Showing papers on "Stock (geology) published in 1994"
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TL;DR: In this paper, a consumption-based model is proposed to explain a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long-term horizon predictability of excess stock returns, and the countercyclical variations of stock market volatility.
Abstract: We present a consumption†based model that explains a wide variety of dynamic asset pricing phenomena, including the procyclical variation of stock prices, the long†horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. The model captures much of the history of stock prices from consumption data. It explains the short†and long†run equity premium puzzles despite a low and constant risk†free rate. The results are essentially the same whether we model stocks as a claim to the consumption stream or as a claim to volatile dividends poorly corelated with consumption. The model is driven by an independently and identically distributed consumption growth process and adds a slow †moving external habit to the standard power utility function. These features generate slow countercyclical variation in risk premia. The model posits a fundamentally novel description of risk premia. Investors fear stocks primarily because they do poorly in recessions unrelated to the risks of long†run average consumption growth.
3,886 citations
TL;DR: In this article, the authors studied the relationship between turnover and compensation of Japanese executives and stock performance in the largest Japanese and U.S. companies and found that the fortunes of Japanese top executives are positively correlated with stock performance and current cash flows.
Abstract: This paper studies top executive turnover and compensation, and their relation to firm performance in the largest Japanese and U.S. companies. Japanese executive turnover and compensation are related to earnings, stock returns, and, to a lesser extent, sales performance measures. The fortunes of Japanese top executives, therefore, are positively correlated with stock performance and current cash flows (or with factors contributing to such performance). The relations for the Japanese executives are generally economically and statistically similar to those for their U.S. counterparts. There is some evidence, however, that the fortunes of Japanese executives are more sensitive to low income but less sensitive to stock returns than those of U.S. executives.
932 citations
TL;DR: In this article, a factor model for sixteen national stock market returns whose volatility is induced by changing volatility in the factors is presented. But the authors find that only a small proportion of their covariances can be accounted for by 'observable' economic variables.
Abstract: The authors attempt to account for the covariances between stock markets and to assess their integration. They estimate a factor model for sixteen national stock market returns whose volatility is induced by changing volatility in the factors. Unanticipated returns depend on innovations in economic variables and 'unobservable' factors. Assets risk premia are linear combinations of the factors risk premia. The authors find that idiosyncratic risk is priced and the 'price of risk' is different across stock markets. Besides, only a small proportion of their covariances can be accounted for by 'observable' economic variables. Correlation changes are driven primarily by movements in 'unobservables.' Copyright 1994 by The Econometric Society.
731 citations
TL;DR: The stock concept was linked strongly, at least in theory, with the desire to balance the impacts of harvesting with efforts to ensure continued economic returns, but how to actually recognize a stock was much more difficult to achieve than the theory.
Abstract: The concept of a sustainable yield (SY, Gulland, 1983; Lannan et al., 1989) has dominated fisheries management for almost 50 years. The central idea is that each stock has a harvestable surplus, and that fisheries that do not exceed this will not compromise the stock’s natural perpetuation. A basic assumption is that the fishery targets a unit stock with definable patterns of recruitment and mortality. Although it is difficult to reach agreement on what constitutes a stock (Gauldie, 1991), the notion of population units with varying degrees of temporal or spatial integrity stimulated a quest to characterize and identify such assemblages. It became apparent that few species form single homogeneous populations, but rather that fish species are often composed of discrete stocks, and that these stocks may react to harvesting more or less independently. It was the idea of independent responses of different stocks to exploitation that demanded information on stock structure. Hence, the stock concept was linked strongly, at least in theory, with the desire to balance the impacts of harvesting with efforts to ensure continued economic returns. What was much more difficult to achieve than the theory was: (i) how to actually recognize a stock, and (ii) how to translate stock structure data into fishery practices.
555 citations
TL;DR: This article examined five seasonal patterns in stock markets of eighteen countries: the weekend, turn-of-the-month, end of the year, monthly and Friday the thirteenth effects.
549 citations
TL;DR: This paper found that book-to-market equity, earnings yield, and cash flow yield have significant explanatory power with respect to the cross-section of realized stock returns during the period from July 1940 through June 1963.
