Showing papers on "Stock (geology) published in 1983"

The Fiscal and Monetary Linkage between Stock Returns and Inflation

Abstract: Contrary to economic theory and common sense, stock returns are negatively related to both expected and unexpected inflation We argue that this puzzling empirical phenomenon does not indicate causality Instead, stock returns are negatively related to contemporaneous changes in expected inflation because they signal a chain of events which results in a higher rate of monetary expansion Exogenous shocks in real output, signalled by the stock market, induce changes in tax revenue, in the deficit, in Treasury borrowing and in Federal Reserve “monetization” of the increased debt Rational bond and stock market investors realize this will happen They adjust prices (and interest rates) accordingly and without delay Although expected inflation seems to have a negative effect on subsequent stock returns, this could be an empirical illusion, since a spurious causality is induced by a combination of: (a) a reversed adaptive inflation expectations model and (b) a reversed money growth/stock returns model If the real interest rate is not a constant, using nominal interest proxies for expected inflation is dangerous, since small changes in real rates can cause large and opposite percentage changes in stock prices

Stock Market Returns and Inflation: Evidence from Other Countries

Abstract: This paper investigates the relation between common stock returns and inflation in twenty-six countries for the postwar period. Our results do not support the Fisher Hypothesis, which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one-to-one correspondence with expected inflation. There is a consistent lack of positive relation between stock returns and inflation in most of the countries.

The Effect of Voluntary Spin-off Announcements on Shareholder Wealth

Abstract: This paper presents estimates of the effect of a voluntary spin-off announcement on shareholder wealth. The results show that spin-off announcements have a positive influence on stock prices and that the relative increase in share price is greater for large spin-offs than for small ones.

The Relation between Stock Prices and Inflationary Expectations: The International Evidence

Abstract: This paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971-80. The Fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world. Using interest rates as a proxy for expected inflation, our data provide consistent support for the Geske and Roll model whose basic hypothesis is that stock price movements signal (negative) revisions in inflationary expectations. Finally, a weak real interest rate effect was found for some of these countries.

The Reaction of Stock Prices to Unanticipated Changes in Money: A Note

Abstract: MUCH OF THE PAST work on the money-stock market relationship centered on the question of whether money is a leading indicator of stock prices. Studies by Sprinkel [22], Homa and Jaffee [10], and Hamburger and Kochin [8] supported the view that past increases in money lead to increases in equity prices. The implication of this work was that investors could earn above normal proflts by using a trading strategy based on the observed behavior of the money stock. This contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist. Subsequent research by Cooper [3], Pesando [17], Rozeff [21], and Rogalski and Vinso [19] has shown that past money changes do not contain predictive information on stock prices, upholding the efficient markets view. This paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis. Unlike the above research, therefore, the focus is on the very short-run response of stock prices to both anticipated and unanticipated announced changes in money. Recent work by Berkman [1], Grossman [7], Urich and Wachtel [25], and Roley [20] indicates that short-term interest rates respond only to the unexpected component of the announcement, with short-term rates rising when the announced change in money exceeds the expected change.' Berkman also examined the reaction of stock prices, finding that an unanticipated increase in the money supply depressed share prices. Lynge [13] found that positive money announcements lowered stock prices, but since he did not distinguish expected from unexpected money growth, his results do not bear directly on the efficient markets issue. In investigating the response of stock prices to weekly money announcements, survey data on market participants' forecasts of the announced weekly change

Year‐End Tax‐Induced Sales and Stock Market Seasonality

Abstract: The paper relates two phenomena in the stock market: the high return during the month of January and the apparent existence of widespread sales of stocks for tax purposes towards the end of the fiscal year. The findings suggest that, due to the taxinduced sales, the price of many stocks over the last 35 years was temporarily depressed in December but recovered in the following January. This price recovery is a major contributor to the high returns observed in January. The tax effect is present in firms of all sizes but much more pronounced for small firms. The analysis also indicates that a more precise identification of the tax-switch candidates may prove that the taxinduced sales are, in fact, the sole contributor to the high January's returns. THE ISSUE OF SEASONALITY in the stock market has attracted the attention of researchers for some time. Rozeff and Kinney [13] present evidence of seasonality in the market index with the months of January and July having a peak return. The seasonal movements in the average return in the market could not be fully accounted for by a corresponding seasonal pattern in the market risk. They offer three explanations to this phenomenon: tax-induced sales, release of accounting information, and seasonal demand for cash. The first explanation has received some support from recent research. Dyl [4] studied the effects of capital gain taxes on trading volumes of common stocks and concluded that "capital gain taxes affect investors' year-end portfolio decisions, and that this effect is, in turn, reflected in the trading volumes of common stocks in December" (p. 174). McEnally [10] and Branch [2] studied the effects of the tax-induced trading on securities return and found that depressed stocks at the end of the year are likely to bounce back immediately after year-end. The existence of a pronounced seasonal behavior in the market might suggest some form of market inefficiency: a strategy under which stocks are bought towards the end of the year and sold at the beginning of the following year might yield an abnormal return. Despite the seasonal behavior of stock returns, it would be indeed surprising if this regularity, which has not gone unnoticed by the financial community, could be exploited to bring a risk-adjusted excess return. The objective of this paper is to examine jointly the two phenomena: tax

