Showing papers on "Stock exchange published in 1988"

The Great Crash and the Onset of the Great Depression

Abstract: This paper argues that the collapse of stock prices in October 1929 generated temporary uncertainty about future income which caused consumers to forego purchases of durable and semidurable goods in late 1929 and much of 1930. Evidence that the stock market crash generated uncertainty is provided by the decline in confidence expressed by contemporary forecasters. Evidence that this uncertainty affected consumer behavior is provided by the fact that spending on consumer durables and semidurables declined immediately following the Great Crash and by the fact that there is a negative historical relationship between stock market variability and the production of consumer durables in the prewar era.

Why Does Stock Market Volatility Change Over Time

Abstract: This paper analyzes the relation of stock volatility with real and nominal macroeconomic volatility, financial leverage, stock trading activity, default risk, and firm profitability using monthly data from 1857-1986. An important fact, previously noted by Officer [l973], is that stock return variability was unusually high during the 1929-1940 Great Depression. Moreover, leverage has a relatively small effect on stock volatility. The amplitude of the fluctuations in aggregate stock volatility is difficult to explain using simple models of stock valuation.

Withdrawn Security Offerings

Abstract: We examine the stock price behavior associated with public offerings of common stock and convertible debt that are withdrawn by the issuing firm, as well as the stock price behavior associated with completed offerings. We find that stock returns are negative in the period from the announcement to the withdrawal, and are statistically insignificant from the announcement to the issuance. Stock returns are positive at the withdrawal and negative at the issuance. Furthermore, the average stock returns associated with withdrawals are significantly different from zero only when the reported reason for the withdrawals is unfavorable market conditions. Our evidence suggests that managers' decisions to withdraw equity offerings depend on recent stock price behavior, and that managers' decisions convey information about firm value to market participants.

The theory of rational bubbles in stock prices

Abstract: Free disposal of equity, which directly rules out the existence of negative rational bubbles in stock pric es, also imposes theoretical restrictions on the possible existence o f positive rational bubbles. The analysis in this paper shows that a positive rational bubble can start only on the first date of trading of a stock. Thus, the existence of a rational bubble at any date woul d imply that the stock has been overvalued relative to market fundame ntals since the first date of trading, and that prior to the first da te of trading the issuer of the stock and potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued. Copyright 1988 by Royal Economic Society.

International Listings and Stock Returns: Some Empirical Evidence

Abstract: Segmentation of capital markets produces incentives for firms to adopt countermeasures, one of which is dually listing their stocks on foreign capital markets. In this paper, the behavior of stock returns surrounding such international listings is examined for a sample of firms. Assuming that the capital markets are either completely or “mildly” segmented beforehand, it is hypothesized that the international listing of a security should, in general, accompany a reduction in its expected return. The sample reveals evidence consistent with this hypothesis.

The Total Cost of Transactions on the NYSE

Abstract: This paper develops a measure of execution costs (market impact) of transactions on the NYSE. The measure is the volume-weighted average price over the trading day. It yields results that are less biased than measures that use single prices, such as closes. The paper then applies this measure to a data set containing more than 14,000 actual trades. We show that total transaction costs, commission plus market impact costs, average twenty-three basis points of principal value for our sample. Commission costs, averaging eighteen basis points, are considerably higher than execution costs, which average five basis points. They vary slightly across brokers and significantly across money managers. Though brokers do not incur consistently high or low transaction costs, money managers experience persistently high or lost costs. Finally, the paper explores the possible tradeoff between commission expenditures and market impact costs. Paying higher commissions does not yield commensurately lower execution costs, even after adjusting for trade difficulty. We cannot determine whether other valuable brokerage services are being purchased with higher commission payments or whether some money managers really are inefficient consumers of brokerage trading services. RECENT YEARS HAVE WITNESSED an explosion of institutional trading on the nation's stock exchanges. In 1970, only 17,000 trades of blocks of 10,000 or more shares were done on the New York Stock Exchange; these accounted for merely fifteen percent of total volume. In 1984, there were 433,000 such block trades, accounting for fifty percent of volume. These trades are costly and, in an informationally efficient stock market, cannot help but have a deleterious effect on the investment performance of institutional investors.

An empirical study of selected factors influencing the decision to list on foreign stock exchanges

Abstract: The growing internationalization of capital markets suggests that an increasing number of firms perceive the benefits of listing their stocks on foreign exchanges as outweighing the related costs. Many other firms, however, still limit listing their securities to their domestic exchanges. This study investigates the motives for listing abroad. The empirical analyses, based on data on 481 multinationals, indicate significant association between the likelihood of listing abroad and 1) the relative size of a firm in its domestic capital market, 2) the ratio of foreign to total sales.

What Moves Stock Prices

Abstract: This paper estimates the fraction of the variance in aggregate stock returns that can be attributed to various kinds of news. First, we consider macroeconomic news and show that it is difficult to explain more than one third of the return variance from this source. Second, to explore the possibility that the stock market responds to information that is omitted from our specifications, we also examine market moves coincident with major political and world events. The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases, casts doubt on the view that stock price movements are fully explicable by news about future cash flows and discount rates.

