Showing papers on "Stock exchange published in 1990"

Stock Returns, Expected Returns, and Real Activity

Abstract: Measuring the total return variation explained by shocks to expected cash flows, timevarying expected returns, and shocks to expected returns is one way to judge the rationality of stock prices. Variables that proxy for expected returns and expectedreturn shocks capture 30% of the variance of annual NYSE value-weighted returns. Growth rates of production, used to proxy for shocks to expected cash flows, explain 43% of the return variance. Whether the combined explanatory power of the variablesabout 58% of the variance of annual returns-is good or bad news about market efficiency is left for the reader to judge. STANDARD VALUATION MODELS POSIT three sources of variation in stock returns: (a) shocks to expected cash flows, (b) predictable return variation due to variation through time in the discount rates that price expected cash flows, and (c) shocks to discount rates. Many studies examine these three sources of return variation. Fama (1981), Geske and Roll (1983), Kaul (1987), Barro (1990), and Shah (1989) find that large fractions (often more than 50%) of annual stock-return variances can be traced to forecasts of variables such as real GNP, industrial production, and investment that are important determinants of the cash flows to firms. There is also evidence that expected returns (and thus the discount rates that price expected cash flows) vary through time (for example, Fama and Schwert (1977), Keim and Stambaugh (1986), Campbell and Shiller (1988), and Fama and French (1988, 1989)). Finally, French, Schwert, and Stambaugh (1987) find that part of the variation in stock returns can be traced to a "discount-rate effect," that is, shocks to expected returns and discount rates that generate opposite shocks to prices. Measuring the total return variation explained by a combination of shocks to expected cash flows, time-varying expected returns, and shocks to expected returns is a logical way to judge the efficiency or rationality of stock prices. Although the three sources of return variation have been studied separately, there is little evidence on their combined explanatory power. Such evidence is a major goal of this paper. The evidence says that variables that measure time-varying expected returns and shocks to expected returns capture about 30% of the variance of annual real returns on the value-weighted portfolio of New York Stock Exchange (NYSE) stocks. Future growth rates of industrial production, used to proxy for shocks to

Stock market prediction system with modular neural networks

Abstract: A discussion is presented of a buying- and selling-time prediction system for stocks on the Tokyo Stock Exchange and the analysis of internal representation. The system is based on modular neural networks. The authors developed a number of learning algorithms and prediction methods for the TOPIX (Tokyo Stock Exchange Prices Indexes) prediction system. The prediction system achieved accurate predictions, and the simulation on stocks trading showed an excellent profit

The Stock Market Investments: Is the Market a Sideshow?

Abstract: RECENT EVENTS and research findings increasingly suggest that the stock market is not driven solely by news about fundamentals. There seem to be good theoretical as well as empirical reasons to believe that investor sentiment, also referred to as fads and fashions, affects stock prices. By investor sentiment we mean beliefs held by some investors that cannot be rationally justified. Such investors are sometimes referred to as noise traders. To affect prices, these less-than-rational beliefs have to be correlated across noise traders, otherwise trades based on mistaken judgments would cancel out. When investor sentiment affects the demand of enough investors, security prices diverge from fundamental values. The debates over market efficiency, exciting as they are, would not be important if the stock market did not affect real economic activity. If the stock market were a sideshow, market inefficiencies would merely redistribute wealth between smart investors and noise traders. But if the stock market influences real economic activity, then the investor sentiment that affects stock prices could also indirectly affect real activity.

Direct costs and violation of priority of claims

Abstract: I present new evidence on the direct costs of bankruptcy and violation of priority of claims. In a sample of 37 New York and American Stock Exchange firms that filed for bankruptcy between November 1979 and December 1986, direct costs average 3.1% of the book value of debt plus the market value of equity, and priority of claims is violated in 29 cases. The breakdown in priority of claims occur primarily among the unsecured creditors and between the unsecured creditors and equity holders. Secured creditors’ contracts are generally upheld.