Unseasoned New Issue Price Performance on Three Tiers: 1975-1980

Abstract: With almost cyclical regularity popular business periodicals publish articles with titles such as "Hot New Issues," "New Issues Stock Boom Nears," and "New Issues Become the Rage Again." Recently, there has been a resurgence of these articles as numerous high-technology and energy related firms approach the equity market. These articles typically highlight the speculative nature of these stocks, their regulation, and the phenomenal price appreciation that some of them experience. In addition, these articles tend to incite "speculative fever" in the small investor, who finds that the lower priced new issues allow him/her to participate in the latest "best game in town."

Large Losses, Risk Management and Stock Prices

Abstract: Large losses are a major concern of a firm and represent a special problem for its risk manager. The risk manager's function is to minimize the impact of these losses as part of the overall objective of maximizing the wealth of the owners of the firm. This paper evaluates the behavior of the firm's stock price once a large loss occurs and shows that large losses generally have an impact on the market price of the firm's stock.

Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns

Abstract: The tax law confers upon the investor a timing option--to realize capital losses and defer capital gains. With the tax rate on long term capital gains and losses being about half the short term rate, the tax law provides a second timing option--to realize capital losses short term and realize capital gains long term, if at all. Our theory and simulation with actual stock prices over the 1962-1977 period establish that the second timing option is extremely valuable: Taxable investors should realize their long term capital gains in high variance stocks and repurchase the same or similar stock, in order to reestablish the short-term status and realize potential future losses short term.Tax trading does not explain the positive abnormal returns of small firms. In the presence of transactions costs, tax trading predicts that the volumeof tax-loss selling increases from January to December and ceases inthe first few days of January. The trading volume seasonal maps into a stockprice seasonal only if tax-loss sellers are assumed irrational or ignorant of the price seasonality.

A Theoretical Model for Valuing Preferred Stock

Abstract: This paper develops a model of preferred stock value which includes the possibility of dividends on the preferred stock being omitted. The analytical framework used is based on the option-hedging methodology of Black and Scholes. Precise valuation formulae are obtained for cumulative and noncumulative preferred stock in a variety of contexts. The values obtained are quite different from those for either riskless or risky perpetual bonds, which have previously been proposed as being similar to preferred stock. SINCE 1970, AN AVERAGE of 3 billion dollars worth of capital has been raised annually by corporations in the United States in the form of preferred stock. In spite of this impressive figure, there has been very little theoretical analysis of preferred stock valuation. While previous analysis (e.g., Merton [9] and Ingersoll [7]) has treated preferred stock as a corporate consol bond, this view is not taken here, for an essential feature of preferred stock is that omission of the dividend is permissible and does not precipitate bankruptcy, whereas this would happen if a bond coupon payment were missed. Corporations can and do fail to pay preferred dividends from time to time, particularly in times of severe economic depression. Herein is developed a theory of preferred stock valuation. The return-generating process for the firm is assumed to be a continuous time diffusion and the option hedging arguments of Black and Scholes [2], Cox and Ross [4], and other authors can be used to derive a functional form of preferred stock value in terms of firm value and dividend arrearage. The key to the valuation theory lies in a particular assumption about the conditions under which preferred stock dividends are omitted. This assumption is that all dividends are omitted whenever firm value falls below some critical amount. All the theory is developed subject to this assumption. Section I of this paper discusses whether such an assumption is reasonable. This section carefully examines conditions under which rational management, seeking to maximize common shareholder wealth, would pay dividends as suggested. In Section II, the basic model is described and solved. Some generalization is obtained in Section III, where allowance is made for the possible coexistence of other claims such as bonds. Illustrative solutions to the model are provided

Quality Control in the Production of Forest Planting Stock

Abstract: Plantation performance depends on the outcome of an interaction between the stock planted and its environment. Immediately after planting, it is the degree to which stock is pre-adapted to site con...

Stock dividends as signals

Abstract: This study analyzes stock dividends as signals from managers. It is argued that in the presence of information asymmetries between managers and investors, stock dividends provide a relatively inexpensive and unambiguous signalling device. Based on an examination of the daily returns around 317 stock dividend announcements, it is concluded that these announcements are interpreted by investors as signals from managers. Further analysis also indicates that stock dividend size is positively related to announcement day returns.

