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Showing papers on "Stock exchange published in 1991"


Journal ArticleDOI
TL;DR: In this paper, the authors compared cross-sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield.
Abstract: This paper relates cross-sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high-quality data set that extends from 1971 to 1988. The sample includes both manufacturing and nonmanufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between these variables and expected returns in the Japanese market. Of the four variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns.

1,597 citations


Journal ArticleDOI
TL;DR: The role of financial markets in economic development is explored in this article, where a stock market emerges to allocate risk and explores how the stock market alters investment incentives in ways that change steady state growth rates.
Abstract: An extensive literature documents the role of financial markets in economic development. To help explain this relationship, this paper constructs an endogenous growth model in which a stock market emerges to allocate risk and explores how the stock market alters investment incentives in ways that change steady state growth rates. The paper demonstrates that stock markets accelerate growth by (1) facilitating the ability to trade ownership of firms without disrupting the productive processes occurring within firms and (2) allowing agents to diversify portfolios. Tax policy affects growth directly by altering investment incentives and indirectly by changing the incentives underlying financial contracts. AN EXTENSIVE LITERATURE DOCUMENTS and discusses the role of financial markets in economic development.1 In an exhaustive study of three dozen developed and developing countries over the period 1860-1963, Goldsmith (1969) provides evidence of a positive relationship between the ratio of financial institutions' assets to GNP and output per person. Goldsmith also presents data showing "that periods of more rapid economic growth have been accompanied, though not without exception, by an above-average rate of financial development" (p. 48). In addition, Romer (1989) and others have shown, using cross-country data sets that range from 20 to over 100 years, that there exist startling differences in per capita output growth rates with no tendency for these growth rates to converge unconditionally.2 This paper helps explain these observations which have not been previously reconciled within the context of a general equilibrium optimizing model. Along with recent work by Bencivenga and Smith (1991), Greenwald and Stigliz (1989), and Greenwood and Jovanovic (1990), this paper constructs a model that links the financial system with the steady state growth rate of per capita output.3 Specifically, the model extends and links two literatures. The

1,104 citations


Journal ArticleDOI
TL;DR: The authors compare three forms of common stock repurchases: Dutch-auction self-tender offers, open-market share repurchase programs, and fixed-price self-to-buyback offers and show that buyback announcement returns are higher when insider wealth is at risk, following negative net-of-market stock returns, and unrelated to prior market returns.
Abstract: We compare three forms of common stock repurchases. Dutch-auction self-tender offers and open-market share repurchase programs are weaker signals of stock undervaluation than fixed-price self-tender offers. The price increase from buyback announcements is greater when insider wealth is at risk, greater following negative net-of-market stock returns, and unrelated to prior market returns. Buyback announcement returns are also increasing in the fraction of shares sought, which is consistent with both signalling and an upward-sloping supply curve for stock.

695 citations


Journal ArticleDOI
TL;DR: This article examined the pricing of exchange rate risk in the U.S. stock market, using two factor and multi-factor arbitrage pricing models, and found that the relation between stock returns and the value of the dollar differs systematically across industries.
Abstract: This paper examines the pricing of exchange rate risk in the U.S. stock market, using two factor and multi-factor arbitrage pricing models. Evidence is presented that the relation between stock returns and the value of the dollar differs systematically across industries. The empirical results, however, do not suggest that exchange risk is priced in the stock market. The unconditional risk premium attached to foreign currency exposure appears to be small and never significant. As a result, active hedging policies by financial managers cannot affect the cost of capital, and other reasons must explain why firms decide to hedge.

678 citations


Journal ArticleDOI
TL;DR: In this article, it is demonstrated that markets in stock index futures or, more generally, in baskets of securities, provide a preferred trading medium for uninformed liquidity traders who wish to trade portfolios, because adverse selection costs are typically lower in these markets than in markets for individual securities.
Abstract: It is demonstrated that markets in stock index futures or, more generally, in baskets of securities, provide a preferred trading medium for uninformed liquidity traders who wish to trade portfolios, because adverse selection costs are typically lower in these markets than in markets for individual securities. Thus, an explanation is provided for the immense liquidity and popularity of markets in stock index futures. Implications are also developed for the effect of the introduction of a basket on market liquidity and the informativeness and variability of component security prices, and for the price relationship between the basket and its underlying portfolio. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