Stock Market Structure and Volatility

Abstract: The procedure for opening stocks on the NYSE appears to affect price volatility. An analytical framework for assessing the magnitude of the structurally induced volatility is presented. The ratio of variance of open-to-open returns to closeto-close returns is shown to be consistently greater than one for NYSE common stocks during the period 1982 through 1986. Tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento-open return and the close-to-close return span the same period of time. Instead, the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders. The implied cost of immediacy at the open is significantly higher than at the close. Other empirical evidence in this article documents the volume of trading at the open, the time delays between the exchange opening and the first transaction in a stock, the difference in daytime volatility versus overnight volatility, and the extent to which volatility is related to trading volume.

The Effect of Executive Stock Option Plans on Stockholders and Bondholders

Abstract: Executive stock option plans have asymmetric payoffs that could induce managers to take on more risk. Evidence from traded call options and stock return data supports this notion. Implicit share price variance, computed from the Black-Scholes option pricing model, and stock return variance increase after the approval of an executive stock option plan. The event is accompanied by a significant positive stock and a negative bond market reaction. This evidence is consistent with the notion that executive stock options may induce a wealth transfer from bondholders to stockholders. MANAGERIAL STOCK OPTIONS HAVE been proposed as a method that ameliorates the agency problems that exist between managers and shareholders (Haugen and Senbet (1981)). The typical stock option plan grants the executive the option to purchase a number of shares of common stock at a stated exercise price that is normally equivalent to the market value of the stock on the date of the grant. These options differ from listed options in that there is usually a minimum holding period required before the options can be exercised. In addition, the options are long-term in nature (typically ten years) and are strictly nonmarketable. Since Jensen and Meckling (1976), it has been widely held that agency costs are reduced by relating an executive's compensation to firm performance (e.g., Beck and Zorn (1982) and Haugen and Senbet (1981)). The empirical evidence indicates that proposed changes in long-range managerial compensation plans (option, restricted stock, performance, stock appreciation rights, and phantom stock) are met with positive share price reactions (e.g., Brickley, Bhagat, and Lease (1985)). The positive share price reaction to the announcement of executive stock option plans is consistent with the contention that these plans improve managerial incentives. Improved incentives are the reason most often cited by firms seeking shareholder approval for the adoption of stock option plans. A study by Masson (1971) found that firms with compensation packages that emphasize stock market performance (and de-emphasize other firm performance measures) outperform firms without such an arrangement. Murphy (1985) also finds that

Intraday Price Change and Trading Volume Relations in the Stock and Stock Option Markets

Abstract: This study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the CBOE during the first quarter of 1986. After purging the price change series of the effects of bid/ask spreads, multivariate time-series analysis is used to estimate the lead/lag relation between the price changes in the option and stock markets. The results indicate that price changes in the stock market lead the option market by as much as fifteen minutes. The analysis of trading volume indicates that the stock market lead may be even longer. THE INTENSE TRADING ACTIVITY in and, in fact, the very existence of organized stock option markets attest to the economic benefits that these financial contracts provide. Reduced transaction costs and increased financial leverage are two reasons why trading in the stock option market may be more attractive than trading in the market for the underlying stock. In addition, these cheaper and more flexible trading opportunities attract new and differently informed investors to the marketplace. The resulting increase in trading activity, together with the inextricable arbitrage linkage between stock and option prices, imply an increase in market efficiency. This study investigates empirically the intraday price change and trading volume relations between stocks and options for a sample of firms whose options were actively traded on the Chicago Board Options Exchange during the first quarter of 1986. In particular, intraday call option price changes are translated into implied stock price changes using the American call option pricing model. These intraday implied stock price changes are then compared with the actual stock price changes to identify which, if either, market leads the other. In perfectly functioning capital markets, there should be complete simultaneity between the series, that is, new information disseminating into the marketplace should be reflected in the prices and the trading activity of both securities simultaneously. Institutional factors, however, may make the stock option market more attractive to information traders. This may cause price changes and trading activity due to new information to be observed in the option market first, followed by price

