Showing papers on "Stock (geology) published in 1984"

Stock Prices and Social Dynamics

Abstract: The empirical evidence that is widely interpreted as supporting the efficient markets theory in finance actually does not rule out the possibility that changing fashions or fads among investors have an important influence on prices in financial markets. A model of the impact of such fashions on prices is proposed and used in an exploratory data analysis of the aggregate United States Stock Market in the 20th century. (This abstract was borrowed from another version of this item.)

The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions

Abstract: This paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co-movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.

Stock Prices and Social Dynamics

Abstract: The empirical evidence that is widely interpreted as supporting the efficient markets theory in finance actually does not rule out the possibility that changing fashions or fads among investors have an important influence on prices in financial markets. A model of the impact of such fashions on prices is proposed and used in an exploratory data analysis of the aggregate United States Stock Market in the 20th century.

Stock Prices and Economic News

Abstract: This paper examines the daily response of stock prices to announcements about the money supply, inflation, real economic activity, and the discountrate. Except for the discount rate, survey data on market participants' expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement, the surprise,moves stock prices. The empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices. There is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days. There is also only weak evidence of stock price responses to surprises beyond the announcement day.

The Turn‐of‐the‐Year in Canada

Abstract: A number of investigators have reported that January stock returns in the U.S. exceed returns for other months of the year. This paper documents a similar finding for Canadian stocks over the period 1951-1980. However, Canada did not introduce a capital gains tax until 1973 and the paper reports that January returns in Canada exceed returns for other months of the year before and after this date. Thus, these data do not support the tax-loss-selling-pressure hypothesis as the entire explanation for the turnof-the-year effect in stock returns, nor, by implication, do they support the tax-lossselling-pressure hypothesis as the complete explanation for the "small firm" effect in U.S. stocks returns. RECENTLY KEIM [9] has reported that returns on NYSE and ASE firms with small market values exceed, by significant margins, returns on firms with large market values. This result was previously reported by Banz [1] and Reinganum [11], but Keim's analysis shows that most of the excess return for small firms is concentrated in January.' Indeed, it is concentrated in the first two weeks in January. Roll [13] also documents this phenomenon and investigates a number of possible explanations for it.2 After rejecting several possible "nonexploitable" explanations, Roll is left with year-end tax-loss selling pressure, of the sort discussed by Branch [2], Dyl [5], and Givoly and Ovadia [6], as the most likely explanation of this result. According to the tax-loss-selling-pressure hypothesis, toward the end of the year stockholders sell stocks that have declined in price during the year. Investors do this to take advantage of the opportunity to write-off capital losses against ordinary income in computing their federal income taxes. The year-end sell-off exerts downward pressure on stock prices. As soon as the tax and calendar year ends, the selling pressure is relieved and stock prices quickly rebound to their "equilibrium" levels. Roll [13] presents some evidence consistent with this hypothesis. Specifically, he finds a negative correlation between stock returns in January and returns over the previous 12 months. That is, stocks that decrease in value during the year tend to be big gainers in January. Roll also finds that

Durable good monopolies with rational expectations and replacement sales

Abstract: A monopoly producer of a durable good is examined under the (previously uninvoked) assumption that the good depreciates, and hence that replacement sales must occur if a fixed stock of the good is to be maintained. We find two ways in which the no-depreciation result, that the monopoly will always (at least eventually) produce a stock equal to that produced by a competitive market, may not hold. If the length of the trading period is nonzero, the limiting stock produced by the firm will be lower than the competitive stock, to ensure the profitability of future replacement sales. If the firm is able to constrain its production capacity, it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock.

The Ex‐Dividend Day Behavior of Stock Prices; A Re‐Examination of the Clientele Effect: A Comment

Abstract: IN A RECENT ARTICLE in this journal, Kalay [5] has written an extensive comment on our 1970 article [2] concerning "Marginal Stockholder Tax Rates and the Clientele Effect." While we are flattered that our article is viewed of sufficient importance to gain this attention 12 years after it was written, we do have reservations about Kalay's comments. We are principally concerned with his interpretations of relevant transaction costs and the role they play in setting equilibrium.

The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains

Abstract: This study provides the first econometric analysis of the effect of taxation on the realization of capital gains. The analysis thus extends and complements the earlier study by Feldstein and Yitzhaki [1978] of the effect of taxation on the selling of corporate stock. The present analysis, using a large, new body of data obtained from individual tax returns, supports the earlier finding that corporate stock sales are quite sensitive to tax rates and then shows that the effect on the realization of capital gains is even stronger.

Stock Returns, Beta, Variance and Size: An Empirical Analysis

Abstract: (1984). Stock Returns, Beta, Variance and Size: An Empirical Analysis. Financial Analysts Journal: Vol. 40, No. 4, pp. 36-41.

Stock Prices and Economic News

Abstract: This paper examines the daily response of stock prices to announcements about the money supply, inflation, real economic activity, and the discountrate. Except for the discount rate, survey data on market participants' expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement, the surprise,moves stock prices. The empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices. There is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days. There is also only weak evidence of stock price responses to surprises beyond the announcement day.

