Showing papers on "Stock exchange published in 1984"

Stock Prices and Social Dynamics

Abstract: The empirical evidence that is widely interpreted as supporting the efficient markets theory in finance actually does not rule out the possibility that changing fashions or fads among investors have an important influence on prices in financial markets. A model of the impact of such fashions on prices is proposed and used in an exploratory data analysis of the aggregate United States Stock Market in the 20th century. (This abstract was borrowed from another version of this item.)

The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions

Abstract: This paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co-movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.

Hedging Performance and Basis Risk in Stock Index Futures

Abstract: IN EARLY 1982, TRADING BEGAN at three different exchanges in futures contracts based on stock indexes. Stock index futures were an immediate success, and quickly led to a proliferation of new futures and options markets tied to various indexes. One reason for this success was that index futures greatly extended the range of investment and risk management strategies available to investors by offering them, for the first time, the possibility of unbundling the market and nonmarket components of risk and return in their portfolios. Many portfolio management and other hedging applications in investment banking and security trading have been described elsewhere1 ranging from use by a passive fund manager to reduce risk over a long time horizon to use by an underwriter to hedge the market risk exposure in a stock offering for one or two days. In considering the potential applications of index futures, it is clear that in nearly every case a cross-hedge is involved. That is, the stock position that is being hedged is different from the underlying portfolio for the index contract.2 This means that return and risk for an index futures hedge will depend upon the behavior of the "basis," i.e., the difference between the futures price and the cash price. Hedging a position in stock will necessarily expose it to some measure of basis risk-risk that the change in the futures price over time will not track exactly the value of the cash position. Basis risk can arise from a number of different sources, and is a more significant problem for stock index contracts than for other financial futures, like Treasury bills and bonds.3 The most apparent cause of basis risk is the nonmarket component of return on the cash stock position. Since the index contract is tied to the behavior of an underlying stock market index, nonmarket risk cannot be hedged. This is the essential problem of a cross-hedge. However, basis risk can be present even when the hedge involves a position in the index portfolio itself and there is no nonmarket risk. For one thing, returns to the index portfolio include dividends, while the index, and the index future, only track the capital value of the portfolio. Any risk associated with dividends on the portfolio will become basis risk in a hedged position. Still, dividends are fairly low and also quite stable, so this may not be a terribly important shortcoming.

Macroeconomics and Finance: the Role of the Stock Market

Abstract: The treatment of the stock market in finance and macroeconomics exemplifies many of the important differences in perspective between the two fields. In finance, the stock market is the single most important market with respect to corporate investment decisions. In contrast, macroeconomic modelling and policy discussion assign a relatively minor role to the stockmarket in investment decisions. This paper explores four possible explanations for this neglect and concludes that macro analysis should give more attention to the stock market. Despite the frequent jibe that "the stockmarket has forecast ten of the last six recessions," the stock market is in fact a good predictor of the business cycle and the components of GNP. We examine the relative importance of the required return on equity compared with the interest rate in the determination of the cost of capital, and hence,investment. In this connection, we review the empirical success of the Q theory of investment which relates investment to stock market evaluations of firms. One of the explanations for the neglect of the stock market in macroeconomics may be the view that because the stock market fluctuates excessively, rational managers will pay little attention to the market informulating investment plans. This view is shown to be unfounded by demonstrating that rational managers will react to stock price changes even if the stock market fluctuates excessively. Finally, we review the extremely important issue of whether the market does fluctuate excessively, and conclude that while not ruled out on a priori theoretical grounds, the empirical evidence for such excess fluctuations has not been decisive.

Divestiture, Market Valuation, and Strategy

Abstract: An empirical study of 78 divestitures examines the relationship between type of divestiture and financial market valuation. It was found that divestitures linked to corporate or business level stra...

The Ex‐Dividend Day Behavior of Stock Prices; A Re‐Examination of the Clientele Effect: A Comment

Abstract: IN A RECENT ARTICLE in this journal, Kalay [5] has written an extensive comment on our 1970 article [2] concerning "Marginal Stockholder Tax Rates and the Clientele Effect." While we are flattered that our article is viewed of sufficient importance to gain this attention 12 years after it was written, we do have reservations about Kalay's comments. We are principally concerned with his interpretations of relevant transaction costs and the role they play in setting equilibrium.

Change at the Exchange: The Causes and Effects of Deregulation

Abstract: THE Securities Acts Amendments of 1975 instructed the Securities and Exchange Commission (SEC) to outlaw fixed brokerage rates on the New York Stock Exchange (NYSE) and to eliminate some other anticompetitive rules. Until then the price agreements had been enforced by the SEC. These amendments eliminated pricing practices that had prevailed for 180 years. They were passed after ten years of political struggle among the NYSE, the Department of Justice, and the SEC. Academics had long criticized the SEC's toleration of fixed NYSE brokerage rates.1 They contended that the fixed commission rates were supracompetitive and that the price umbrella restricted trading, enriched brokers, and fostered economic inefficiency. In other words, they said, the NYSE was a cartel, and the SEC its enforcement arm. The few recent studies documenting some of the effects of the NYSE deregulation sup-

Political-Economic Cycles in the U.S. Stock Market

Abstract: (1984). Political-Economic Cycles in the U.S. Stock Market. Financial Analysts Journal: Vol. 40, No. 2, pp. 38-44.