Adaptive Probing Strategies for Age-Structured Fish Stocks

Abstract: This paper examines methods of preventing a stock of fish from being held far below its optimal size. Such sustained overexploitation could arise because the model used to manage the stock poorly represented the stock dynamics, because there are significant errors in the estimates of stock abundance, or because there is insufficient contrast in catch and fishing mortality to generate reliable estimates of the productive potential of the stock. We develop a method to correct for biases due to errors in estimates of abundance and show that this correction does improve estimates of productivity, but not sufficiently to enable a manager to recognize the presence of overexploitation. We demonstrate that the management system must generate significant contrast in catch and effort, and once the contrast is generated the managers can easily find near optimal abundance of the stock. With reasonable levels of contrast even very simple surplus production models will perform well when managing complex age-structured ...

The Weak-Form Efficiency of the Finnish and Scandinavian Stock Exchanges: A Comparative Note on Thin Trading

Abstract: This note adds to previous Scandinavian evidence produced by the Jennergren & Korsvold (1974, 1975),' Jennergren (1975), Jennergren & ToftNielsen (1977), Korhonen (1977) and S0rensen (1982) studies of stock market return randomness. In daily data sets from the Oslo and Stockholm Stock Exchanges, Jennergren & Korsvold (1975) found evidence of nonrandomness in a majority of the 45 stocks studied. A similar result was later reported for the Copenhagen exchange by Jennergren & Toft-Nielsen (1977). Subsequent studies by Jennergren (1975) and S0rensen (1980) further indicated that the serial correlation inherent in Stockholm and Copenhagen data was strong enough to allow supernormal yields on simple filter strategies.2 The data for our study consist of daily trading or, when closings did not occur, bid prices adjusted for dividends and issues for all stocks quoted on the Helsinki Stock Exchange (HESE) between February 2, 1970 and December 31, 1981, along with data on daily trading volumes for the years 1977-81.3 The price file is based on the KOP-index file.4 Throughout this note, comparisons with previous results for other Scandinavian exchanges are made. Allowing for variations in sample periods, we attempt a study of whether a smaller annual turnover of an exchange effects the degree of nonrandomness exhibited by its stock returns. Of the

The measurement of capital services in production for UK regions, 1968–78

Abstract: Harris R. I. D. (1983) The measurement of capital services in production for UK regions, 1968–78, Reg. Studies 17, 169–180. The purpose of this study is to obtain meaningful measures of the factor input capital, so that estimation of the production function is possible at a regional level. Firstly, gross stock measures are converted into a net stock series and the series obtained are then adjusted for levels of utilization. Finally, some use of the data is made to look at various issues such as: which regions have experienced rapid growth in capital stocks; the composition of these stocks; and changes in the capital-labour ratios which have resulted.

Optimal stock trading with personal taxes: implications for prices and the abnormal

Abstract: The tax law confers upon the investor a timing option--to realize capital losses and defer capital gains. With the tax rate on long term capital gains and losses being about half the short term rate, the tax law provides a second timing option--to realize capital losses short term and realize capital gains long term, if at all. Our theory and simulation with actual stock prices over the 1962-1977 period establish that the second timing option is extremely valuable: Taxable investors should realize their long term capital gains in high variance stocks and repurchase the same or similar stock, in order to reestablish the short-term status and realize potential future losses short term.Tax trading does not explain the positive abnormal returns of small firms. In the presence of transactions costs, tax trading predicts that the volumeof tax-loss selling increases from January to December and ceases inthe first few days of January. The trading volume seasonal maps into a stockprice seasonal only if tax-loss sellers are assumed irrational or ignorant of the price seasonality.

The effect of market conditions and risk classifications on market model parameters

Abstract: This article reports the results of tests used to detect shifts in market model parameters during bull and bear market conditions. The evidence indicates that the parameters exhibit nonstationarity during market advances and market declines for certain predetermined stock groups. Specifically, the parameters of stocks in high-risk and low-risk classifications behave as if they are affected by the alternating forces of bull and bear markets.

Do share price and stock splits matter

Abstract: w % does not provide for the extraction of any information from absolute share price level, the idea persists in the minds of many investors that $20 worth of equity divided into 10 shares of $2 each is somehow different from a single $20 share. Therefore, this study explores the relationship among several factors of interest to investors in common stocks: the annual trading range of the security, absolute share price level, a qualitative risk factor, and stock split activity. Those who hold preconceived ideas about the merits of inexpensive shares are polarized. Graham and Dodd ([lo], page 649), for instance, state, ”It is a commonplace of the market that an issue will rise more steadly from 10 to 40 than from 100 to 400.” Edmister and Greene ([5], page 40) conclude, ”risk-adjusted performance is superior for the low-price (<$lo) and super-low-price stock (<$3).” Other work ([l], [4], [ll]) holds that, ceteris paribus, these beliefs are inaccurate and that low-priced securities tend to move through wider relative price ranges because lowpriced stocks are more “risky” than higher priced securities. In a similar vein, some investors and security analysts continue to be resolute in their conviction that stock splits are a favorable occurrence rather than a neutral event. The next section of this study examines the relationship between stock price and annual trading range. We then look at price and risk class, and conclude with a discussion of the results and a summary.