Showing papers on "Stock exchange published in 1998"

Valuation Ratios and the Long-Run Stock Market Outlook

Abstract: The use of price–earnings ratios and dividend-price ratios as forecasting variables for the stock market is examined using aggregate annual US data 1871 to 2000 and aggregate quarterly data for twelve countries since 1970. Various simple efficient-markets models of financial markets imply that these ratios should be useful in forecasting future dividend growth, future earnings growth, or future productivity growth. We conclude that, overall, the ratios do poorly in forecasting any of these. Rather, the ratios appear to be useful primarily in forecasting future stock price changes, contrary to the simple efficient-markets models. This paper is an update of our earlier paper (1998), to take account of the remarkable behavior of the stock market in the closing years of the twentieth century.

Why Do Companies List Shares Abroad?: A Survey of the Evidence and Its Managerial Implications

Abstract: The purpose of this monograph is to survey the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. My focus is on the valuation and liquidity effects of the listing decision, and the impact of listing on the company's global risk exposure and its cost of equity capital. The evidence shows: (1) share prices reacts favorably to cross-border listings in the first month after listing; (2) post-listing price performance up to one year is highly variable across companies depending on the home and listing market, its capitalization, capital-raising needs and other company-specific factors; (3) post-listing trading volume increases on average, and, for many issues, home-market trading volume increases also; (4) liquidity of trading in shares improves overall, but depends on the increase in total trading volume, the listing location and the scope of foreign ownership restrictions in the home market; (5) domestic market risk is significantly reduced and is associated with only a small increase in global market risk and foreign exchange risk, which can result in a net reduction in the cost of equity capital of about 126 basis points; (6) American Depositary Receipts represent an effective vehicle to diversify U.S.-based investment programs globally; (7) stringent disclosure requirements are the most important impediment to cross-border listings.

Spontaneous Harmonization Effects of Culture and Market Forces on Accounting Disclosures Practices

Abstract: This empirical study of 256 companies from seven countries examines whether cultural and market forces correlate with the level of annual report disclosures, from the perspective of investors. The primary findings show that the secretiveness of a culture does underlie disclosure practices of its business enterprises. The market forces that significantly influence more disclosures are higher levels of foreign sales, lower debt ratios, and larger total assets. Secondary findings show that local enterprises, but not international enterprises, disclose financial information commensurate with the secretiveness of their home culture. Enterprises operating in the global culture, on the other hand, appear to be disclosing higher levels of information than dictated by their local culture, perhaps in order to obtain resources at reasonable costs. These findings may be useful to the International Organization of Securities Commissions in their effort to harmonize financial reporting of companies listing on foreign stock exchanges.

International Cross-Listing and Visibility

Abstract: This study tests the hypothesis that non-domestic cross-listing is associated with increased firm visibility. We examine visibility changes on the two exchanges with the largest number of non-domestic listings: the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE). Noting that the costs associated with NYSE listing are greater than those for LSE listing, we also test the hypothesis that non-domestic cross-listing on the NYSE is associated with larger visibility increases than LSE listing. Our proxies for visibility are analyst coverage and media attention. Our tests using analyst coverage generally support our hypothesis that non-domestic cross-listing increases visibility, while tests using media attention provide partial support of the hypothesis. Further empirical tests support the hypothesis that non-domestic cross-listing on the NYSE is associated with a larger visibility increase than on the LSE, which partially compensates firms for the higher costs associated with NYSE listing. All of our results are robust to conditioning on the firm's home country capital market type (developed or emerging); the country's geographical region; analysts' tendencies to initiate coverage on firms with good prospects; and the popularity of a firm's industry or country.