Abstract: Using a database that is free of survivorship bias, this article finds that book-to-market equity, earnings yield, and cash flow yield have significant explanatory power with respect to the cross-section of realized stock returns during the period from July 1940 through June 1963. There is a strong January seasonal in the explanatory power of these variables, even though small stocks are, by construction, excluded from the sample. Copyright 1994 by American Finance Association.
452 citations
TL;DR: In this paper, the authors reexamine the autocorrelation patterns of short-horizon stock returns and provide support for a market efficiency-based explanation of the evidence.
Abstract: This article reexamines the autocorrelation patterns of short-horizon stock returns. We document empirical results which imply that these autocorrelations have been overstated in the existing literature. Based on several new insights, we provide support for a market efficiency-based explanation of the evidence. Our analysis suggests that institutional factors are the most likely source of the autocorrelation patterns.
394 citations
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TL;DR: In this article, the authors examine empirically whether earnings management as measured by discretionary accounting accruals explain post-issue stock return underperformance for IPO firms and find that high discretionary accrual are related to negative abnormal stock returns with high statistical significance.
Abstract: We examine empirically whether earnings management as measured by discretionary accounting accruals explain post-issue stock return underperformance for IPO firms. We find that high discretionary accounting accruals are related to negative abnormal stock returns with high statistical significance. For example, a trading strategy of a short position in IPO firms with high discretionary accruals and a long position in IPOs with low discretionary accruals result in a mean (median) excess return of 102% (83.5%) in the 36-month period beginning after the first fiscal year end of the IPO. The evidence is consistent with Ritter's [1991] conjecture that investors are systematically overoptimistic about the growth prospects of IPO firms. The high discretionary accounting accruals seem to be associated with initial overoptimism of investors with subsequent revelations about the appropriateness of the accruals causing a subsequent downward revision in stock prices.
350 citations
TL;DR: In this article, the authors found that stock returns on average are negative on Mondays, and that this finding is substantially the consequence of returns in prior trading sessions, and the trading behavior of individual investors appears to be at least one factor contributing to this pattern.
Abstract: It is well known that stock returns, on average, are negative on Mondays. Yet, it is less well known that this finding is substantially the consequence of returns in prior trading sessions. When Friday's return is negative, Monday's return is negative nearly 80 percent of the time with a mean return of −0.61 percent. When Friday's return is positive, the subsequent Monday's mean return is positive, 0.11 percent. This relationship is stronger than for any other pair of trading days and is most acute in small- and medium-size companies. The trading behavior of individual investors appears to be at least one factor contributing to this pattern. Individual investors are more active sellers of stock on Mondays, particularly following bad news in the market.
322 citations
TL;DR: It is shown that by using sensitivity analysis, neural networks can provide a reasonable explanation of their predictive behaviour and can model their environment more convincingly than regression models.
309 citations
TL;DR: Turnover of the management board increases significantly with poor stock performance and particularly poor (i.e., negative) earnings, but is unrelated to sales growth and earnings growth as mentioned in this paper.
Abstract: This article examines executive turnover-for both management and supervisory boards-and its relation to firm performance in the largest companies in Germany in the 1980s. Turnover of the management board increases significantly with poor stock performance and particularly poor (i.e., negative) earnings, but is unrelated to sales growth and earnings growth. These turnoverperformance relations do not vary with measures of stock ownership and bank voting power. Supervisory board appointments and turnover also increase with poor stock performance, but are unrelated to other measures of performance. Corporate governance systems have received an increasing amount of attention from academics, the government, and the popular press. Most of this attention has focused on differences between the U.S. system and those of its strongest industrial competitors-Germany and Japan. The U.S. corporate govvernance system is generally characterized as market oriented or "short-term" shareholder oriented. Managers are monitored by an external market for corporate control and by boards of directors usually dominated by outsiders. The German and Japanese systems, in contrast, are characterized as relationshiporiented systems. Managers there are supposedly monitored by a combination of banks, large corporate shareholders, and other intercorporate relationships. These relationships are maintained for long periods of time. The external market for corporate control is small, if not absent, in those two countries. These differences in governance systems, in turn, are usually associated with differences in managerial behavior and firm objectives. One view, perhaps the majority view, argues that the close financial ties and relationships in Germany and Japan "reduce agency costs and allow investors to monitor
TL;DR: In this paper, the authors look at the brief history of Chinese stock markets since they opened to the world with the listing of ‘B’ shares targeted at non-Chinese investors and find that B share returns exhibit little or no correlation with international stock index returns or returns on China-related stocks traded in Hong Kong and the United States.