Firm Size and the Informational Content of Financial Statements

Abstract: The Capital Asset Pricing Model has been challenged recently by several studies that point to certain anomalies in the capital market related to firm size. Banz [3] reported a nonlinear relation between the aggregate market value of a firm's common stock and the stock's mean return. He found that firms with small market values had large and positive residual returns over a period of at least 40 years. Reinganum [23] found that high earning-price (E/P) stocks had higher returns than low E/P-ratio stocks and that, after controlling for size, the E/P effect largely disappeared. Although they rejected the hypothesis that the anomalies are due to inefficiency in the capital market, the two authors are not able to identify the economic factors that might explain the effect of firm size on the functioning of the capital market.

Stock Market Returns and Real Activity: A Note

Abstract: THIS NOTE PRESENTS empirical results relating a measure of the variability of stock market returns to fluctuations in real economic activity. The results of our tests indicate that changes in the log of real GNP and unemployment are Grangercaused by the variation of stock market returns. This result can be interpreted as being supportive of the notion that the arrival of information relevant to production decisions impacts real output and employment slowly through time. Referred to elsewhere in the literature as the "lagged information hypothesis," this idea is common to a number of models relating changes in real variables to new information about commodity prices (e.g., Lucas [14], Sargent and Wallace [171).1 Based on the concept of rational expectations, the hypothesis is concerned with the predictive content of historical information in explaining real activity. It has been previously examined by, e.g., Sargent [16] and Nelson [15] for the case of known information captured by changes in commodity prices. In this note, we focus instead on information as reflected in security prices. Stock prices should portray a more general index of information (which should encompass information already impounded in commodity prices), and use of stock price data avoids many of the difficulties encountered in measuring and aggregating commodity prices. The relationship between stock returns and economic activity has also been explored in Fama [5], Fama and Gibbons [6], and others in various contexts.

On the Imbalance of Inventories in Multi-Echelon Systems

Abstract: A central depot periodically orders or produces new stock and withdraws inventory in order to allocate it among several demand points, each experiencing random demands over a finite planning horizon. This system gives rise to a dynamic program with a state space of very large dimension. We determine a near-optimal allocation policy and construct a tractable, approximate dynamic program to help determine good orders and withdrawals. This is done by exploring the effects of a measure of the imbalance of inventories at the demand points. Numerical results are included.

Corporate financing and investment decisions when firms have information that investors do not have

Abstract: This paper considers a firm that must issue common stock to raise cash to undertake a valuable investment opportunity. Management is assumed to know more about the firm's value than potential investors. Investors interpret the firm's actions rationally. An equilibrium model of the issue-invest decision is developed under these assumptions.The model shows that firms may refuse to issue stock, and therefore may pass up valuable investment opportunities.The model suggests explanations for several aspects of corporate financing behavior, including the tendency to rely on internal sources of funds, and to prefer debt to equity if external financing is required. Extensions and applications of the model are discussed.

The Gold Standard and the Bank of England in the Crisis of 1847

Abstract: This paper examines the operation of the gold standard and the performance of the Bank of England during the crisis of 1847. The key feature of that crisis has been its origin: it originated from a massive real shock rather than from monetary disorder. A harvest failure gave rise to commercial distress and financial panic.Following a brief outline of the main events during the 1847 crisis, we present asimple model of the financial sector that captures the central characteristics of the crisis. The model, which highlights the role of confidence in both external and internal convertibility, is then used for interpreting the detailed characteristics of the financial crisis.Faced with a confidence crisis leading to international and external monetary drains,the Bank of England suspended Peel's act and thereby was allowed to issue fiat money without being constrained to have full gold backing. Our analysis shows that suspension of Peel's act was the proper policy required for the restoration of confidence. It also sheds light on the role of a lender of last resort in cases of banking panic.As for the evaluation of the gold standard, the 1847 crisis demonstrates that International capital flows have played a key role in the adjustnent mechanism. Further, it demonstrates that in contrast with the traditional representation, the gold standard has not been characterized by automatic, non-discretionary adjustment. On the contrary,banking policies and changes in the reserve-deposits and currency-deposits ratios have affected the money stock independently of gold flows.(This abstract was borrowed from another version of this item.)

The Behavior of Stock Returns: Is It Stationary or Evolutionary?

Abstract: Empirical studies of the behavior of stock returns are important for several reasons. First, the nature of stock return behavior is fundamental to the formulation of the concept of “risk” (or “uncertainty”) in various financial theories and models. Second, the measurement of risk depends heavily on properties (such as the stationarity, long-tailedness, finiteness of the second and higher moments, etc.) of empirical stock return distributions. Third, various tests for the empirical validity of financial models [28] and the applications of these models (e.g., to the evaluation of investment performances [21], [22]) rely to a considerable extent on the steadiness over time of stock return distributions and the constancy of systematic risk. Fourth, several important pricing models for stock options, warrants, convertible debentures, and other similar financial instruments usually require explicit estimates of stock return variances [5]; the usefulness of such models depends largely on the adequacy (e.g., the finiteness, accuracy, etc.) and the stationarity of the variance measurements.

