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Stock exchange

About: Stock exchange is a research topic. Over the lifetime, 39566 publications have been published within this topic receiving 612044 citations.


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TL;DR: Fama et al. as discussed by the authors found that 30% of the variance in stock returns can be explained by a combination of shocks to expected cash flows, time-varying expected returns, and expected return shocks.
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

1,585 citations

Journal ArticleDOI
TL;DR: In this paper, the authors investigated whether differences in information-based trading can explain observed differences in spreads for active and infrequently traded stocks and found that the probability of information based trading is lower for high volume stocks.
Abstract: This article investigates whether differences in information-based trading can explain observed differences in spreads for active and infrequently traded stocks. Using a new empirical technique, we estimate the risk of information-based trading for a sample of New York Stock Exchange (NYSE) listed stocks. We use the information in trade data to determine how frequently new information occurs, the composition of trading when it does, and the depth of the market for different volume-decile stocks. Our most important empirical result is that the probability of information-based trading is lower for high volume stocks. Using regressions, we provide evidence of the economic importance of information-based trading on spreads.

1,574 citations

Journal ArticleDOI
TL;DR: In this paper, the authors test whether the reaction of international stock markets to oil shocks can be justified by current and future changes in real cash flows and/or changes in expected returns.
Abstract: We test whether the reaction of international stock markets to oil shocks can be justified by current and future changes in real cash flows and/or changes in expected returns. We find that in the postwar period, the reaction of United States and Canadian stock prices to oil shocks can be completely accounted for by the impact of these shocks on real cash flows alone. In contrast, in both the United Kingdom and Japan, innovations in oil prices appear to cause larger changes in stock prices than can be justified by subsequent changes in real cash flows or by changing expected returns.

1,570 citations

Journal ArticleDOI
TL;DR: In this paper, the authors explored the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids and revealed significant differences in the abnormal returns between common stock exchanges and cash offers.
Abstract: This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment. RECENT STUDIES ON CORPORATE takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms.1 Substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals. The existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers' acquisition motivations. Nevertheless, the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue. It is observed, however, that mergers are usually common stock exchange offers whereas tender offers are usually cash offers. Given that different methods of financing a project have different signalling implications (Myers and Majluf [39]), the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing.

1,562 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system and found that a substantial amount of multi-lateral interaction is detected among national stock markets.
Abstract: This paper investigates the international transmission mechanism of stock market movements by estimating a nine-market vector autoregression (VAR) system. Using simulated responses of the estimated VAR system, we (i) locate all the main channels of interactions among national stock markets, and (ii) trace out the dynamic responses of one market to innovations in another. Generally speaking, a substantial amount of multi-lateral interaction is detected among national stock markets. Innovations in the U.S. are rapidly transmitted to other markets in a clearly recognizable fashion, whereas no single foreign market can significantly explain the U.S. market movements. Also, the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets.

1,517 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
20232,414
20225,944
20211,840
20202,645
20192,535
20182,413