Private information, trading volume, and stock-return variances

Abstract: New evidence is provided on the determinants of stock-return variances. First, when the Tokyo Stock Exchange is open on Saturday, the weekend variance increases; weekly variance is unaffected, however, despite an increase in weekly volume. Second, the listing of U.S. stocks in Tokyo substantially increases the number of trading hours, but Tokyo volume is negligible for these U.S. stocks and their 24-hour variance is unaffected. The overall results are consistent with the predictions of private-information-based rational trading models, but inconsistent with both the irrational trading noise and public-information hypotheses.

Stock market reaction to strategic investment decisions

Abstract: This study examines the stock market's reaction to public announcements of corporate strategic investment decisions. It includes a wide variety of strategic decisions: formation of joint ventures, research and development projects, major capital expenditures, and diversification into new products and/or markets. Three alternative hypotheses concerning the stock market's reaction to announcements of these decisions are tested. The Shareholder Value Maximization hypothesis predicts a positive reaction to corporate investments because the stock market rewards managers for developing strategies that increase shareholder wealth. The Rational Expectations hypothesis predicts no stock price reaction because investors expect managers to undertake periodic investments in order to maintain their firms' competitive fitness. The Institutional Investors hypothesis predicts a negative reaction to announcements of corporate investments. The U.S. capital markets are dominated by institutional investors who, in pursuit of superior quarterly performance, may disdain longterm investments because they reduce short-term earnings. Analysis of 767 strategic investment decisions announced by 248 companies in 102 industries indicates that the stock market's reaction to strategic investments conforms most closely to the predictions of the Shareholder Value Maximization hypothesis. This overall finding holds for investments of varying size and duration. The implications of a positive reaction by the stock market to investment announcements are drawn for corporate strategy research and management practice.

Indexes of U.S. Stock Prices from 1802 to 1987

Abstract: Monthly stock returns from Smith and Cole (1935), Macaulay (1938), and Cowles (1939) are compared and contrasted with the returns to the Center for Research in Security Prices value-weighted portfolios of New York Stock Exchange (NYSE) stocks. Daily stock returns from Dow Jones (1972) and Standard and Poor's (1986) are compared and contrasted with the returns to the Center for Research in Security Prices value-weighted portfolios of NYSE and American Stock Exchange stocks. Effects of dividends, nonsynchronous trading, and time averaging are analyzed. Splicing together the best indexes gives monthly data from 1802-1987 (2,227 observations) and daily data from 1885-1987 (28,884 observations). Copyright 1990 by the University of Chicago.

Risk and Return on Real Estate: Evidence from Equity Reits

Abstract: We analyze monthly returns on an equally-weighted index of 18 to 23 equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973-87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs. Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60 percent of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.

Stock Market Volatility

Abstract: Investors, regulators, brokers, dealers and the press have all expressed concern over the level of stock market volatility. But the perception that prices move a lot-and have been moving a lot more in recent years-is in part merely a reflection of the historically high levels of popular stock indexes. The drop in stock prices on October 13, 1989-while large in terms of point decline-was not even among the 25 worst days in NYSE history in terms of percentage changes. While a 6 per cent drop in prices is not inconsequential, neither is it a rare event when considered within the context of the behavior of stock returns over the 1802-1989 period. Apart from October 1987 and October 1989, volatility was not particularly high in the 1980s. Moreover, the growth in stock index futures and options trading has not been associated with an upward trend in stock volatility. There is little evidence that computerized trading per se increases volatility, except perhaps within the trading day. On October 13, 1989, all the major networks flashed reports on the market decline. The ability of investors and the press to track stock prices on a virtually continuous basis has heightened public perceptions of a volatility problem. What we do not know, because the intraday data on stock prices are simply unavailable, is whether the large but extremely brief price drops that have characterized recent market declines also occurred in the past, when daily and monthly volatility was higher than it is today. The evidence so far is inconclusive as to whether trading halts or circuit-breakers can reduce volatility in a beneficial way. Even if circuit breakers can reduce volatility, are the benefits of stability greater than the cost of the inefficiency created by the trading halt?