The Impact of Announcements of Corporate Illegalities on Shareholder Returns

Abstract: The article presents information on a study which determined the reaction of the stock market to a public announcement that a corporation has been caught allegedly committing a crime. The author de...

Does Futures Trading Increase Stock Market Volatility

Abstract: (1988). Does Futures Trading Increase Stock Market Volatility? Financial Analysts Journal: Vol. 44, No. 1, pp. 63-69.

Response of Hourly Stock Prices and Trading Volume to Economic News

Abstract: This paper examines hourly stock returns and trading volume response to announcements about the money supply, consumer price index (CPI), producer price index, industrial production, and the unemployment rate. The empirical results indicate that surprises in announcements about money supply and CPI are significantly associated with stock price changes. The announcements of the other three variables do not affect stock prices significantly. Trading volume is not affected by any of the five economic variable announcements, indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements. The spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so. Copyright 1988 by the University of Chicago.

The performance of unseasoned new equity issues-cum-stock exchange listings in Australia☆

Abstract: The market behaviour of unseasoned new issues of common stock at the time of initial listing and during the period following initial listing on the Sydney Stock Exchange is investigated. The results indicate large and widespread initial returns to the new issue-cum-listing process. The average aftermarket performance was negative but was not statistically significant. We suggest that the joint process of initial issue-cum-listing in Australia, the listing requirements of the Australian Associated Stock Exchanges and the vesting of allocation rights to the issue in the broker, together with barriers to entry to stockbroking in Australia, provided the market structure which facilitated underpricing of the new issues.

Stock prices, money supply, and interest rates: the question of causality

Abstract: The purpose of this study is to examine the statistical relationship between the supply of money and stock price levels and between the level of interest rates and stock prices. The current literature in financial economics offers differing opininon on each of these relationship. This research addresses a significant aspect of this debate by examining the direction of causality between the money supply, stock prices and interest rates. Using Granger–Sims' test for determining unidirectional causality, we find that the relationship between the money supply and stock prices is characterized by a feedback system, with money supply causing some of the observed variations in the stock price levels and vice versa. With respect to the relationship between stock prices and interest rates, the results are not as conclusive. In this instance, the causality seems to be mostly running from interest rates to stock prices, and not the other way around.

The Effects of Financial Disclosure Levels on Firms' Choices among Alternative Foreign Stock Exchange Listings

Abstract: Firms are increasingly adopting a global perspective. Nowhere is this more evident than in the accelerating internationalization of the world's financial capital markets. In just five years the dollar volume of debt and equity securities placed annually by firms outside of their national borders has increased by 900%.' In the US, primary offerings of foreign debt and equity have averaged over $5 billion per year since 1975. Between 1974 and 1984, the dollar volume of foreign stocks traded in secondary markets in the US rose 839%. A recent survey lists 472 companies as having active international trading in their equity securities. Once a firm decides to list its equity securities on a foreign exchange, available evidence suggests that the choice of listing location(s) is not random. This study addresses this question by presenting empirical evidence on the cross-sectional association between the financial disclosure levels of nine major stock exchanges (in eight countries) and the observed exchange choices of a sample of 207 US and non-US firms whose equity securities are listed on at least one foreign exchange. We interpret "financial disclosure" broadly to include both mandated accounting, listing and regulatory requirements and voluntary disclosures dictated by the expectations of market participants. Examining large firms with at least one foreign listing allows us to more effectively control for factors motivating firms' decisions to list abroad and to concentrate on factors influencing choices among alternative foreign exchange listings. Results from univariate and multivariate tests are consistent with financial disclosure levels influencing foreign exchange listing decisions.

Intradaily Price‐Volume Adjustments of NYSE Stocks to Unexpected Earnings

Abstract: The speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price-volume transactions data. A differential price-adjustment process was observed, with stocks having large, positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises. Volume, transaction frequency, and size were found to be directly related to the absolute degree of surprise, but very favorable earnings-surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade. THE STOCK MARKET'S MICROSTRUCTURE has received increasing attention from researchers, especially from an empirical perspective, as transaction data on prices and volume have become more readily available.1 An important subset of this research has been the study of stock price adjustments to significant news events. Specifically, publicly announced information with economic content should be quickly reflected in prices in an unbiased manner. This paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes, trading volume, and transaction frequency and size. We examine the transaction-to-transaction and time-series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements. The "degree of surprise" is measured by a comparison of actual with forecasted earnings for 325 New York Stock Exchange (NYSE) firms. These firms are subdivided into five earnings-surprise categories in order to determine whether the speed and path of their price-volume adjustment processes are different. One question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different. Another is whether any adjustment is distinguished by a few large trades or a large number of smaller

Ex-dividend Stock Price Behavior and Arbitrage Opportunities

Abstract: This paper investigates the relation between ex-dividend stock price behavior and arbitrage oppor tunities. In a continuous trading, frictionless economy, the authors demonstrate that it is possible for the ex-dividend stock price drop to differ from the dividend, and still short-term traders cannot gene rate arbitrage profits. The argument is independent of transactions c osts. The relevance of this insight to estimating the marginal tax br acket based on ex-dividend stock price drops is explored. Furthermore , this insight is also applied to the area of option pricing in which the special class of escrowed dividend stock price processes is stud ied. The authors show that most elements from this class of stock pri ce processes generate invalid option-pricing formulas. Copyright 1988 by the University of Chicago.

