Showing papers on "Stock (geology) published in 1988"
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TL;DR: In this paper, it was shown that a long historical average of real earnings is a good predictor of the present value of future real dividends, even when the information contained in stock prices is taken into account.
Abstract: This paper presents estimates indicating that, for aggregate U.S. stock market data 1871-1986, a long historical average of real earnings is a good predictor of the present value of future real dividends. This is true even when the information contained in stock prices is taken into account. We estimate that for each year the optimal forecast of the present value of future real dividends is roughly a weighted average of moving average earnings and current real price, with between 2/3 and 3/4 of the weight on the earnings measure. This means that simple present value models of stock market prices can be strongly rejected. We use a vector autoregressive approach which enables us to compute the implications of this for the behavior of stock prices and returns. We estimate that log dividend-price ratios are more variable than, and virtually uncorrelated with, their theoretical counterparts given the present value models. Annual returns on stocks are quite highly correlated with their theoretical counterparts, but are two to four times as variable. Our approach also reveals the connection between recent papers showing forecastability of long-horizon returns on corporate stocks, and earlier literature claiming that stock prices are too volatile to be accounted for in terms of simple present value models. We show that excess volatility directly implies the forecastability of long-horizon returns.
2,073 citations
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01 Jan 1988
TL;DR: In this paper, a vector-autoregressive forecast of the present value of future dividends is presented, for each year, roughly a weighted average of moving-average earnings and current real price, with between two thirds and three fourths of the weight on the earnings measure.
Abstract: Long historical averages of real earnings help forecast present values of future real dividends. With aggregate U.S. stock market data (1871-1986), a vector-autoregressive forecast of the present value of future dividends is, for each year, roughly a weighted average of moving-average earnings and current real price, with between two thirds and three fourths of the weight on the earnings measure. We develop the implications of this for the present-value model of stock prices and for recent results that long-horizon stock returns are highly forecastable. IN THIS PAPER WE present estimates indicating that data on accounting earnings, when averaged over many years, help to predict the present value of future dividends. This result holds even when stock prices themselves are taken into account. The data are the real Standard and Poor Composite Index and associated dividend and earnings series 1871-1987. Our estimates indicate to what extent dividend-price ratios and returns on this index behave in accordance with simple present-value models, and allow us to shed new light on earlier claims that stock prices are too volatile to accord with such models (LeRoy and Porter [14], Shiller [20], Mankiw, Romer, and Shapiro [15], Campbell and Shiller [1, 2], and West
1,746 citations
TL;DR: In this paper, the authors studied the association between a firm's stock returns and subsequent top management changes and found that there is an inverse relation between the probability of a management change and the firm's share performance.
1,723 citations
TL;DR: In this article, the authors investigated whether stock prices are mean-reverting, using data from the United States and 17 other countries, and they found that there is positive and negative autocorrelation in returns over short horizons and negative auto-correlation over longer horizons.
1,666 citations
1,237 citations
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TL;DR: In this article, the authors estimate the fraction of the variance in aggregate stock returns that can be attributed to various kinds of news and show that it is difficult to explain more than one third of the return variance from this source, and explore the possibility that the stock market responds to information that is omitted from their specifications.
Abstract: This paper estimates the fraction of the variance in aggregate stock returns that can be attributed to various kinds of news First, we consider macroeconomic news and show that it is difficult to explain more than one third of the return variance from this source Second, to explore the possibility that the stock market responds to information that is omitted from our specifications, we also examine market moves coincident with major political and world events The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases, casts doubt on the view that stock price movements are fully explicable by news about future cash flows and discount rates(This abstract was borrowed from another version of this item)
989 citations
TL;DR: In this paper, an empirical examination of the relation between trades and quote revisions for New York Stock Exchange-listed stocks is designed to ascertain asymmetric-information and inventory-control effects.
536 citations
TL;DR: This paper found that the ratio of stock purchases to sales by individual investors displays a seasonal pattern, with individuals having a below-normal buy/sell ratio in late December and an above-normal ratio in early January.
Abstract: The average returns on low-capitalization stocks are unusually high relative to those on large-capitalization stocks in early January, a phenomenon known as the turn-of-the-year effect. This paper finds that the ratio of stock purchases to sales by individual investors displays a seasonal pattern, with individuals having a below-normal buy/sell ratio in late December and an above-normal ratio in early January. Year-to-year variation in the early January buy/sell ratio explains forty-six percent of the year-to-year variation in the turn-of-the-year effect during 1971–1985.