Equilibrium Block Trading and Asymmetric Information

Abstract: This paper investigates the existence of equilibria with information-based block trading in a multiperiod market when no investor is constrained to block trade. Attention is restricted to equilibria in which a strategic uninformed institution (i.e., one which is forced to rebalance its portfolio but is free to choose an optimal rebalancing strategy) is willing to trade a block rather than "break up" the block into a series of smaller trades. Examples of such equilibria are found and analyzed. A STRIKING FACT ABOUT the New York Stock Exchange is that roughly half of the volume is traded in blocks of over 10,000 shares.1 However, despite the obvious importance of block trading, the types of market microstructures which generate block trades are not well understood. This paper provides a theoretical rationale for block trades by modeling an equilibrium in which blocks are endogenously traded. In particular, we show that, even when a block can be "broken up" into a sequence of small trades, blocks may still be traded as part of both informed and uninformed investors' optimal trading strategies. The analysis is conducted in a simple market in which there are competitive dealers and specialists, a group of small "noise" traders, and a strategic institution which trades either to exploit private information or because it is constrained to rebalance its portfolio. The main results about block trading in this setting are as follows:

Risk and Return on Real Estate: Evidence from Equity REITs

Abstract: We analyze monthly returns on an equally weighted index of eighteen to twenty-three equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973–87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed-end stock funds, which seems plausible given the closed-end nature of REITs. Three factors, and the percentage change in the discount on closed-end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60% of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk-adjusted return and is not a hedge against unexpected inflation.

Stock price pattern recognition-a recurrent neural network approach

Abstract: Recurrent neural networks were applied to the recognition of stock patterns, and a method for evaluating the networks was developed. In stock trading, triangle patterns indicate an important clue to the trend of future change in stock prices, but the patterns are not clearly defined by rule-based approaches. From stock-price data for all names of corporations listed in the first section of the Tokyo Stock Exchange, an expert called chart reader extracted 16 triangles. These patterns were divided into two groups, 15 training patterns and one test pattern. Using stock data from the past three years for 16 names, 16 recognition experiments in which the groups were cyclically used were carried out. The experiments revealed that the given test triangle was accurately recognized in 15 out of 16 experiments and that the number of the mismatching patterns was 1.06 per name on the average. A method was developed for evaluating recurrent networks with context transition performances, particularly temporal transition performances. The method for the triangle sequences is applicable to reducing mismatching patterns

Corporate Capital Structure, Agency Costs, and Ownership Control: The Case of All‐Equity Firms

Abstract: This paper provides evidence that all-equity firms exhibit greater levels of managerial stockholdings, more extensive family relationships among top management, and higher liquidity positions than a matched sample of levered firms. Further, top managers of all-equity firms with family involvement in corporate operations have greater control of corporate voting rights than managers of all-equity firms without family involvement. These findings are consistent with the interpretation that managerial control of voting rights and family relationships among senior managers are important factors in the decision to eliminate leverage. OVER 100 CORPORATIONS LISTED ON major U.S. stock exchanges use no longterm debt. This paper provides evidence on factors influencing the capital structure decision of these firms by comparing their financial, managerial, and ownership characteristics with those of a control sample of levered firms. We find that all-equity firms exhibit greater equity ownership by top managers and more extensive family involvement in corporate operations than levered firms. Managerial ownership in all-equity firms is positively related to the extent of family involvement. All-equity firms are also characterized by greater liquidity positions than levered firms. Overall, the evidence suggests that managerial choice of an all-equity capital structure may be aimed at reducing the risk associated with large undiversifiable investments of personal wealth and family human capital in these firms. The paper is organized as follows: Section I provides the sample selection criteria and data; Section II reports the empirical tests and results; and Section III concludes the analysis.