An Equilibrium Model with Restricted Stock Market Participation

Abstract: This article solves the equilibrium problem in a pure-exchange, continuous-time economy in which some agents face information costs or other types of frictions effectively preventing them from investing in the stock market. Under the assumption that the restricted agents have logarithmic utilities, a complete characterization of equilibrium prices and consumption/investment policies is provided. A simple calibration shows that the model can help resolve some of the empirical asset pricing puzzles. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Short sales are almost instantaneously bad news: Evidence from the Australian Stock Exchange

Abstract: This paper investigates the market reaction to short sales on an intraday basis in a market setting where short sales are transparent immediately following execution. We find a mean reassessment of stock value following short sales of up to -0.20 percent with adverse information impounded within fifteen minutes or twenty trades. Short sales executed near the end of the financial year and those related to arbitrage and hedging activities are associated with a smaller price reaction; trades near information events precipitate larger price reactions. The evidence is generally weaker for short sales executed using limit orders relative to market orders. THIS ARTICLE ANALYZES THE INTRADAY price behavior surrounding short sales executed using market and limit orders within a transparent setting. A number of recent studies have focused on daily or monthly stock price behavior surrounding short selling activity in U.S. markets (e.g., Senchack and Starks (1993), Figlewski and Webb (1993), Conrad (1994), Hanley, and Seyhun (1994), Asquith and Meulbroek (1996), and Dechow et al. (1997)). This research has been motivated by the continued interest of market regulators i:n short selling activity and the controversy surrounding the desirability, restrictions, and disclosure requirements related to short selling (see Janvey (1992) and Ramsay (1993)). In particular, several studies such as that by Figlewski and Webb (1993) have examined the relationship between short positions and subsequent abnormal returns without finding a strong relationship. Asquith and Meulbroek (1996), in contrast, focus on firms with large short positions and find a strong and consistent relationship. Dechow et al. (1997) find a correlation between short selling strategies and strategies based on fundamental analysis. These results are consistent with short sellers being able to identify

On-line portfolio selection using multiplicative updates

Abstract: We present an on-line investment algorithm that achieves almost the same wealth as the best constant-rebalanced portfolio determined in hindsight from the actual market outcomes. The algorithm employs a multiplicative update rule derived using a framework introduced by Kivinen and Warmuth. Our algorithm is very simple to implement and requires only constant storage and computing time per stock in each trading period. We tested the performance of our algorithm on real stock data from the New York Stock Exchange accumulated during a 22-year period. On these data, our algorithm clearly outperforms the best single stock as well as Cover's universal portfolio selection algorithm. We also present results for the situation in which the investor has access to additional “side information.”

Investment intelligence from insider trading

Abstract: Part 1 Insider-trading patterns. Part 2 Does insider trading predict future stock returns?. Part 3 A stock-picking strategy. Part 4 Predicting future market returns. Part 5 Crash of October 1987 and insider trading. Part 6 Dividend yields and insider trading. Part 7 Dividend initiations. Part 8 Earnings announcements. Part 9 Price-earnings ratio. Part 10 Book-to-market ratio. Part 11 Insiders trading in target firms. Part 12 Insider trading in bidder firms. Part 13 Momentum and mean reversion. Part 14 Implementation and conclusions.

Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience

Abstract: From 1990 to 1993, the typical firm on the Tokyo Stock Exchange lost more than half its value and banks experienced severe adverse shocks. We show that firms whose debt had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993. This effect is statistically as well as economically significant and holds when we control for a variety of variables that affect firm performance during this period of time. We find that firms that were more bank-dependent also invested less during this period than other firms. We also show that exogenous shocks to banks during the negotiations leading to the Basle Accord affected bank borrowers significantly.

Forecasting S&P 500 stock index futures with a hybrid AI system

Abstract: This study presents a hybrid AI (artificial intelligence) approach to the implementation of trading strategies in the S&P 500 stock index futures market The hybrid AI approach integrates the rule-based systems technique and the neural networks technique to accurately predict the direction of daily price changes in S&P 500 stock index futures By highlighting the advantages and overcoming the limitations of both the neural networks technique and rule-based systems technique, the hybrid approach can facilitate the development of more reliable intelligent systems to model expert thinking and to support the decision-making processes Our methodology differs from other studies in two respects First, the rule-based systems approach is applied to provide neural networks with training examples Second, we employ Reasoning Neural Networks (RN) instead of Back Propagation Networks Empirical results demonstrate that RN outperforms the other two ANN models (Back Propagation Networks and Perceptron) Based upon this hybrid AI approach, the integrated futures trading system (IFTS) is established and employed to trade the S&P 500 stock index futures contracts Empirical results also confirm that IFTS outperformed the passive buy-and-hold investment strategy during the 6-year testing period from 1988 to 1993