A New Interpretation of the Onset of the Great Depression

Abstract: Over the 1919-1929 period, fluctuations in the value of stock trading on the New York Stock Exchange exercised statistically significant and economically important impacts on the demand to hold cash balances. The marked post-1925 rise in the volume and value of stock trading led to a measurable increase in the transactions demand to hold cash balances, an increase in demand not recognized or seriously discussed by individuals inside or outside of the system. Had it been recognized, it is unlikely that the Fed would have persisted in its antispeculative policies in 1928-1929, policies associated with rises in interest rates and the beginnings of a downturn in real activity in the second quarter of 1929. THE proposition that exchanges of assets in secondary markets might influence the transactions demand for money was debated extensively in the 1920s among English, German, and American monetary theorists. But in the late 1920s and early 1930s a consensus was reached: Although such effects were theoretically possible, they were empirically unimportant because of the very high and inexpensively flexible velocity in the financial circulation. This conclusion was reached on the basis of casual empiricism; the early investigators did not have access to inexpensive multiple regression analysis. I have recently tested the proposition by including a measure of transactions on the New York Stock Exchange in a regression explaining the monthly demand for a variety of monetary aggregates during the 1919-1929 period (131 observations), and I obtain statistically significant and economically important estimates of the influence of stock market trading on the transactions demand for money.' Six monetary aggregates were used as dependent variables, ranging from demand deposits in New York City to the Friedman/Schwartz M3 series. Righthand variables included, in addition to the lagged endogenous variable, seasonally adjusted industrial production times a wholesale price index (a GNP proxy), the prime commercial paper rate (4- to 6-month maturity), or the call loan rate on new securities, and the value of

Asset Exchanges and the Transactions Demand for Money, 1919-1929

Abstract: This paper addresses a general theoretical question - the appropriate specification of the transactions demand for money - as well as a particular historical question: what triggered the Great Depression? Theoretically, fluctuations in the volume and value of asset exchanges in secondary asset markets can influence the transactions demand for money independently of real output and interest rates, and ought to be integrated into the analysis of those forces perturbing the demand for money and shifting LM curves in the absence of monetary intervention. Empirically, I demonstrate that, over the years 1919-29, monthly fluctuations in the volume and value of trading on the New York Stock Exchange did influence the transactions demand for money independently of fluctuations in real output and interest rates. Moreover, in the context of relatively slow post-1925 growth rates of monetary aggregates, the unprecedented increase in the volume and value of such trading from the beginning of 1925 to October 1929 had the effect of shifting the LM curve persistently to the left. The failure of U.S. monetary authorities to accommodate thls surge in transactions demand, a failure unrecognized at the time, was associated with an antispeculative policy that drove real interest rates to very high levels in 1928-29, levels not approached again until the early 1980's. This deflationary impulse, larger than is apparent from a simple examination of monetary growth figures in relation to GNP growth, was the proximate cause of the downturn in real activity generally dated from August 1929.

The behaviour of Hong Kong stock prices

Abstract: The primary function of a stock market is to allocate resources to the most profitable investment opportunities. If stock prices provide accurate signals for resource allocation, firms are able to make correct production–investment decisions, and investors are able to choose the most suitable stocks for investment. These choices are only possible if the market is efficient, that is, if stock prices ‘fully reflect’ all available information. Hong Kong is now an international financial centre. Although Hong Kong's stock market is ranked as one of the five largest in the world in terms of turnover, little research has been devoted to the behaviour of its stock prices. This is a study of the efficiency of Hong Kong's stock market. It is based upon two widely accepted statistical tests, namely, serial correlation analysis and runs tests. Data used cover the daily prices of 28 major Hong Kong stocks over a period of four years from 1977 to 1980. The evidence is mixed; it does not provide clear support for the e...

The Role of the Stock Exchange in an Islamic Economy

Abstract: In an Islamic economy where interest bearing loans are prohibited and where direct participation in business enterprise, with its attendent risks and profit sharing, is encouraged, the existence of a well functioning Stock Exchange is very important. It would allow for the mobilization of savings for investment and provide means for liquidity to individual shareholders. However, existing Stock Exchanges in non-Islamic economies have many drawbacks. They generate practices such as speculation and fluctuations in share prices which are not related to the economic performance of enterprises. These practices are inconsistent with the teachings of Islam.

An Empirical Investigation of the Relationship Between Environmental Assessment and Corporate Performance.