Stock Prices and Monetary Variables: The International Evidence

Abstract: (1984). Stock Prices and Monetary Variables: The International Evidence. Financial Analysts Journal: Vol. 40, No. 2, pp. 69-73.

Ownership structure and control: the mutualization of stock life insurance companies

Abstract: We examine an unusual sample of firms within the life insurance industry: 30 firms which switched from a common-stock to a mutual-ownership structure. Our evidence indicates that the rate of growth of premium income from policyholders remains unchanged, stockholders receive a premium for their stock, and management turnover declines; thus, no group of claimholders systematically loses in the sample of firms which choose to go through the mutualization process. We therefore conclude that for this sample of firms, changing from a stock to a mutual-ownership structure is on average efficiency-enhancing.

Monetary Policy and Real Interest Rates: New Evidence from the Money Stock Announcements

Abstract: This paper presents new evidence on how asset prices respond to new information about the money stock It shows that the information content of money stock announcements and the response of asset prices to new information in the announcements vary with changes in the monetary policy regime, the Federal Reserve operating procedures, and the reserve accounting rules While previous studies have examined how asset prices respond to the money stock announcements under the interest-rate targeting procedure and the nonborrowed reserve procedure, we have included new evidence from the borrowed reserve targeting procedure under both lagged and contemporaneous reserve accounting rules Looking at how both forward exchange rates and other asset prices respond to the announcements, we distinguish between periods when the asset-price response reflected a change in the real interest rate and those when it reflected a change in the inflation premium Finally, we show that the new contemporaneous reserve accounting rules have greatly reduced the information content of the money stock announcements

The effect of estimation risk in establishing safety stock levels in an inventory model

Abstract: This article illustrates the impact of estimation risk on decisions involving a one-period inventory problem such as the Christmas-tree stocking problem. It is shown that when estimation risk is ignored, stock levels may be incorrectly compiled and service levels may be inadequate. This article describes a regression-based method which adjusts the size of the stock by incorporating an additional safety stock requirement which reflects the uncertainty associated with lack of precise knowledge of the true parameters.

Compensation Options for Small Business Management

Abstract: COMPENSATION OPTIONS FOR SMALL BUSINESS MANAGEMENT INTRODUCTION Manager are the most important resource of any business, and countless hours have been spent considering ways to increase their effectiveness. Many feel that an effective compensation arrangement does more to promote management performance than any other action a relatively small but growing firm can take. For example, Peter Drucker points out that ...there is hardly a more powerful signal for managers than compensation and compensation structure. Its importance to them goes far beyond the economic meaning of moeny. It conveys to them the values of top management and their own worth within the management group. It expresses in clear and tangible form a man's position, rank, and recognition within the group.... Other factors, too, may have a significant effect on a manager's performance but the focus of this article is the matter of compensation options and compensation structure. In the bestselling book Megatrends, it is said that many executives are now moving from large to relatively small firms because of the greater flexibility small firms afford in many areas, including management compensation plans. Management reward plans may be more effective in small firms than in large ones, because the effects of a manager's actions on profitability are more immediately apparent. In designing a management reward system, straight bonus payments may be used, but more benefits may accrue to the firm if bonus systems are tied to the firm's stock. When management personnel have a considerable investment in their companies, they are more likely to identify strongly with the firm and its goals. When a firm goes through a difficult period, an executive or manager who owns company stock may make a short-run sacrifice in order to improve the firm's long-term position. Except for qualified profit-sharing and retirement plans, the general case is that corporations cannot claim deductions for employee compensation plans unless the employee is required by law to declare the income. From a tax stand-point therefore, the executive and the corporation may prefer different plans. In any case, the type of plan selected should not be based upon the immediate tax effects on the corporation, but on longer range effects. Discussed in this article are some currently popular forms of management compensation plans and the likely tax effects, advantages, and disadvantages of each type of plan for both the employer and the employee (see table 1). TYPES OF COMPENSATION PLANS A Source of Capital Privately held companies can obtain capital for expansion and/or for acquiring retiring stockholder shares by using a system of stock bonuses or stock purchase by key employee. For growing companies this may be an important source of funds. One very successful large film, for example, pays its managers a percentage of the profits of the units they manage, but withholds a percentage of that payment for purchase of the company's stock. When the firm was young and growing, this was an important source of funds. This firm sells stock to the employees and repurchases it form them at book value. Repurchases before retirement are discouraged because the corporation has the option of repurchasing the stock over a ten-year period. Since many individuals have most of their savings in the firm's stock, this buyback option prevents them from becoming competititors. While this approach is somewhat rigid, it does force key employees into a savings plan which can be quite rewarding if the company does well. With this type of plan employee achieve no tax advantages, because they pay for stock at its current price using after-tax dollars. The firm, however, can deduct the salaries and bonuses paid, and does not have to dealy its deduction for tax purpose as with some other stock plans. …