Margin Regulation and Stock Market Volatility

Abstract: Using daily and monthly stock returns we find no convincing evidence that Federal Reserve margin requirements have served to dampen stock market volatility. The contrary conclusion, expressed in recent papers by Hardouvelis (1988a,b), is traced to flaws in his test design. We do detect the expected negative relation between margin requirements and the amount of margin credit outstanding. We also confirm the recent finding by Schwert (1988) that changes in margin requirements by the Fed have tended to follow rather than lead changes in market volatility. AFTER 55 YEARS, STOCK MARKET margin requirements are again a source of controversy. The Securities and Exchange Act of 1934 transferred to the Federal Reserve System the authority, exercised previously by the New York Stock Exchange and other private-sector exchanges, to set the minimum margins (i.e., down-payments) that securities brokers and dealers (subsequently expanded to all lenders) must require of customers purchasing common stocks on credit. The transfer of authority reflected the view, widely held at the time, that the low initial margins set by the exchanges had fueled the stock market boom of the 1920's, and that the frenzied liquidation of shares in response to margin calls had accelerated the Crash in October 1929, supposedly dragging the economy down with it. Congress hoped that timely raising of margin requirements by the monetary authorities might dampen speculative excesses before they raged out of control or, in today's terms, that margin controls might reduce "market volatility." What the Federal Reserve has done since then with its margin-setting authority can be seen from Figure 1 which shows the time paths both of margins and one measure of market volatility from October 1934 to December 1987. Margin requirements were set initially at 45 percent, raised to 55 percent during the boomlet of 1936 and then cut back to a low of 40 percent after the sharp stockmarket break in the autumn of 1937. The requirement stayed at that level for the remainder of the 30's and most of the war years, but was stepped up sharply as the war drew to a close, reaching 100 percent (i.e., all cash, no borrowing) for most of 1946. Changes were frequent over the next two and a half decades,

The Intertemporal Relation Between the U.S. and Japanese Stock Markets

Abstract: This paper finds a high correlation between the open to close returns for U.S. stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the U.S. return in the current period. High correlations among open to close returns are a violation of the efflcient market hypothesis; however, in trading simulations, the excess profits in Japan vanish when transactions costs and transfer taxes are included. THE TWO LARGEST STOCK markets in the world in terms of capitalization, volume, and shares listed are the Tokyo Stock Exchange (TSE) and the New York Stock Exchange (NYSE). Because Tokyo is 14 hours ahead of New York, there is an eight and one-half hour difference between the close of the TSE and open of the NYSE. Since there is no overlap between the two markets, traders or technical analysts may look to the TSE as a predictor of market movement on the NYSE and/or examine changes on the NYSE as indicators of TSE performance. As shown in Figure 1, the TSE opens at 7:00 p.m. Eastern Standard Time (EST) and closes at 1:00 a.m. EST.1 The NYSE opens at 11:30 p.m. Japanese time (9:30 a.m. EST) and closes at 5:00 a.m. Japanese time (4:00 p.m. EST). Thus, there is no common time interval in which both markets are open. High correlations between the respective open to close returns are a violation of the efficient market hypothesis because public information about the performance in one market could be used to profitably trade in another market. If the markets are efficient, information about the open to close performance in one market (for example, the U.S. return in period t - 1) will be fully reflected in the open price of the other market (Japan in period t, for example). Since new information flows randomly into the market, subsequent price changes should be random and the open to close returns in Japan will be uncorrelated with the U.S. returns. Thus, the U.S. performance should affect the open price in Japan, and the correlation between the open to close returns of the two markets will be zero. Early research on the synchronization among stock prices across countries (Grubel (1968), Levy and Sarnat (1970), Agmon (1972), Ripley (1973), Lessard

The italian stock market: Efficiency and calendar anomalies☆

Abstract: After describing the various concepts of efficiency (information, valuation, full-insurance and functional) with special reference to the Italian stock market, the paper analyzes the impact of particular dates and periods of the civil year and stock exchange calendars on stock price changes to test the existence of information inefficiencies. The analysis is based on the Milan Stock Exchange's ‘MIB storico’ stock index with reference to the period 2 January 1975–22 August 1989. The events tested for systematic anomalies include weekend and public holidays, the end of the calendar and stock exchange months, and the end of the year. The results obtained are in line with those found for the U.S. market, with evidence of anomalous changes, though not all are stable over time.