Abstract: This paper looks at the brief history of Chinese stock markets since they opened to the world with the listing of ‘B’ shares targeted at non-Chinese investors. B share returns exhibit little or no correlation with international stock index returns or returns on China-related stocks traded in Hong Kong and the United States. However, instruments for international risk premiums have some power to forecast B share returns. Discounts at which B shares trade relative to ‘A’ shares available to Chinese citizens are correlated across firms and related to similar premiums in other Asian markets. However, they exhibit little association with instruments for international risk premiums. The results suggest that B shares have considerable diversification value but are not entirely segmented from global financial conditions.
TL;DR: In this article, the authors study the joint dynamics of overnight and daytime return volatility for the Nikkei Stock Average in Tokyo and the Standard and Poor's 500 Stock Index in New York over the recent 1988-92 period.
Abstract: We study the joint dynamics of overnight and daytime return volatility for the Nikkei Stock Average in Tokyo and the Standard and Poor's 500 Stock Index in New York over the recent 1988–92 period. We extend the GARCH framework of Engle (1982) and Bollerslev (1986) to allow for asymmetric effects of negative (“bad news”) and positive (“good news”) foreign market returns shocks for volatility. Our evidence demonstrates that the magnitude and persistence of shocks originating in New York or Tokyo that transmit to the other market are significantly understated if this asymmetric effect is ignored. Implications for pricing of securities within those markets, for hedging and other global trading strategies and for regulatory policies within these financial markets are also discussed.
TL;DR: This article investigated the cross-sectional relation between industry-sorted stock returns and expected inflation and found that stock returns of noncyclical industries tend to covary positively with expected inflation, while the reverse holds for cyclical industries.
Abstract: We investigate the cross-sectional relation between industry-sorted stock returns and expected inflation, and we find that this relation is linked to cyclical movements in industry output. Stock returns of noncyclical industries tend to covary positively with expected inflation, while the reverse holds for cyclical industries. From a theoretical perspective, we describe a model that captures both (i) the cross-sectional variation in these relations across industries, and (ii) the negative and positive relation between stock returns and inflation at short and long horizons, respectively. The model is developed in an economic environment in which the spirit of the Fisher model is preserved. THE FISHER MODEL STATES that expected nominal rates of return on assets should move one-for-one with expected inflation. This belief is generally attributed to Irving Fisher's (1930) work on interest rates, in particular, to his view that the real and monetary sectors are causally independent. In an apparent contradiction to the Fisher hypothesis, however, it is a common empirical finding that stock returns are negatively related to both expected and realized inflation.1 This negative correlation is especially surprising for stocks, which, as claims against real assets, should compensate for movements in inflation. We provide two main contributions to the existing literature on the relation between stock returns and inflation. The first contribution of the article is to provide a theoretical description of the cross-sectional relation between stock returns and expected inflation. We describe an asset pricing model that predicts cross-sectional variation in the coefficients of expected inflation across various industry portfolios. An interesting feature of the model is that it synthesizes some of the more palatable features of existing explanations of the negative relation between inflation and returns. Of special interest is the development of the model in a money-neutral world, so that the basic premise underlying Fisher's work is maintained. Since most theoretical models of the
TL;DR: In this paper, the authors show that S&P 500 stock betas are overstated and non-S&P500 stock bets are understated because of liquidity price effects caused by the S&Ps 500 trading strategies.
Abstract: this paper shows that S&P 500 stock betas are overstated and the non-S&P 500 stock betas are understated because of liquidity price effects caused by the S&P 500 trading strategies The daily and weekly betas of stocks added to the S&P 500 index during 1985-1989 increase, on average, by 0211 and 0130 The difference between monthly betas of otherwise similar S&P 500 and non-S&P 500 stocks also equals 0125 during this period Some of these increases can be explained by the reduced nonsynchroneity of S&P 500 stock prices, but the remaining increases are explained by the price pressure or excess volatility caused by the S&P500 trading strategies I estimate that theprice pressures accountfor 85 percent of the total variance of daily returns of a value-weighted portfolio of NYSE/AMEX stocks The negative own autocorrelations in S&P 500 index returns and the negative cross autocorrelations between S&P 500 stock returns provide further evidence consistent with the price pressure hypothesis
TL;DR: In this paper, the authors report abnormally high returns on the trading day before holidays in all three major stock markets in the U.S., the NYSE, AMEX, and NASDAQ.