The Conditional Performance of Insider Trades

Abstract: This paper estimates the performance of insider trades on the closely held Oslo Stock Exchange (OSE) during a period of lax enforcement of insider trading regulations. Our data permits construction of a portfolio that tracks all movements of insiders in and out of the OSE firms. Using three alternative performance estimators in a time-varying expected return setting, we document zero or negative abnormal performance by insiders. The results are robust to a variety of trade characteristics. Applying the performance measures to mutual funds on the OSE, we also document some evidence that the average mutual fund outperforms the insider portfolio.

The Conditional Performance of Insider Trades

Abstract: This paper estimates the performance of insider trades on the closely held Oslo Stock Exchange (OSE) during a period of lax enforcement of insider trading regulations Our data permit construction of a portfolio that tracks all movements of insiders in and out of the OSE firms Using three alternative performance estimators in a time-varying expected return setting, we document zero or negative abnormal performance by insiders The results are robust to a variety of trade characteristics Applying the performance measures to mutual funds on the OSE, we also document some evidence that the average mutual fund outperforms the insider portfolio CORPORATE INSIDERS, IE, INDIVIDUALS closely related to the firm either through direct employment or through participation on supervisory committees and boards, will from time to time possess information about the firm’s future cash f low which is not yet ref lected in the firm’s stock price Insiders who trade on the basis of such information tend to purchase stocks just prior to abnormal price increases and to sell just prior to abnormal price declines Employing traditional event-study techniques, in which equal-weighted average abnormal stock returns are estimated over a fixed time period following insider trades, the extant empirical literature tends to support this “buy low and sell high” hypothesis For example, Jaffe (1974) and Seyhun (1986) present evidence of significant abnormal stock returns following reported insider trades on the New York and the American Stock Exchanges Similarly, Baesel and Stein (1979) and Fowler and Rorke (1984) conclude that insiders on the Toronto Stock Exchange earn abnormal profits, and Pope, Morris, and Peel (1990) reach a similar conclusion for firms in the United Kingdom * Eckbo is with the Stockholm School of Economics and the Norwegian School of Economics and Business Administration; Smith is at the Norwegian School of Management We are grateful for the comments of Mark Britten-Jones, Oyvind Bohren, Glen Donaldson, Michael Cooper, Thore Johnsen, Kenneth Khang, Lisa Kramer, Ananth Madhavan, Maurizio Murgia, Rene Stulz (the editor), Raman Uppal and, in particular, Wayne Ferson We also thank seminar participants at the Central Bank of Norway, Concordia University, London Business School, Norwe

Do Inventories Matter in Dealership Markets? Evidence from the London Stock Exchange

Abstract: Using London Stock Exchange data, we test the central implication of the canonical model of Ho and Stoll (1983) that relative inventory differences determine dealer behavior. We find that relative inventories explain which dealers obtain large trades and show that movements between best ask, best bid, and straddle are highly correlated with both standardized and relative inventory changes. We show thalt the mean reversion in inventories is highly nonlinear and increasing in inventory levels. We show that a key determinant of variations in interdealer trading is inventories and that interdealer trading plays an important role in managing large inventory positions. SUBSTANTIAL EMPIRICAL PROGRESS has been made in market microstructure literature in analyzing the components of the bid-ask spread and in analyzing information-based models of the bid-ask spread, but little progress has been made in the empirical analyses of inventory models of dealership markets. This is somewhat surprising given that the early theoretical work in the market microstructure area due to Garman (1976), Amihud and Mendelson (1980), and Ho and Stoll (1980, 1981, 1983) dealt primarily with the inventory hypothesis. In fact, Ho and Stoll's (1983) model makes strong predictions about the distribution of inventories and about the relationship between inventories and quote placement behavior.1