Overreaction or Fundamentals: Some Lessons from Insiders' Response to the Market Crash of 1987

Abstract: This paper shows that i) the Crash was a surprise to corporate insiders; ii) insiders became buyers of stock in record numbers immediately following the Crash; iii) stocks that declined more during the Crash were also purchased more by insiders; and iv) stocks that were purchased more extensively by insiders during October 1987 showed larger positive returns in 1988. The overall evidence suggests that overreaction was an important part of the Crash. THE Dow JONES INDUSTRIAL Average (DJIA) declined by 769 points (30.7%) from October 13 to 19, 1987 (Tuesday to Monday), with a record one-day drop of 508 points (22.6%) on October 19 alone. Similar declines occurred on other equity markets: the American Stock Exchange (ASE), the Over-the-Counter (OTC) market, and international stock markets. Various explanations have been offered to account for the October Crash. One view relies on shifts in fundamental factors: Roll (1989) suggests downward revised expectations for the worldwide economic activity; Fama (1989) advocates sudden upward revision in equilibrium required stock returns as measured by the increase in dividend yields; and Black (1988) argues for sharply declining relative risk aversion, coupled with a sudden realization of lower future expected returns. Another view is that stock prices can take swings from fundamental values because of trading activities of the uninformed (Shiller (1984) and De Long, Shleifer, Summers, and Waldmann (1989, 1990a,b)).1 While this view does not identify what triggered the Crash, it predicts that the activities of noise traders contributed to an overreaction in market prices: an adjustment in stock prices occurred in reaction to a proposed tax legislation in mid-October. This adjustment was turned into a major crash, and stock prices were driven below the fundamentals as a result of positive feedback investment strategies by uninformed traders,

London's big bang: a case study of information technology, competitive impact, and organizational change

Abstract: :The London Stock Exchange’s Big Bang on October 27, 1986, marked the arrival of sweeping and long-awaited deregulation. Numerous changes occurred simultaneously, including elimination of fixed brokerage commissions, a marked increase in the number of market participants, changes in the structure and ownership of trading firms, and, perhaps most importantly, swift movement of securities trading away from the floor of the Exchange. This remains the most rapid and complete regulatory reform of any market, and the most striking example to date of a regulatory event engineered to benefit the local financial industry. The transformation was accomplished in large part through the Exchange’s implementation of a screen-based dealing system. Since the overhaul of its established securities trading practices, London’s financial markets have undergone profound change while continuing to operate smoothly; a number of benefits have been realized.

Auction Institutional Design: Theory and Behavior of Simultaneous Multiple Unit Generalizations of the Dutch and English Auctions

