstract: According to the current state of knowledge in finance, the expected rate of return adjusted for risk is independent of the stock price. The basic proposition of the capital asset pricing model (CAPM) is that the expected rate of return for each security is a function of the “risk” of that security, and that this risk is measured by the contribution of the security to the variability of the market portfolio. The implication of the CAPM is that knowing the price of a security perse will add nothing to predicting its expected rate of return.

Market Makers and the Market Spread: A Review of Recent Literature

Abstract: Academic attention has increasingly been focused on the operation of security markets. This is largely due to the impetus provided by the Institutional Investor Study (see U.S. Securities and Exchange Commission [35]), by the Securities Act Amendments of 1975 whereby Congress mandated the development of a national market system (NMS), and by the expanding computer technology of the 1970s. Not surprisingly, much of the attention has focused on the role of dealers and stock exchange specialists as market makers. The literature has generally viewed these market makers as suppliers of immediacy to ordinary traders, and has taken the bid-ask spread to be the price they impose for the provision of this service.

Heteroscedasticity, R2 and Thin Trading on the Toronto Stock Exchange

Abstract: IT IS FREQUENTLY REPORTED that the transactions on the Toronto Stock Exchange (TSE) are irregular and infrequent so the prices quoted as closing on the exchange are often unreliable. This has implications for a researcher using the Market Model (MM) and/or investigating the capital asset pricing model (CAPM) in a Canadian context. These models, which were originally proposed by Markowitz [20] and subsequently modified by others (Sharpe [32], [33], Lintner [19], Mossin [25], and Fama [8]) propose a relationship between the return on a security and the return on a market portfolio. The market model (henceforth referred to as MM) in its traditional form can be written1:

A Proposal for Indexes for Traded Call Options

Abstract: IN RECENT YEARS OPTIONS exchanges were organized in the U.S.A. (Chicago Board Options Exchange, AMEX, PBW Exchange, Midwest Exchange, Pacific Exchange) and Canada (Montreal Options Exchange, Toronto Exchange). A new market for trading options on leading European stocks was recently organized by the Amsterdam stock Exchange. The growing interest in options as an investment medium is apparent from the ever-increasing volume of trading on the exchanges and the plans to open new trading floors. Whereas for the stock markets there exist a few well accepted indexes, there are no parallels for the options markets.' The procedures for the construction of stock indexes2 cannot be applied directly to options because options are shortlived assets. The purpose of this paper is to develop indexes for traded call options. In Section 2 the characteristics of call options and the factors affecting their values over time are described. In Section 3, a general overview is provided of the use of indexes in describing economic phenomena. Both the objectives and the limitations of indexes are discussed. These principles are applied to the specific case of an option index, and the possible objectives of such an index are discussed. Two performance options indexes are proposed, one for the call buyer, and the other for the covered call writer.3 These indexes summarize the behavior of two popular strategies for trading options.4 Moreover, the two indexes reflect the two facets of call options: leverage and insurance.5 The procedure of constructing the indexes is specified in Section 4 and evaluated in Section 5V6 Finally, in Section 6, the potential uses and misuses of the proposed indexes are summarized.

The disclosure of information by companies

Abstract: The paper presents some results relating to the degree of disclosure of selected important items of information in company annual reports. The research involved deriving an index of disclosure and this was then applied to the annual reports of 100 stock exchange quoted companies. The general conclusion was that disclosure levels are very low and that there is a big demand for greater amounts of information to be released in annual reports.

Spectral analysis of stock market prices

Abstract: The purpose of this article is to apply spectral analysis to six European Stock markets (Germany, France, Italy, The Netherlands, Belgium and the United Kingdom) and the New York Stock Exchange, over the period 1969–1976. For neither series do the estimates suggest deviations from randomness. However, a simple filter rule shows that substantial profits could have been made by a trader in the six European markets. This demonstrates that for testing market efficiency, spectral analysis is far from the best and the conclusion tends to support the hypothesis of ‘white-noise’ in imperfect markets. Cospectral analysis shows the lead and lag relations between the various stock markets under study.

The ABCs of Trading on a National Market System

Abstract: * The Securities Acts Amendments of 1975 call for the development of a national market system for securities. Proposals designed to meet this requirement generally fall into one of two categories. The first envisions a network of conventional stock exchanges connected by electronic means (e.g., the Intermarket Trading System, or ITS). The second envisions a computer-assisted market mechanism that would replace the "auditory" trading arenas of traditional exchanges with one nationwide "visual" trading arena. The New York Stock Exchange (NYSE) has asserted that a computer-assisted market mechanism could not handle the myriad orders currently handled on conventional exchanges. Within either arena, however, orders have no standing. Before any order can be executed, the agent must translate it into a bid or offer at a specific price. Thus, whether the trading arena is the traditional stock exchange floor or a computer-assisted market, it need not accommodate orders only bids and offers. One of the prime specifications of the '75 Act is that the national market system enable brokers to execute investors' orders in the best market. Under current NYSE rules, only the best bids and offers on the specialist's book are broadcast to other exchanges and to the public. Furthermore, participants on the floors of traditional exchanges find it difficult to mix monitoring of ITS display screens with their trading and time consuming to execute an order on another exchange via ITS. In the computer-assisted visual trading arena, the best bid would always have the opportunity to meet the best offer. The securities industry is understandably hesitant to accept alternatives that depart radically from the current system of exchange floors. Yet now is the time to find out, through experimentation, whether the visual arena is workable. >