Stock Repurchases and Incentive Compensation

Abstract: A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. Consistent with the stock option hypothesis, I find that firms which rely heavily on stock-option-based compensation are significantly more likely to repurchase their stock than firms which rely less heavily on stock options to compensate their top executives. I find no such relationship between repurchases and restricted stock, an alternative form of stock-based compensation that, unlike stock options, is not diluted by dividend payments. These findings have implications for the study of other puzzles concerning firms' payout behavior, and for the study of the effects of executive compensation packages on managerial incentives.

Does Risk Sharing Motivate Interdealer Trading

Abstract: We use unique data from the London Stock Exchange to test whether interdealer trade facilitates inventory risk sharing among dealers. We develop a methodology that focuses on periods of “extreme” inventories—inventory cycles. We further distinguish between inventory cycles that are unanticipated and those that are anticipated because of “worked” orders. The pattern of interdealer trade during inventory cycles matches theoretical predictions for the direction of trade and the inventories of trade counterparts. We also show that London dealers receive higher trading revenues for taking larger positions.

Corporate Accounting Disclosure in ASEAN

Abstract: This article analyses corporate annual report disclosure practices in five ASEAN countries: Singapore, Malaysia, Indonesia, the Philippines and Thailand. The purpose is twofold. First, to ascertain the extent, pattern and nature of corporate disclosure in ASEAN. Second, to reveal whether existing disclosure requirements would be conducive to accounting harmonisation in the ASEAN region. Data sources are the annual reports of 145 public companies listed on ASEAN stock exchanges, and disclosure requirements in companies legislation and stock market regulations. A disclosure checklist and a model are used to analyse disclosure practices. The results reinforce and extend extant international studies of disclosure practices. They are thought likely to benefit those seeking to operate public companies in ASEAN and those contemplating accounting harmonisation in ASEAN.

Is Foreign Exchange Risk Priced in the Japanese Stock Market

Abstract: The exchange rate is an important variable that affects international competitiveness and performance of Japanese firms. We use an unconditional and a conditional multi-factor asset pricing model to examine whether exchange risk is recognized and priced in the Japanese stock market. The results indicate that the exchange risk is generally priced in Japan. More specifically, we provide evidence, in the unconditional model, that the exchange risk is priced in both weak and strong yen periods, when the bilateral yen/U.S. dollar exchange rate measure is used. The results are more mixed when the trade-weighted exchange rate is used. For the conditional model, the exchange risk is priced regardless of the exchange rate measure used. The combined evidence from the two models suggests an interesting observation about the role of the secular exchange rate trend in shaping the perception of exchange risk in the Japanese capital markets.

Disclosure Requirements and Stock Exchange Listing Choice in an International Context

Abstract: We use a rational expectations model to examine how public disclosure requirements affect listing decisions by rent-seeking corporate insiders, and allocation decisions by liquidity traders seeking to minimize trading costs. We find that exchanges competing for trading volume engage in a "race for the top" where under disclosure requirements increase and trading costs fall. This result is robust to diversification incentives of risk-averse liquidity traders, institutional impediments that restrict the flow of liquidity, and listing costs. Under certain conditions, unrestricted liquidity flows to low disclosure exchanges. The consequences of cross-listing also are modeled.