The Anatomy of a Stock Market Winner

Abstract: (1988). The Anatomy of a Stock Market Winner. Financial Analysts Journal: Vol. 44, No. 2, pp. 16-28.

Are National Stock Markets Linked

Abstract: .i ‘ALYSTSgenerally agree that national asset markets have become more integrated in recent years. This process began with the relaxation of controls on capital movements in the T950s and was followed, during the last decade or so, by the gradual relaxation of exchange controls. Recently, substantial improvements also have been made in computer and communication technology that have lowered the cost of international inFormation flows arid cross—border financial transactions.’

On Fiscal Policy and the Stock Market

Abstract: This paper provides some empirical evidence on the relationship between aggregate quarterly stock prices and other macro variables, including measures of monetary and fiscal policy in Canada. The results indicate the presence of significant lags in the reaction of stock prices to fiscal policy moves. To the extent that a proxy for the fiscal policy effect on required (expected) return to capital was included in the model, such a finding conflicts with the stock market efficiency hypothesis. Further tests also suggest that anticipated and unanticipated fiscal policy changes have significant lagged relationships with current stock prices. The Canadian stock market, therefore, appears to have been inefficient with respect to available information on fiscal policy. Copyright 1988 by Ohio State University Press.

The impact of union-sponsored boycotts on the stock prices of target firms

Abstract: An empirical analysis of the impact of union-sponsored boycotts on the stock prices of target firms strongly suggests that union boycott announcements initially lead to economically and statistically significant losses in the stock prices of the target firms. However, this short-term price decline is almost completely erased by rebounds in stock prices over the ensuing 15 trading days.

Different in Name Only? The London Stock Exchange and Foreign Bourses, c.1850–1914

Abstract: (1988). Different in Name Only? The London Stock Exchange and Foreign Bourses, c.1850–1914. Business History: Vol. 30, No. 1, pp. 46-68.

Investor Behavior in the October 1987 Stock Market Crash: the Case of Japan

Abstract: In a questionnaire survey we asked Japanese institutional investors to recall what they thought and did during the worldwide stock market crash in October, 1987. The results confirm that the drop in U. S. stock prices was the primary factor on their minds, and other news stories in the United States dominated Japanese news stories. A comparison with an earlier survey of U. 5. institutional investors at the time of the crash (Shiller [1987])shows a remarkable similarity between Japanese and U. S. institutional investors in a number of attitudinal and behavioral dimensions. The results suggest that events in the United States were the proximate cause of the crash in Japan, but that the transmission mechanism of the crash was very similar in both countries.

Underpricing of Newly Issued Bonds: Evidence from the Swiss Capital Market

Abstract: The pricing of newly issued bonds on the Swiss capital market is investigated over the years 1980-1982. The results reveal a slight underpricing of new bonds at the issue date that is roughly equal to the difference in transactions costs between the markets for new and seasoned bonds. Underpricing is no longer observed when the new bonds start to be traded on the stock exchange, that is, after about two days. Tests of several hypotheses show that unexpected changes in interest rates over the offering period explain part of the underpricing. THE CAPITAL ACQUISITION PROCESS of firms has been the subject of intensive research in finance.1 The pricing of newly issued securities is one of the central topics in this area. Several studies for the bond market find systematic and partly persistent underpricing and therefore higher returns for new bonds relative to seasoned bonds. The term "seasoning process" is generally used to describe this phenomenon.2 Typically, yields to maturity or holding-period returns of either individual new bonds or portfolios of new bonds are compared to portfolios of existing bonds. So far, only data from the United States have been evaluated. This study extends previous research by investigating observations from the Swiss capital market. Due to different institutional characteristics, various hypotheses can be tested in a more revealing way. In order to allow a reliable identification of the seasoning process, individual new and seasoned bonds are selected so that they are identical in as many relevant characteristics as possible. Holding periods are defined over shorter time spans than commonly used in the literature, leading to a more exact estimate of the persistence of systematic differences in returns. The paper is organized as follows. The methodology underlying the empirical work is developed in Section I. Section II discusses the institutional setting and the data base. The empirical importance of the seasoning process is documented in Section III. Various explanations and their respective test results are presented in Sections IV and V. Some conclusions complete the paper. * Study Center Gerzensee, Foundation of Swiss National Bank and Bank Pictet & Co., Geneva, respectively. The comments by J. Williams as well as by participants at the 13th Annual Meeting of the European Finance Association, Dublin 1986, are gratefully acknowledged. The unusually detailed suggestions by two referees resulted in a significant improvement of the paper.