524 citations


Journal ArticleDOI
TL;DR: This paper examined the intraday relationship between returns and returns volatility in the stock index and stock index futures markets and showed that price innovations that originate in either the stock or futures markets can predict the future volatility of the other market.
Abstract: We examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets. Our results indicate a strong intermarket dependence in the volatility of the cash and futures returns. Price innovations that originate in either the stock or futures markets can predict the future volatility in the other market. We show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken. The findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index. Our results have implications for understanding the pattern of information flows between the two markets. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

496 citations


Journal ArticleDOI
TL;DR: In this paper, the authors identify negotiated trades of large-percentage blocks of stock as corporate control transactions and investigate the importance of active block investor's specific managerial expertise and incentives for firm value.
Abstract: We identify negotiated trades of large-percentage blocks of stock as corporate control transactions. When a block trades and the firm is not fully acquired, cumulative abnormal returns average 5.6%, and 33% of the chief executives are replaced within a year. Stock-price increases are larger when control passes to the new blockholder, when management does not resist the blockholder's effort to influence corporate policy, and when the block purchaser eventually fully acquires the firm. These findings suggest that the specific skills and expertise of blockholders, and not just the concentration of ownership, are important determinants of firm value. WE EXAMINE 106 NEGOTIATED trades of at least 5% of the common stock of New York Stock Exchange (NYSE)- and American Stock Exchange (AMEX)listed corporations. Our primary objective is to assess the impact of these transactions on the firms whose shares are traded. We also investigate the importance of active block investor's specific managerial expertise and incentives for firm value. The emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder's incentives to undertake a variety of corporate decisions. Although it has been recognized that a blockholder's identity also can be important, less attention has been paid to this issue. Several recent, studies, however, provide evidence that blockholders' incentives and expertise are not homogeneous. For example, Holderness and Sheehan (1985) find that the stock market reacts more favorably to initial block accumulations by six controversial investors, who are often portrayed in the press as "raiders," than to initial accumulations by a random sample of investors. Morck, Shleifer, and Vishny (1988) find that firm value tends to be lower when the firm is run by a member of the founder's family than when it is run by an officer unrelated to the founder. Brickley, Lease, and Smith (1988) document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm. When a block trades, the concentration of ownership typically does not change, but the blockholder's identity does

487 citations


Journal ArticleDOI
TL;DR: In this paper, a simple statistical model explains price differences between securities that differ in resale provisions-in particular, restricted securities, which can be sold only after a two-year holding period, are compared with publicly traded securities of the same company.
Abstract: A simple statistical model explains price differences between securities that differ in resale provisions-in particular, restricted securities, which can be sold only after a two-year holding period, are compared with publicly traded securities of the same company. The discount on restricted stock varies directly with the amount of restricted stock relative to publicly traded stock and inversely with the credit-worthiness of the issuing company. That credit-worthy companies must offer price discounts of more than 30 per cent to sell a significant block of restricted stock illustrates the importance of liquidity to the valuation of common stock.

316 citations


Journal ArticleDOI
TL;DR: In this paper, Amihud and Mendelson studied the effect of the trading mechanism and the time at which transactions take place on the behavior of stock returns using data from Japan.
Abstract: We study the joint effect of the trading mechanism and the time at which transactions take place on the behavior of stock returns using data from Japan. The Tokyo Stock Exchange employs a periodic clearing procedure twice a day, at the opening of both the morning and the afternoon sessions. This enables us to discern the effect of the clearing mechanism from the effect of the overnight trading halt. While the periodic clearing at the beginning of the trading day is noisy and inefficient, the midday clearing transaction appears to be no worse than the two closing transactions. IN A RECENT ARTICLE in this Journal (Amihud and Mendelson (1987a)) we examined the effects of two major trading mechanisms on the behavior of stock returns. One mechanism is the continuous dealership market, where investors trade with market makers at their quoted bid-ask prices, and the other is the periodic clearing procedure, where buy and sell orders accumulate during some time interval and are then executed simultaneously at a single price which equates the quantity demanded to the quantity supplied. Our study of the two trading mechanisms compared the time-series behavior of stock returns over the open-to-open and close-to-close time intervals for the same stocks over the same period on the New York Stock Exchange (NYSE). By this methodology, any information about the value of the stock equally affects both return series. Yet, there is a difference between the trading mechanisms by which opening and closing prices are set: The opening transaction in major NYSE stock issues is executed by a periodic clearing procedure, whereas trading continues afterward in a dealership market controlled by the Exchange specialist. If the different trading mechanisms had no effect on stock prices, the variances and autocorrelations would be the same for the two return series.