An empirical analysis of the interrelationships among equity markets under changing exchange rate systems

Abstract: The purpose of this article is to investigate the interrelationships between seven stock markets (Germany, France, Italy, the Netherlands, Belgium, the United Kingdom and U.S.A.) over the period 1969–1976. The impact of flexible exchange rates on the various correlation coefficients is shown to be rather low. The results show a trend towards higher segmentation between the various stock exchanges, which means larger opportunities for international diversification. Finally the relationships between stock index variations and exchange rate fluctuations are analyzed.

An assessment of risk in thinner markets: the Belgian case

Abstract: This study uses the Market Model to assess the risk of securities in a thinner stock market, the Brussels Stock Exchange (Belgium) and compares the results to similar findings in French and U.S. stock exchanges.

Do Common Stock Quality Ratings Predict Risk

Abstract: o Can quality ratings of the type provided by Standard & Poor's predict the subsequent price behavior of common stocks? The author ranked all New York Stock Exchange stocks rated by Standard & Poor's on the basis of the latter's quality ratings and constructed portfolios based on these rankings. He then examined the degree of correspondence between the original quality rankings of the portfolios and their subsequent price risk, employing as his risk measures beta, which measures sensitivity to general market fluctuations, and the variance of monthly rates of return, which incorporates both market and non-market risk. The author found perfect correspondence between quality ratings and subsequent beta, and nearly perfect correspondence between ratings and variance. Furthermore, the dispersion of returns on the individual stocks within each portfolio displayed nearly perfect correspondence with the portfolio's average quality ranking. ,

An assessment of risk in thinner markets: the Belgian case

Abstract: This study uses the Market Model to assess the risk of securities in a thinner stock market, the Brussels Stock Exchange (Belgium) and compares the results to similar findings in French and U.S. stock exchanges.

The Revised Dow Jones Industrial Average: New Wine in Old Bottles?

Abstract: * The Dow Jones Industrial Average is neither a reliable indicator of market sentiment nor an accurate measure of market performance over time. Because each component asset's contribution to the index is proportional to its price, the DJIA, like any price-weighted index, tends to be dominated by a few companies. In fact, 10 companies account for over half the value of the current average; the DJIA is thus more representative of the price movements of these few companies than it is of the price movement of the stock exchange's overall list. Furthermore, weightings in the average change as share prices change; the instability of the index over time makes it a poor indicator of long-term market movements. The techniques of modern portfolio theory allow us to measure with some precision the extent of the DJIAs instability over time and its divergence from general market movements. An index that purports to indicate general price movements should exhibit the same response as the market to changes in the economic environment. The ideal index would have the same level of systematic risk, or beta, as the market as a whole It should also exhibit a low level of residual risk relative to the market. An index that is concentrated in certain sectors or industry groups will be inadequately diversified. The DJIA has a lower systematic risk level than either the New York Stock Exchange or the Standard & Poor's 500 index. It will thus tend to underperform the market over the long term, since riskier stocks are expected to outperform less risky ones. The residual risk of the DJIA is substantially greater than either the SP its residual risk level is comparable to that of a bank pooled fund. While the recent introduction into the index of IBM and Merck reduced the DJIAs residual risk somewhat, the index is still heavily concentrated in large capitalization stocks relative to the NYSE list. The DJIA does have one invaluable virtue-timeliness. Each of its 30 stocks trades so frequently that it is possible to compute the value of the index from transactions executed within the last few minutes. The Dow is uniquely useful as an index of short-term market movements. l

The Myth of Self-Regulation or the Dangers of Securities Regulation without Administration: The Indian Experience

Abstract: This article discusses regulation of the securities industry in India. It culminates a year's study which utilized the resources of the Securities and Exchange Commission (SEC), the Library of Congress and the World Bank [I]. It also involved a sixweek stay in India visiting the four largest stock exchanges and personal interviews with over seventy individuals whose vocations cover almost every aspect of the securities industry [2]. Motion pictures were taken and studied of trading on the floors of the Bombay, Calcutta and Madras exchanges. The intention here is not to write a monograph merely describing regulations affecting certain securities-related topics. An attempt is made to identify, describe, discuss and analyze those regulations which affect securities regulation in the narrower sense; that is, with a view towards enforcement. The enforcement programs (or lack thereof) and their effectiveness are also analyzed and certain recommendations made [3]. The author realizes that developing countries in particular must establish a regulatory framework based at least in part upon economic considerations. The paper will not explore such considerations, and to the extent possible they are generally divorced from the discussion herein.