Abstract: The overall economic performance of 28 corporations practicing environmental assessment in 1975 was compared against the performance of 22 non-practicing firms for the period 1975-1980. An external...

Stock Prices and Monetary Variables: The International Evidence

Abstract: (1984). Stock Prices and Monetary Variables: The International Evidence. Financial Analysts Journal: Vol. 40, No. 2, pp. 69-73.

Forecasting corporate revenue and profit: time‐series models versus management and analysts

Abstract: This paper reports on the forecast accuracy of nine models which have been used to describe the time-series of corporate revenues and profits. It also compares the performance of these models with that of management and financial analysts. All comparisons are carried out not only on the basis of prediction errors, but also by an analysis of the forecasting bias involved, and the specification of uncertainty. The data pertain to a representative sample of companies listed on the Amsterdam Stock Exchange.

Interest Rate Risk and the Stock Prices of Financial Institutions

Abstract: OST discussions of the effects of interest rate movements on the portfolios of financial institutions typically conclude that the relatively high and volatile interest rates of the past 15 years have placed many of these institutions in jeopardy of failing. The consensus of many of these discussions is that institutions with \" unbalanced \" portfolios and low capital are particularly susceptible to interest rate movements.' The purpose of this paper is to analyze the effect of interest rate changes on the relative value of financial institutions.' This issue is important not only to the owners, managers and employees of financial institutions but to monetary policvmakers as well. Monetary policy actions affect interest rates. If the viability of financial institutions is particularly sensitive to interest rate changes, monetary policymakers will want to take this effect into account. 'More correctly, it is unexpected changes in the interest rate that affect relative values. Any future change that is expected is reflected in current prices. Long-term interest rates are important determinants of stock prices, and changes in these interest rates can be characterized as unexpected (see footnote 15). Financial institutions intermediate many transactions between borrowers and lenders. In doing so, banks and savings and loans do not act merely as credit brokers, negotiating ct-edit transactions between borrowers and lenders. Rather, they borrow directly from some individuals and lend directly to others. These transactions make up the portfolio of the financial firm. In large part, the market value of the firm is determined by the net present value of its portfolio of assets and liabilities. Changes in the interest rate affect the firm's market value because they influence the present value of the assets and liabilities in the firm's portfolio. Since the interest rate is the price of the earlier availability of dollars, a change in the interest rate means that this price has changed. 3 For example, if the 'Since this paper is mainly concerned with changes in the whole complex of interest rates (i.e., changes that leave the term structure unaltered), \" the \" interest rate is used as a shorthand method of referring to the complex of interest rates,

Block Trading and Aggregate Stock Price Volatility

Abstract: (1984). Block Trading and Aggregate Stock Price Volatility. Financial Analysts Journal: Vol. 40, No. 2, pp. 54-60.

Financial disclosure regulation and indirect economic consequences: an analysis of the sales disclosure requirement of the 1934 securities and exchange act

Abstract: This study analyzes an indirect economic consequence of accounting regdations - that of inducing inter-firm wealth transfers. This analysis is applied to the sales disclosure requirement of the 1934 Securities and Exchange Act. Using daily returns to the New York Stock Exchange and over-the-counter stocks, it was found that when Congressional deliberations favored passage of the 1934 Act, mturns to h s which had previously disclosed sales significantly exceeded those of non-sales-disclosing firms. This result is consistent with a wealth transfer having occurred from the latter to the former through an unexpected shift in competitive advantage.

The stock market and the economy in 1988

Abstract: T his is my second effort on this subject. The first article was published in 1979.’ The principal purpose of the replay is to see if a better understanding of the more distant past (1952-1977) can be helpful in developing expectations about the future. What I perceived to be the key factors five years ago were used to develop a 10-year (1978-1988) stock market forecast. The terminal date was October 15, 1988. My assumptions were indicated for each of the key factors. The primary focus was on the S&P 400, for which my ”most likely” forecast for 1988 was 343 and which was 113 at the time of writing. On October 15, 1983, we had reached the halfway point in the forecast period. In view of developments during these past five years, what changes would I suggest in the general approach, the stock price valuation model, the assumptions made with respect to the key factors, and, finally, in the forecast itself? This type of retrospective examination of earlier views has been a vital part of my own learning process. Furthermore, in 1966 I went on record to state that the stock recommendations of financial analysts should be subjected to comprehensive hindsight evaluation.2 The same principle would seem applicable to anyone who has the temerity to engage in stock market forecasting.

Ex‐ante expectations and portfolio selection

Abstract: This paper examines differences among investors who are relatively optimistic/pessimistic regarding the performance of the stock market in terms of portfolio composition and trading activity. Findings indicate that investors more pessimistic regarding the stock market are likely to: (1) channel their funds into leveraged and tax advantageous investments, and (2) trade less frequently on the stock market.