277 citations


Journal ArticleDOI
TL;DR: The evidence of slowly mean-reverting components in stock prices has been controversial. as mentioned in this paper used a regression model that yields the highest asymptotic power among a class of regression tests.
Abstract: The evidence of slowly mean-reverting components in stock prices has been controversial. The hypothesis of stock price mean-reversion is tested using a regression model that yields the highest asymptotic power among a class of regression tests. Although the evidence that the equally weighted index of stocks exhibits meanreversion is significant in the period 1926-1988, this phenomenon is entirely concentrated in January. In the post-war period both the equally weighted and the value-weighted indices exhibit seasonal mean-reversion in January. A similar phenomenon is also observed for the equally weighted index of stocks traded on the London Stock Exchange. IN A RECENT PAPER Fama and French (1988) report that "25-45 percent of the variation of 3- to 5-year stock returns is predictable from past returns" and pose a serious challenge to the long-held view that stock prices follow a random walk. In a subsequent paper, Poterba and Summers (1988) use variance ratio tests on the stock price data from the U.S. and 17 other countries and conclude that "The results consistently suggest the presence of transitory components in stock prices." However, Kim, Nelson, and Startz (1988) and Richardson (1989) criticize the earlier papers on statistical grounds and suggest on the basis of simulation evidence that the results of Fama and French and Poterba and Summers do not violate the random walk model. The conflicting opinions expressed in these papers clearly highlight the controversy surrounding the interpretation of the seemingly large point estimates of long-term serial correlation in stock returns. The economic interpretation of the estimates in these tests is difficult because they have low precision, and hence more efficient tests are required.

248 citations



Posted Content
TL;DR: In this article, the authors show that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale.
Abstract: In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for exogenous reasons It is plausible that some buyers have cash needs and are forced to sell their stock However, buyers will usually be able to choose the time at which they trade It will be optimal for them to minimize the probability of trading with informed investors by choosing an appropriate time to trade and clustering at that time This asymmetry means that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale As a result, profitable manipulation by uninformed investors may occur A model where the specialist takes account of the possibility of manipulation in equilibrium is presented

Journal ArticleDOI
TL;DR: In this article, the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts were investigated and the results indicated that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time.
Abstract: This paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for The Chicago Board of Trade's Major Market Index contracts. The spot value of the index is computed with transactions prices for the component shares of the index obtained from the Fitch database. The tests account for transaction costs, execution lags, and the uptick rule for short sales of stocks. Results indicate that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time. INDEX ARBITRAGE IS A strategy whereby institutions, brokerage houses, or other large investors seek to profit from the spread between prices in the spot and futures markets for stock indices. For example, an investor might purchase predetermined baskets of stocks on the floor of the New York Stock Exchange and simultaneously sell a related index futures contract on the floor of the Chicago Board of Trade, hoping to profit from the price differences on the two exchanges. Computer programs constantly monitor stock and futures prices and automatically execute buy and sell orders when it appears that a profit is possible. Stock index futures can be priced by a simple arbitrage argument. If the dividends paid by the underlying basket of shares and interest rates are nonstochastic, markets are perfect, and there are no taxes, the pricing equation is:

Proceedings Article
01 Jan 1991
TL;DR: It is concluded that transition from the established floor-based exchanges to potentially superior electronic alternatives is possible, despite the inertia resulting from the experience of benefits investors trading in active markets, and that current proposals for electronic markets are not demonstrably superior on generally accepted criteria used to assess market quality.
Abstract: Two alternative trading mechanisms for securities markets are compared using laboratory experimentation and computer simulation. One mechanism is the floor-based specialist auction in place in most U.S. stock exchanges today, and the other is an electronic alternative employing automatic order matching. We conclude that transition from the established floor-based exchanges to potentially superior electronic alternatives is possible, despite the inertia resulting from the experience of benefits investors trading in active markets, and that current proposals for electronic markets are not demonstrably superior on generally accepted criteria used to assess market quality. This has clear implications for established stock exchanges, market regulators, and vendors of electronic trading systems.