Stock Market Wealth and Consumer Spending

Abstract: Martha Starr-McCluer (*) This article investigates the effects of stock market wealth on consumer spending. Traditional macroeconometric models estimate that a dollar's increase in stock wealth boosts consumption by three to seven cents. With the substantial 1990s rise in stock prices, the nature and magnitude of this "wealth effect" have been much debated. After describing the issues and previous research, I present new evidence from a well-known consumer survey. The results are broadly consistent with life-cycle saving and a modest wealth effect: most stockholders reported no appreciable effect of stock prices on their saving or spending, but many mentioned "retirement saving" in explaining their behavior. (JEL E21, E30, D12) I. INTRODUCTION The relationship between stock market wealth and consumer spending has been a subject of long-standing interest. Traditional macroeconometric models estimate that a dollar's increase in household wealth boosts consumer spending by three to seven cents per year. Such an effect is consistent with predictions from a simple life-cycle model, in which consumers spend more over their lifetimes in response to higher wealth. However, the stock market is known to play a role as a passive predictor of information. Thus it is also possible that stock prices simply lead aggregate economic activity, without any short-run change in spending induced by changes in wealth. Understanding the response of spending to changes in wealth is important for determining how stock market fluctuations affect the macroeconomy. The question also bears directly on theories of saving behavior, and on the issue of retirement preparedness by today's workers. The experience of the past few years provides an interesting opportunity to revisit this issue. Stock prices increased substantially in the 1990s, with the Standard & Poor's 500 more than doubling from 1994 to 1997 and rising another 44% through 1999. At the same time, stock ownership broadened considerably, mostly through mutual funds and retirement accounts, so that a large number of households likely experienced wealth gains. The increase in wealth might be expected to boost consumer spending and lower the saving rate, and indeed these trends occurred. However, it is hard to separate the influence of the "wealth effect" from other factors that also would have promoted spending, such as strong income growth and favorable labor market conditions. This article presents some new evidence on the response of spending to changes in wealth. The data come from the Michigan Survey Research Center (SRC) Survey of Consumers, an ongoing, nationally representative survey of U.S. households. In interviews conducted between July and September 1997, households owning stock were asked special questions about their spending and saving. The questions covered a number of factors that may influence the effect of wealth on spending, including the value and form of stockholdings, stock price expectations, concerns about retirement, and perceptions of income uncertainty. In brief, the results are broadly consistent with life-cycle saving and a modest wealth effect. The vast majority of stockholders reported no appreciable effect of stock prices on their spending or saving, but many mentioned "retirement saving" in explaining their behavior. The next section reviews previous research on the relationship between stock market wealth and consumer spending. The third section describes the data from the Michigan survey, and the fourth presents the results. A final section summarizes and concludes. II. BACKGROUND AND PREVIOUS RESEARCH To frame the discussion, it is useful to review how an unexpected increase in wealth would affect consumption in a simple lifecycle model. This model, though restrictive in its assumptions, provides valuable intuition about the propensity to consume unexpected stock gains; consequences of refinements to the model are discussed below. …

Markets as cultures: an ethnographic approach

Abstract: The approach to the markets as cultures supposes at least three fields of studies: constitutive rules and roles; local rationality; dynamics of authorities and changes. The paper deals with each of the fields. The methodological issues of the study the markets as cultures are discussed after that. The author supports his statement by giving examples of his own ethnographic studies of the stock exchange, bond market and futures markets on the Wall-street.

The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry

Abstract: This paper analyzes the association between two firm performance measures: stock market returns and relative technical efficiency. Using linear programming techniques (Data Envelopment Analysis and Free Disposal Hull), technical efficiencies are calculated for a panel of eleven US airlines observed quarterly from 1970–1990. A relationship, between efficiency news in a quarter and stock market performance in the following two months, is found. A risky arbitrage portfolio strategy, of buying firms with the most positive efficiency news and short-selling those with the worst news during this time frame, results in zero beta risk yet yields annual returns of 17% and 18% for the two methodologies.

Crises in Developed and Emerging Stock Markets

Abstract: Stock market crises in the developed markets differ in important ways from the crises in emerging stock markets. Our study of nine crises in the 1970–97 period indicates that developed market crises have become less severe over time, in terms of both the extent of price decline and duration, but those in emerging stock markets have not. In both markets, prices fall for at least three years subsequent to recovery from a crisis and the crisis in one market is likely to be followed by crises in most other markets in the region. Nevertheless, even in times of crises, international stocks continue to provide diversification benefits for U.S. investors with long investment horizons.