Abstract: Historically, English and Dutch auctions have been used for the exchange of single objects such as works of art or single lots of a good such as produce, fish, or cut flowers. Where these institutions have been used for the exchange of multiple units, such as the Australian wool auction (using English rules), successive lots of the good are sometimes sold sequentially at auction. In some, but not all, instances this is because the goods are not identical, even though the various lots may be close substitutes (see Penny Burns, 1985). Where the goods are accepted universally as being homogeneous, as in the securities markets, multiple units are often commonly auctioned simultaneously. In the securities industry, orders are batched for simultaneous execution in multiple-unit auctions in what are referred to as "call markets"; that is, the security is "called" for auction at a particular point in time. This type of market is used on the stock exchanges of Austria, Belgium, France, Germany, and Israel. Some of these are verbal, and some are sealed bid auctions. Although the U.S. organized exchanges are predominantly continuous rather than call markets (except that call markets are used each day to open trading in each listed security), there is a growing number of exceptions such as the proliferation, since 1984, of Auction Preferred Stock (Goldman, Sachs and Co., October 1984) and Money Market Preferred Stock (Lehman Brothers, July 1984). We now have Dutch Auction Rate Transferable Securities, called DARTS, Stated Rate Auction Preferred Stock, or STRAPS, and many more. After the initial subscription offering of this type of security, the market is called every 49 days to reset the preferred dividend rate using a multiple-unit auction. The exchange of shares and the dividend determination is based on the array of stated dividend rates at which existing holders and potential new holders are willing to sell and/or buy corresponding quantities. The dividend rate and exchange of shares every 49 days is executed using the uniform price or competitive sealed bid mechanism (Vernon L. Smith et al., 1980). The discussion to follow will be confined to this sealed bid form of the call market. Call markets provide temporal consolidation of trade orders or other forms of expressing the desire to buy and sell. By comparison with continuous trading, call markets offer both advantages and disadvantages (Robert A. Schwartz, 1988 pp. 442-6). The cited advantages include low cost of operating the exchange; information aggregation and presumed pricing efficiency; price stability; individual trades, which are thought to have a small impact on price; reduced price uncertainty; and, finally, nondiscriminatory pricing. However, there are offsetting disadvantages: (1) the market is inaccessible except at the time of call; (2) no bid, offer, contract, or price information is available until the results of the call are announced; and (3) there is transaction uncertainty because a submitted bid (offer) may be too low (high) to execute inside the supply-demand cross. These conditions are only partially alleviated if there is a secondary market between calls. These disadvantages may be significant. In September 1988, the Wall Street Journal published an article on the failure of a call market for the auction rate preferred stock *Economic Science Laboratory, University of Arizona, Tucson, Arizona. This material is based upon work supported by the National Science Foundation under grant no. SES-8320121.

An Empirical Analysis of Common Stock Delistings

Abstract: This paper presents an empirical analysis of firms that are delisted from a major stock exchange. The delisting process is described and stock price movements surrounding delisting are analyzed. For firms with prior announcements, equity values decline by approx? imately 8.5 percent on announcement day. For firms without prior announcements, a sim? ilar adjustment takes place between the last day of trading in the initial market and the close of the first day of trading in the new market. Four hypotheses concerning the decline in firm value are examined. These are the liquidity hypothesis, the management signalling hypothesis, the exchange certification hypothesis, and the downward sloping demand curve hypothesis. Evidence consistent with the liquidity hypothesis is presented in the paper. Unlike evidence on stock exchange listings, returns in the post-delisting period do not appear to be anomalous.

Stock market microstructure and return volatility: Evidence from Italy

Abstract: This paper studies the impact of the stock market microstructure on return volatility and on the value discovery process in the Milan Stock Exchange. The primary trading mechanism employed by this exchange is a call market, which is usually preceded and followed by trading in a continuous market. We find that the opening transaction in the continuous market has the highest volatility, and that opening the market with the call transaction seems to produce relatively lower volatility. In the closing transaction, investors correct perceived errors or noise in the prices set at the call. The implications of the results for market design are examined.

Stock Returns, Money, and Fiscal Deficits

Abstract: Using the FPE/multivariate Granger-causality modeling technique, this paper tests whether changes in Canadian stock returns are caused by a number of economic variables, including base money and fiscal deficits. The empirical results from monthly data show that lagged changes in fiscal deficits, in particular, Granger-cause stock returns. If ex? pected returns to equity are not time-varying, such a finding appears inconsistent with market efficiency. I, Introduction Academic literature and the popular financial press have witnessed an in? creased preoccupation with the relationship between monetary policy and the stock market in the United States. In this regard, the Stock Market Efficiency (SME) hypothesis contends that there should be no significant lagged relation? ship between money growth and stock returns since current stock prices reflect all publicly available information on monetary policy moves. For short-horizon stock returns, the results from the voluminous empirical studies have supported the joint hypothesis that expected returns are constant and the market is efficient