Journal ArticleDOI
TL;DR: In this article, evidence on several seasonal regularities in the security price returns on the Tokyo Stock Exchange was investigated using data on the NSA and TOPIX market indices from 1949 to 1988.

Journal ArticleDOI
TL;DR: In this paper, the authors examined the stock returns volatility in the Tokyo Stock Exchange in the period 1986 through 1989 and used models of autoregressive conditional heteroscedasticity (ARCH) to forecast the stock return volatility.

Journal ArticleDOI
TL;DR: In this article, the authors investigated the behavior of stock prices in major world stock exchanges based on univariate and multivariate approaches and found that each series of stock price in the New York, London, Tokyo, and Frankfurt stock exchanges during the period from January 1975 through March 1990 has a unit root.

Posted Content
TL;DR: In this article, the authors present evidence on three key questions raised by these developments: What are the benefits and costs to listing on a foreign stock exchange? And what extent do accounting disclosure requirements influence foreign listing decisions?
Abstract: As firms enter foreign markets for customers and capital, accounting practitioners must wrestle with cross-border differences in languages, customs, accounting conventions, and auditing standards. Stock exchanges in the U.S. claim that they are at a competitive disadvantage because stringent U.S. reporting requirements discourage foreign firms from listing here.This study presents evidence on three key questions raised by these developments:(1) What are the benefits and costs to listing on a foreign stock exchange?(2) Tb what extent do accounting disclosure requirements influence foreign listing decisions?(3) What are the accounting policy issues posed by foreign stock exchange Ustings and how have regulatory authorities responded?

Journal ArticleDOI
TL;DR: In this paper, the authors provide evidence that decisions by investors as to the timing of the realization of capital gains and losses from their common stock investments are significantly affected by tax considerations, and that there is a clear tendency for trades by individuals which give rise to losses to be concentrated near the end of calendar years.
Abstract: Tax-loss selling by investors in common stocks near the end of calendar years has been proposed as an explanation for the turn-of-the-year effect in stock returns. Past analyses of this hypothesis have relied on inferential data. We provide here some direct data from a compilation of over 80,000 actual common stock investment round trips by a sample of 3000 individual investors. We find strong evidence of a concentration of loss-taking trades late in the year and milder evidence of a concentration just prior to the dates when investments become eligible for long-term tax treatment. THE QUESTION AS TO whether, and in what manner, the impostion of a tax on realized capital gains affects the securities trading behavior of investors who are subject to the tax has been a longstanding topic of research in the financial ecomonics literature. The original attention devoted to the matter was motivated primarily by a concern about resource allocation and federal tax revenue consequences and was directed toward the phenomenon of what has been termed the "lock-in" effect of a gains tax. That issue has remained an important public policy one and continues today as part of the ongoing debate about appropriate strategies for reducing the federal budget deficit. Particular additional interest in the topic has emerged in recent years, however, because securities transactions undertaken systematically for tax reasons have also been proposed as part of the explanation for certain observed anomalies in historical common stock returns-most prominently, the well-documented turn-of-the-year effect. Our purpose here is to provide some new evidence that decisions by investors as to the timing of the realization of capital gains and losses from their common stock investments are significantly affected by tax considerations. This evidence indicates that a difference in the tax rates applicable to realizations classified as short and long term influences the timing of individual investors' trades and, further, that there is a clear tendency for trades by individuals which give rise to losses to be concentrated near the end of calendar (which, for them, are also tax) years. While we cannot conclude that

Journal ArticleDOI
TL;DR: This article examined the behavior of managerial investment, dividend, and capital structure decisions subsequent to the adoption of stock options as part of the compensation package, and found that firms that increase incentive stock option plans experience earnings declines, on average, relative to their industries.
Abstract: This paper examines the behavior of managerial investment, dividend, and capital structure decisions subsequent to the adoption of stock options as part of the compensation package. Previous studies have documented a positive stock market reaction to changes in incentive compensation plans. The specific changes that such plans induce remain unclear. Surprisingly, firms that increase incentive stock option plans experience earnings declines, on average, relative to their industries. A decline in expenditures on R&D and an increase in selling, general and administrative expenses is also documented.