Capitalisation Changes and Share Price Movements: New Zealand Evidence

Abstract: This paper examines the reaction of prices on the New Zealand Stock Exchange to the announcement of two classes of capitalisation change: bonus issues and rights issues. The reaction is rapid and unbiased. Capitalisation changes are almost always accompanied by effective dividend increases, which can be interpreted as proxies for relevant parameters of firms' probability distributions of future cash flows. The evidence is consistent with capital market efficiency.

The pricing of industrial shares on The Johannesburg Stock Exchange

Abstract: This paper reviews the major features of modern investment theory and illustrates them with examples drawn from The Johannesburg Stock Exchange (“JSE”). The cardinal relationship that emerges from this theory is embodied in the Capital Asset Pricing Model (“CAPM”) which states how assets are priced in terms of their beta coefficients. A methodology is then described which enables the parameters of this model to be estimated for the JSE.

A Simple Counter Example to the Random Walk Theory

Abstract: * That New York Stock Exchange prices should follow a random walk has now become dogma in academic finance. The standard argument is simple: Any non-random fluctuations in price (other than a steady upward drift approximating the risk-adjusted rate of return) would be exploited by speculators, who would buy before an expected rise in price or sell short before an expected fall, eliminating any predictable fluctuations and making all price changes random. This argument assumes, however, that speculators are able to sell short as readily as they can buy long. Under NYSE rules, the lender of the stock retains the proceeds of a short sale and pays no interest on them. The speculator can show a profit from a short sale only if the stock's total return (dividends plus appreciation) is less than zero. Thus a structural characteristic of the equities market namely, the fact that short sellers do not receive prompt use of the proceeds of the sale prevents rational speculators from acting to rationalize stock prices in cases where expected return is more than zero but less than the rate of return from comparably risky securities. >

Abstract: Stock Returns over Open and Closed Trading Periods

Abstract: Random stock returns result from irregular vibrations of a share's price through time. Divide any arbitrary time interval into two mutually exclusive and exhaustive sets. One set contains time periods when trading is formally open on an organized market such as the New York Stock Exchange (NYSE). Its complement contains closed trading time periods, i.e., when the NYSE is not open. Conventional theory assumes that the same return process operates over all periods in both sets. No allowance is made for possible differences in the return sequence between sets or among time periods within each set. There are reasons to assume that such differences may exist. For example, during a trading day, stock prices fluctuate as orders are executed. During nights, weekends, holidays, and holiday-weekends there are no transactions, but a share's value from close to open on the next trading day may still change to reflect revised expectations about a firm's productivity. In fact, capital changes and important news items are usually announced after the stock exchanges close.

Financial Institutions and The Stock Market

Abstract: Institutional investors—insurance companies, pension funds, investment trust companies and unit trusts—have increased significantly and persistently their ownership of British industry. At the end of 1977 they owned approximately 46 per cent of the ordinary shares in UK quoted companies and in recent years have accounted for over 50 per cent of stock market turnover in UK equities. Their presence in the stock market has been associated with their ability to influence share prices, decide the outcome of takeover battles, and trade outside the London Stock Exchange. As major shareholders in public companies they have been encouraged to participate in managerial decision‐making. For corporate management, the growth of institutional shareholdings provides opportunities to utilise their voting power in takeover situations, encourage their support for the market value of the company, and use financial institutions as sources of new capital.

Skewness and Data Errors: An Australian Replication

Abstract: The possibility of errors exists in all data bases although checks are usually wade to find and eliminate them. Beedles and Simkowitz identified potential errors in recording prices of New York Stock Exchange securities by studying their measured relative skewness. A similar procedure is applied to Brown's file of Melbourne share returns, with the results indicating that it is virtually error free.

Simulating a central securities market

Abstract: On June 4, 1975, the Securities Act Amendment was passed into law mandating the future of securities trading: there would be one central market for the trade of all stocks and bonds - a single national market system.Although numerous proposals on the criteria for participation, the rules of trading and other similar problems were put forth, little effort was directed towards systematically evaluating the results of suggested alternatives. TRADE4 is an initial attempt at providing a framework for such an analysis: it is a model of a trading system.With the joint cooperation of the IBM New York Securities Branch Office and the New York Stock Exchange, the model was developed in the form of a computer program written in APL/SV (an interactive language supported by IBM).