481 citations
TL;DR: In this paper, it was shown that a positive rational bubble can start only on the first date of trading of a stock and that the existence of a rational bubble at any date would imply that the stock has been overvalued relative to market fund managers since the first day of trading.
Abstract: Free disposal of equity, which directly rules out the existence of negative rational bubbles in stock pric es, also imposes theoretical restrictions on the possible existence o f positive rational bubbles. The analysis in this paper shows that a positive rational bubble can start only on the first date of trading of a stock. Thus, the existence of a rational bubble at any date woul d imply that the stock has been overvalued relative to market fundame ntals since the first date of trading, and that prior to the first da te of trading the issuer of the stock and potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued. Copyright 1988 by Royal Economic Society.
372 citations
TL;DR: In this paper, the behavior of stock returns surrounding international listings is examined for a sample of firms and it is hypothesized that the international listing of a security should, in general, accompany a reduction in its expected return.
Abstract: Segmentation of capital markets produces incentives for firms to adopt countermeasures, one of which is dually listing their stocks on foreign capital markets. In this paper, the behavior of stock returns surrounding such international listings is examined for a sample of firms. Assuming that the capital markets are either completely or “mildly” segmented beforehand, it is hypothesized that the international listing of a security should, in general, accompany a reduction in its expected return. The sample reveals evidence consistent with this hypothesis.
356 citations
TL;DR: In this paper, the authors developed a model of stock-split behavior in which the split serves as a costly signal of managers' private information because stock trading costs depend on stock prices.
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TL;DR: In this article, the authors estimate the fraction of the variance in aggregate stock returns that can be attributed to various kinds of news and show that it is difficult to explain more than one third of the return variance from this source.
Abstract: This paper estimates the fraction of the variance in aggregate stock returns that can be attributed to various kinds of news. First, we consider macroeconomic news and show that it is difficult to explain more than one third of the return variance from this source. Second, to explore the possibility that the stock market responds to information that is omitted from our specifications, we also examine market moves coincident with major political and world events. The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases, casts doubt on the view that stock price movements are fully explicable by news about future cash flows and discount rates.
TL;DR: In this paper, the authors document a seasonal pattern in stock returns around quarterly earnings announcement dates: small firms show large positive abnormal returns and a sizable increase in the variability of returns around these dates.
TL;DR: The difference between mutual and stock banks lies in who controls the bank and receives the profits as discussed by the authors, and the difference between stock banks and mutual savings banks is that a stock company is owned by stock shareholders, who vote for the firm's managers, distribute its profits, and are free to sell their privileges.
Abstract: MUTUAL associations are something of an oddity in a capitalist economy, but they have long been significant in banking in the United States.1 Mutual savings banks, credit unions, and most savings and loans are mutual associations, while national banks, state banks, trust companies, and some savings and loans are stock companies.2 I will refer to the two categories as mutual banks and stock banks. The difference between mutual and stock banks lies in who controls the bank and receives the profits. A stock company is owned by stockholders, who vote for the firm's managers, distribute its profits, and are free to sell their privileges. Depositors are merely customers. A mutual association is "owned" by its depositors but not controlled by them. As I discuss below, the managers are effectively self-controlling, limited only by government intervention. In savings and loan associations (hereafter called S&Ls) and credit unions, each depositor has the rarely exercised right to vote for the managers of the bank. In mutual savings banks, authorized in only seventeen states (including the New England states and New York), the depositors lack even the fiction of control since they lack the right to
TL;DR: In this article, the authors examined hourly stock returns and trading volume response to announcements about the money supply, consumer price index (CPI), producer price index, industrial production, and the unemployment rate.
Abstract: This paper examines hourly stock returns and trading volume response to announcements about the money supply, consumer price index (CPI), producer price index, industrial production, and the unemployment rate. The empirical results indicate that surprises in announcements about money supply and CPI are significantly associated with stock price changes. The announcements of the other three variables do not affect stock prices significantly. Trading volume is not affected by any of the five economic variable announcements, indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements. The spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so. Copyright 1988 by the University of Chicago.
TL;DR: Using the Goldfeld and Quandt switching regression method, the authors investigated variability over 1975-1985 in the risk components of bank and saving and loan stock, and developed evidence that the market-beta, interest-sensitivity, and residual risk of deposit-institution stock vary significantly during this period.
Abstract: Using the Goldfeld and Quandt switching regression method, this article investigates variability over 1975–1985 in the risk components of bank and saving and loan stock. We develop evidence that the market-beta, interest-sensitivity, and residual risk of deposit-institution stock vary significantly during this period. Reassessing previous event studies in light of these findings suggests that event-study methods tend to overreach their data.