Pacific-basin capital markets research

Abstract: Keynote Addresses Toward the Most Efficient Operation of the Korean Stock Market (B-W Koh) Volatility, Episodic Volatility, and Coordinated Circuit-Breakers: The Sequel (MH Miller) Saving in Developing Countries - Growth, Income, and Other Factors (F Modigliani) Developing Asian Capital Markets (K Tarumizu) PACAP Distinguished Speakers Series Malaysian Financial Markets (L See-Yan) Tokyo Equity Market: Its Development and Policies (M Sato) The Philippine Financial System: Path Towards Liberalization and Internationalization (GC Singson) Competitive Research Award Papers Convertible Notes Issues by Japanese Firms in Switzerland: Pricing and its Effects (W Wasserfallen, RA Hunkeler) The Volatility of Japanese Interest Rates: A Comparison of Alternative Term Structure Models (KC Chan, GA Karolyi, FA Longstaff, AB Sanders) Issues in Asian Corporation Finance Determinants of Corporate Capital Structure: Australian Evidence (C Chiarella, TM Pham, AB Sim, MML Tan) Financial Management Practices Among South Korean Firms (JS Ang, M Jung) Optimal Corporate Investment in Imperfect Capital Markets: Evidence from Korea (M Dailami) Empirical Studies on Asian Capital Markets International Transmission of Stock Market Movements and Korea and Taiwan Fund Prices (Y Jeng, C-W Kim, WMH Wan-Sulaiman) Non-Performance Risk in Markets for Asian Commodities: Evidence and Implications (W Bailey, E Ng) The Impact of Dividend and Bonus Issue Announcements on the Hong Kong Exchange: An Empirical Investigation (EY Guo, AJ Keown) Korean Stock Market Studies Is the APT True in Korea? (K Cheong) Market Model Nonstationarity in the Korean Stock Market (T Bos, TA Fetherston) Size, Price-Earnings Ratio, and Seasonal Anomalies in the Korean Stock Market (YG Kim, KH Chung, CS Pyun) The Price Mechanism of IPO Market in Korea: with Emphasis on the Recent Liberalization Reform (U Lim) Stock Market Volatility On the Determinants of Stock Market Volatility: An Empirical Analysis of the Taiwan Stock Market (T Ma) The Crash of 1987: An Empirical Examination of Liquidity, Volatility, and Volume Across International Stock Markets (GN Naidu, MS Rozeff) ADRs Seasonal Patterns in ADR Returns: Some Implications (J Park) The Bid-Ask Spreads of American Depositary Receipts (JS Howe, J-C Lin) Derivative Securities Empirical Tests on the Pricing of the Nikkei Stock Index Options (M Toshino) Selection of Underlying Index for Stock Index Futures in Korea (C-P Kook, Y-J Kwon, WH Lee, HS Choe) Speculative, Hedging, and Arbitrage Efficiency of the Nikkei Index Futures (K-G Lim) Recent Trends in Global Financial Markets Bad Projects, Good Projects and IPO's (SA Ravid, M Spiegel) The Global Market for Underwriting Services (R Nachtmann, F Phillips-Patrick) Some Structural Changes and Performances of Finance and Securities Companies in Thailand during 1981-1990 (P Trairatvorakul, P

An analysis of transactions data for the Toronto Stock Exchange

Abstract: Using transactions data for all stocks traded on the Toronto Stock Exchange, this study shows that returns and number of shares traded have a U-shaped pattern when plotted against time of the trading day. These results confirm that the findings of Wood, Mclnish and Ord (1985), Harris (1986), Mclnish and Wood (1988) and Jain and Joh (1989) for the New York Stock Exchange (NYSE) also hold for both another exchange and another country and are not due to peculiarities of United States securities markets. Further, evidence is provided to support the view of Harris (1989) and Terry (1986) that these relatively high end-of-day returns are due, at least in part, to an increase in the proportion of trades at the ask relative to trades at the bid.