Journal ArticleDOI
Abstract: This research examined the return behavior of a portfolio of American and New York Stock Exchange real estate firms. A dummy variable procedure was used to test for excess return and/or change in risk behavior across market conditions. The findings were as follows. First, no excess return was found for any model specification. Second, no changes in beta were found using the benchmark approach. The beta shifted when an up market was defined as a nonrecessionary period; the beta behaved procyclically. However, the subperiod tests indicated that effect was transitory and period specific.




Journal ArticleDOI
TL;DR: In this article, after-hours pricing in foreign equity markets of multiple-listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months.
Abstract: After-hours pricing in foreign equity markets of multiple-listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in after-hours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in cross-market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time-varying share price volatility. IN THE WAKE OF the October 1987 crash, a number of studies have provided evidence of significant international linkages among national equity markets where high-frequency movements in the share price indices of national exchanges appear to induce sympathetic price movements in subsequent trading on other national exchanges.' However, the cross-market correlations are generally much larger in periods of extreme volatility and appear to subside to modest or even negligible associations during periods of more normal trading activity. Since the constituent stocks of national exchange indices are not identical, it may be that the episodic increases in correlated movements of the indices are due to changes in the actual (or perceived) relative importance of common factors in periods of unusual volatility. The thrust of this paper is to remove the issue of the disparate composition of the price indices of national exchanges by examining the prices of a set of

Journal Article
TL;DR: In this paper, the authors present evidence on three key questions raised by these developments: (1) What are the benefits and costs to listing on a foreign stock exchange? (2) Tb what extent do accounting disclosure requirements influence foreign listing decisions? (3) what are the accounting policy issues posed by foreign stock exchanges Ustings and how have regulatory authorities responded?
Abstract: As firms enter foreign markets for customers and capital, accounting practitioners must wrestle with cross-border differences in languages, customs, accounting conventions, and auditing standards. Stock exchanges in the U.S. claim that they are at a competitive disadvantage because stringent U.S. reporting requirements discourage foreign firms from listing here. This study presents evidence on three key questions raised by these developments: (1) What are the benefits and costs to listing on a foreign stock exchange? (2) Tb what extent do accounting disclosure requirements influence foreign listing decisions? (3) What are the accounting policy issues posed by foreign stock exchange Ustings and how have regulatory authorities responded?

Journal ArticleDOI
TL;DR: In this paper, the potential independent auditor concentration and competitiveness that may occur as a result of the recent mergers within the Big Eight firms are examined, and the study is limited to an examination of the independent auditors of large companies, defined as companies listed on the New York Stock Exchange, American Stock Exchange or traded in the national Over the Counter Market.

Posted ContentDOI
TL;DR: In this article, the authors examined daily open-to-close returns of major stock market indices on the New York Stock Exchange, Tokyo Stock Exchange and the London Stock Exchange over the 1985-1990 period, which encompasses the October 1987 Stock Market Crash.
Abstract: This paper examines daily open-to-close returns of major stock market indices on the New York Stock Exchange, Tokyo Stock Exchange and the London Stock Exchange over the 1985-1990 period, which encompasses the October 1987 Stock Market Crash. We estimate volatility spillover effects across the 24 hour day using a GARCH-M model. We find evidence that volatility spillover effects emanating from Japan have been gathering strength over time, especially after the 1987 Crash. This may reflect a growing awareness by domestic investors of the economic interdependence of international financial markets since the 1987 Stock Market Crash.

ReportDOI
TL;DR: This paper examined the effect of public opinion polls on the Toronto Stock Exchange during the campaign period of the 1988 Canadian general election and found that the Toronto stock exchange was positively related to Conservative popularity as measured by polls.
Abstract: This paper examines the effect of public opinion polls on the Toronto Stock Exchange during the campaign period of the 1988 Canadian general election. Two hypotheses are investigated: first, did polls influence the Toronto Stock Exchange and, secondly, if so, did the nature of the influence suggest that investors were reacting to expectations concerning the Canada-U.S. Free Trade Agreement? The author finds that the Toronto Stock Exchange was positively related to Conservative popularity as measured by polls, but that the differential movement of Toronto Stock Exchange subindices, while not inconsistent with a Free Trade Agreement based interpretation, does not offer much additional supporting evidence.