TL;DR: In this article, a multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the stock in the immediately preceding period.
Abstract: In this paper the proposition is tested that stock market reaction to a dividend change is a function of its information content. A multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends. Results indicate that, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the firm's stock in the immediately preceding period. The results further reveal that (1) simultaneous announcements of poor earnings cause larger capital losses; (2) prior announcements of loss/lower earnings, strikes, etc. attenuate the negative impact of dividend cuts; (3) managerial reassurances that the dividend reduction is growth-motivated produces a weakly favorable effect, and (4) institution of stock dividends concurrently with the dividend cut significantly reduces the negative valuation effect. It is concluded from the evidence that stock market reaction to managerial signals is a function of the perceived costs associated with these signals.
TL;DR: In this article, the value of voting power of Swiss firms which usually issue high-voting rights stock, low voting-rights stock, and nonvoting stock was analyzed, and the allocation of the voting rights was analyzed.
Abstract: This paper analyzes the value of voting power of Swiss firms which usually issue high-voting- rights stock, low-voting-rights stock, and non-voting stock. Two variables measuring voting- power-inequality are constructed. They are both useful in explaining the voting-rights-premia. Also, the allocation of the voting rights is analyzed. It is shown that majority shareholders hold the high-voting-rights stock.
TL;DR: In this article, the authors analyzed the optimal individual behavior in acquiring infor? mation and determined the amount of information incorporated in a stock at equilibrium, in the presence of a cost schedule in acquiring information.
Abstract: The purpose of this paper is to analyze the optimal individual behavior in acquiring infor? mation and to determine the amount of information incorporated in a stock at equilibrium, in the presence of a cost schedule in acquiring information. Our paper shows that at equi? librium the cost to acquire information that is not already incorporated in the price de? pends only on the representative investor's risk preferences. It follows that the marginal information costs are the same across all stocks at equilibrium even though the stock's information costs schedules may differ. This suggests that the prices of small stocks may not incorporate all publicly available information. This paper also provides empirical evi? dence that newspapers' publication of publicly available information can affect the stock prices.
TL;DR: In this article, a discrete time dynamic bioeconomic model for a fish resource is developed, where the objective is maximization of discounted net revenues subject to changes in stock size, and conditions characterizing the optimal stock level are derived.
TL;DR: In this paper, the problem of determining the economic levels for the base stock and lead times for production and transportation in integrated production, inventory and distribution systems (IPIDS) is addressed.
Abstract: This paper deals with the problem of how to determine, with high reliability, economic levels for the base stock and lead times for production and transportation in integrated production, inventory and distribution systems (IPIDS). This system model has a ‘pull type’ ordering system and is of the three stage tandem type, consisting of manufacturer, wholesaler and retailer. A method is described for fixing ‘base stock’ levels and lead times, when product production and transportation stop, which prevents out of stock and minimizes dead stock at each stock point in the case where product models are changing in the market.
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TL;DR: In this article, the authors derived and estimated an equilibrium model of stock price behavior in which exogenous "noise traders" interact with risk-averse "smart money" investors.
Abstract: This paper derives and estimates an equilibrium model of stock price behavior in which exogenous "noise traders" interact with risk-averse "smart money" investors. The model assumes that changes in exponentially detrended dividends and prices are normally distributed, and that smart money investors have constant absolute risk aversion. In equilibrium, the stock price is the present value of expected dividends, discounted at the riskless interest rate, less a constant risk premium, plus a term which is due to noise trading. The model expresses both stock prices and dividends as sums of unobserved components in continuous time. The model is able to explain the volatility and predictability of U.S. stock returns in the period 1871-1986 in either of two ways. Either the discount rate is 4% or below, and the constant risk premium is large; or the discount rate is 5% or above, and noise trading, correlated with fundamentals, increases the volatility of stock prices. The data are not well able to distinguish between these explanations.
TL;DR: In this paper, the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price-volume transactions data, and a differential price adjustment process was observed, with stocks having large, positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises.