Abstract: This paper provides further evidence of the holiday effect in stock returns and additional insight into the effect. This paper reports abnormally high returns on the trading day before holidays in all three of the major stock markets in the U.S.: the NYSE, AMEX, and NASDAQ. The holiday effect is also present in the U.K. and Japanese stock markets, even though each country has different holidays and institutional arrangements. This study finds that the holiday effects in the U.K. and Japanese stock markets are independent of the holiday effect in the U.S. stock market. Unlike the other seasonal patterns in stock returns, such as January and weekend effects, this investigation of size decile portfolios shows that the size effect is not present in mean returns on preholidays.
TL;DR: In this article, a new testable implication is derived from the rational speculative bubbles model stating that the presence of bubbles implies positive duration dependence in runs of high returns, and the probability of observing an end to a run of high return declines with the length of the run.
Abstract: A new testable implication is derived from the rational speculative bubbles model stating that the presence of bubbles implies positive duration dependence in runs of high returns. Specifically, the probability of observing an end to a run of high returns declines with the length of the run. Traditional duration dependence tests are adapted for use with discrete stock runs data and, consistent with the existence of bubbles, evidence of duration dependence in monthly real stock returns is found.
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TL;DR: In this paper, the authors investigated the stock split effect on American Deposit Receipt (ADR) securities and found that ADR prices rise by a statistically significant 1 to 2 percent at the announcement.
Abstract: Stock splits are a common capital structure alteration which ought to have no effect on firm value in perfect capital markets. Empirical studies find that stock prices increase upon announcement of stock splits. The two traditional explanations for the rise in prices are information signaling on the part of managers and improved liquidity for shares that trade at lower prices. We investigate these explanations by studying splits of American Deposit Receipt (ADR) securities which are not associated with splits in the home country stock. We argue that these splits are likely to be motivated by the desire for liquidity improvements only. The results indicate that ADR prices rise by a statistically significant 1 to 2 percent at the announcement. We interpret this evidence as supportive of the liquidity explanation of stock split announcement effects.
TL;DR: In this paper, the authors investigated the interrelationship among the stock markets in four newly industrialized economies (NIEs) in Asia, Hong Kong, Singapore, and the United States.
TL;DR: In this paper, the authors examined the common stochastic trends among national stock prices of the U.S. and five East Asian countries, including Japan, Taiwan, Hong Kong, Singapore, and South Korea.
TL;DR: In this article, the authors exploit variation in ownership structure within the population of common stock insurers to help solve this identification problem, and find that different ownership classes operate in lines that are statistically distinguishable.
Abstract: Variation in operating characteristics across ownership structures in the property-liability insurance industry could be caused by regulatory and tax differences as well as controlrelated incentives. We exploit variation in ownership structure within the population of common stock insurers to help solve this identification problem. Consistent with the managerial discretion hypothesis, we find that different ownership classes operate in lines that are statistically distinguishable. Because of our focus on stock firms, this variation is not attributable to taxes and regulation alone.
TL;DR: In this article, the authors measure the foreign exchange exposure of mining firms in Australia, traditionally thought to be very sensitive to exchange rate movements, and find that the sensitivity of stock returns to currency movements is small.
TL;DR: In this article, the authors examined the relationship between the stock ownership of a chief executive and the overall stock yield of the company and found that until the CEO becomes entrenched, increased stock ownership reduces agency costs and decreases the stock yield.
Abstract: In this study we examine dividends and chief executive officer (CEO) stock ownership as interrelated mechanisms that may be used to reduce agency costs. We find a significant nonmonotonic relation between dividend yield and CEO stock ownership. Our evidence shows that until the CEO becomes entrenched, increased executive stock ownership reduces agency costs and decreases dividend yield. Beyond that point, increased stock ownership increases dividend yield. Whether additional stock ownership can reduce agency costs depends upon the CEO's degree of control in the firm.
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TL;DR: The authors argue that a misperception of the relationship between the quality of a company and the expected rate of return of its stock underlies the superior performance of stocks of small, high book-to-market companies and the weak relationship between realized returns and beta.
Abstract: We know from empirical studies that stocks of small companies with high book-to-market ratios have provided higher returns than stocks of large companies with low book-to-market ratios But do senior executives, outside directors and financial analysts believe that? We show that senior executives, outside directors and financial analysts surveyed annually by Fortune magazine rank companies as if they believe that good companies are large companies with low book-to-market ratios They rank stocks as if they believe the opposite of what empirical research has demonstrated; they rank stocks as if they believe that good stocks are stocks of good companies We argue that a misperception of the relationship between the quality of a company and the expected rate of return of its stock underlies the superior performance of stocks of small, high book-to-market companies and the weak relationship betweenrealized returns and beta
TL;DR: This article examined differences in stock price reactions following voluntary capital injections by commercial banks and involuntary capital injections required to meet regulatory capital requirements, and found that stock price declines associated with voluntary common stock issues are significantly greater than those associated with involuntary common stock injections, consistent with Ross (1977).
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TL;DR: The authors found that the operating performance of issuing firms shows substantial improvement prior to the year of the offering, but then deteriorates, especially for smaller issuers, and the multiples at the time of the offerings do not reflect an expectation of deteriorating performance, consistent with the hypothesis that the stock price run-up reflects a capitalization of transitory improvements.
Abstract: Recent studies have documented that firms conducting seasoned equity offerings have inordinately low stock returns during the five years after the offering, following a sharp run-up in the year prior to the offering. This paper documents that the operating performance of issuing firms shows substantial improvement prior to the year of the offering, but then deteriorates, especially for smaller issuers. The multiples at the time of the offerings do not reflect an expectation of deteriorating performance, consistent with the hypothesis that the stock price run-up reflects a capitalization of transitory improvements. The sample contains 1,406 seasoned equity offerings during the 1979-1989 period.
TL;DR: In this paper, a comprehensive data set consisting of 346 U.S. firm stock listings on ten different stock exchanges is examined in order to determine the valuation consequences of listing on a foreign stock exchange.
Abstract: A comprehensive data set consisting of 346 U.S. firm stock listings on ten different stock exchanges is examined in order to determine the valuation consequences of listing on a foreign stock exchange. For the sample of U.S. firms listing abroad, abnormal returns in U.S. trading were: (1) positive around the date of acceptance on the foreign exchange; (2) negative on the first trading day; and (3) negative in the post-listing period for firms listing on the Tokyo and Basel exchanges. Tests for the equality of stock return variances between event periods and market model estimation periods failed to reveal a definitive impact.
TL;DR: The authors analyzes the repricing of employee stock options after market-wide crash and identifies sufficient conditions for renegotiation to be optimal and for optimal compensation to be a fixed salary plus stock options.
TL;DR: In this article, the distributional properties of daily stock returns on several European stock exchanges were modeled empirically using the generalized autoregressive conditional heteroskedastic GARCH (1,1) process with a conditional student-t distribution.
Abstract: This paper attempts to model the distributional properties of daily stock returns on several European Stock Exchanges. The empirical findings reveal the presence of non-linear dependencies that cannot be captured by the random walk model. A model of return-generating process that fit the data empirically is the Generalized Autoregressive Conditional Heteroskedastic GARCH (1,1) process with a conditional student-t distribution.
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TL;DR: In this article, the authors study the dynamic behavior of stock returns and volatility in emerging financial markets and focus their attention on the following questions: (1) Does stock return volatility in the emerging markets change over time? If so, are volatility changes predictable? (2) How frequent are big surprises in emerging stock markets? (3) Is there any relationship between market risk and expected returns? (4) Has liberalization affected return volatility, and finally, they do not find any systematic effect of liberalization on stock market volatility.
Abstract: In this paper we study the dynamic behavior of stock returns and volatility in emerging financial markets. In particular, we focus our attention on the following questions: (1) Does stock return volatility in emerging markets change over time? If so, are volatility changes predictable? (2) How frequent are big surprises in emerging stock markets? (3) Is there any relationship between market risk and expected returns? (4) Has liberalization affected return volatility in emerging financial markets? ; Our findings can be summarized as follows. First, there is strong evidence of predictable time-varying volatility in almost all countries. In general, changes in volatility are highly persistent. Second, a fat-tailed distribution improves the fitting ability of the model. Third, investors are not rewarded for market-wide risk. Finally, we do not find any systematic effect of liberalization on stock market volatility.