Abstract: The speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price-volume transactions data. A differential price-adjustment process was observed, with stocks having large, positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises. Volume, transaction frequency, and size were found to be directly related to the absolute degree of surprise, but very favorable earnings-surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade. THE STOCK MARKET'S MICROSTRUCTURE has received increasing attention from researchers, especially from an empirical perspective, as transaction data on prices and volume have become more readily available.1 An important subset of this research has been the study of stock price adjustments to significant news events. Specifically, publicly announced information with economic content should be quickly reflected in prices in an unbiased manner. This paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes, trading volume, and transaction frequency and size. We examine the transaction-to-transaction and time-series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements. The "degree of surprise" is measured by a comparison of actual with forecasted earnings for 325 New York Stock Exchange (NYSE) firms. These firms are subdivided into five earnings-surprise categories in order to determine whether the speed and path of their price-volume adjustment processes are different. One question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different. Another is whether any adjustment is distinguished by a few large trades or a large number of smaller
TL;DR: In this paper, the authors analyzed the stock price effect of equity issues in Switzerland and found evidence inconsistent with infinitely price-elastic demand functions for common stock, as well as some evidence that offer prices convey new information.
Abstract: This paper analyzes the stock price effect of equity issues in Switzerland. There, insiders are not legally prevented from using their information for personal trades, and security offerings are with almost no exception rights issues. Unlike what we find for a comprehensive sample of U.S. rights issues and a sample of U.S. general cash offerings, a significant majority of firms experiences a positive monthly announcement effect. The average abnormal return itself, however, is not significant. Also, we find evidence inconsistent with infinitely price-elastic demand functions for common stock, as well as some evidence that offer prices convey new information.
TL;DR: In this paper, the authors examined the seasonal pattern of aggregate insider trading to help distinguish between two competing explanations for the seasonal patterns of security returns and found that the January effect represents compensation for the higher risk of trading against informed traders at the turn of the year.
Abstract: This study investigates the seasonal pattern of aggregate insider trading to help distinguish between two competing explanations for the seasonal pattern of security returns. The first potential explanation examined is that the January effect arises from predictable changes in turn-of-the-year demand for securities. The second potential explanation examined is that the January effect represents compensation for the higher risk of trading against informed traders at the turn of the year. THIS STUDY EXAMINES AGGREGATE insider' trading activity to provide a new insight into the nature of the seasonal pattern of security returns reported by Keim [15] and others.2 For the period from 1963 to 1979, Keim [15] documents unexpectedly large, positive returns to small firms during the first week of January.3 The reason for the existence of seasonality in stock returns is not yet well understood, and hence, the January effect has become a paradox for models of equilibrium expected stock returns and the efficient-markets hypothesis. This study examines two potential explanations for the January effect. One potential explanation is that the large positive return at the turn of the year arises due to price pressure from predictable seasonal changes in the demand for different securities. For instance, the proceeds from tax-loss selling or the payment of annual bonuses at year end result in an increase in cash for individual investors. Outside investors take most of their tax losses in December and then wait until January to buy the stock of other small firms with the proceeds of the sales. The increase in demand (albeit predictable) for small firms at the turn of the year results in an increase in the stock prices of small firms.4
TL;DR: This article provided empirical evidence on the relationship between aggregate quarterly stock prices and other macro variables, including measures of monetary and fiscal policy in Canada, and found that the Canadian stock market appears to have been inefficient with respect to available information on fiscal policy.
Abstract: This paper provides some empirical evidence on the relationship between aggregate quarterly stock prices and other macro variables, including measures of monetary and fiscal policy in Canada. The results indicate the presence of significant lags in the reaction of stock prices to fiscal policy moves. To the extent that a proxy for the fiscal policy effect on required (expected) return to capital was included in the model, such a finding conflicts with the stock market efficiency hypothesis. Further tests also suggest that anticipated and unanticipated fiscal policy changes have significant lagged relationships with current stock prices. The Canadian stock market, therefore, appears to have been inefficient with respect to available information on fiscal policy. Copyright 1988 by Ohio State University Press.
TL;DR: In this paper, the authors show that the corresponding announcement-period common stock abnormal returns are economically insignificant for utilities, negative and significant at the 0.05 level for industrials, and positive and significant for financials.
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TL;DR: In this article, the effects of nominal contracts on the relationship between unanticipated inflation and individual stock's rate of return were examined, and the empirical results indicated that time-varying firm characteristics related to inflation predominately determine the effect of unplanned inflation on a stock's return.
Abstract: This paper re-examines the effects of nominal contracts on the relationship between unanticipated inflation and individual stock's rate of return. This study differs in three main ways from previous research. First, announced inflation data are used to examine the effects of unanticipated inflation. Second, a different specification is used to obtain more efficient estimates. Third, additional nominal contracts are considered. The empirical results indicate that time-varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock's rate of return. A firm's debt-equity ratio appears to be particularly important in determining the response.