Showing papers on "Stock (geology) published in 1999"
TL;DR: This paper presented 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 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 correlated 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
3,623 citations
TL;DR: In this article, the authors investigated whether firms benefit from expanded voluntary disclosure by examining changes in capital market factors associated with increases in analyst disclosure ratings for 97 firms and found that expanded disclosure leads investors to revise upward valuations of the sample firms' stocks, increases stock liquidity, and creates additional institutional and analyst interest in the stocks.
Abstract: This paper investigates whether firms benefit from expanded voluntary disclosure by examining changes in capital market factors associated with increases in analyst disclosure ratings for 97 firms. The disclosure rating increases are accompanied by increases in sample firms' stock returns, institutional ownership, analyst following, and stock liquidity. These findings persist after controlling for contemporaneous earnings performance and other potentially influential variables, such as risk, growth, and firm size. While it is difficult to draw unambiguous causal conclusions, these results are consistent with disclosure model predictions that expanded disclosure leads investors to revise upward valuations of the sample firms' stocks, increases stock liquidity, and creates additional institutional and analyst interest in the stocks.
1,962 citations
TL;DR: In this article, a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly is investigated, showing that momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once they control for industry momentum.
Abstract: This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book-to-market equity, individual stock momentum, the cross-sectional dispersion in mean returns, and potential microstructure influences.
1,728 citations
TL;DR: In this paper, the authors examine whether stock prices fully reflect the value of firms? intangible assets, focusing on research and development (R&D), and find that companies with high R&D relative to equity market value show strong signs of mis-pricing.
Abstract: We examine whether stock prices fully reflect the value of firms? intangible assets, focusing on research and development (R&D). Since intangible assets are not reported on financial statements under current U.S. accounting standards and R&D spending is expensed, the valuation problem may be especially challenging. Nonetheless we find that historically the stock returns of firms doing R&D on average matches the returns on firms with no R&D. For companies engaged in R&D, high R&D intensity has a distinctive effect on returns for two groups of stocks. Within the set of growth stocks, R&D-intensive stocks tend to out-perform stocks with little or no R&D. Companies with high R&D relative to equity market value (who tend to have poor past returns) show strong signs of mis-pricing. In both cases the market apparently fails to give sufficient credit for firms? R&D investments. Our exploratory investigation of the effects of advertising on returns yields similar results. We also provide evidence that R&D intensity is positively associated with return volatility, everything else equal. Insofar as the association reflects investors? lack of information about firms? R&D activity, increased accounting disclosure may be beneficial.
1,367 citations
TL;DR: This paper analyzed the trading activity of the mutual fund industry from 1975 through 1994 to determine whether funds "herd" when they trade stocks and investigate the impact of herding on stock prices.
Abstract: We analyze the trading activity of the mutual fund industry from 1975 through 1994 to determine whether funds “herd” when they trade stocks and to investigate the impact of herding on stock prices. Although we find little herding by mutual funds in the average stock, we find much higher levels in trades of small stocks and in trading by growth-oriented funds. Stocks that herds buy outperform stocks that they sell by 4 percent during the following six months; this return difference is much more pronounced among small stocks. Our results are consistent with mutual fund herding speeding the price-adjustment process. DO INSTITUTIONAL INVESTORS “F LOCK TOGETHER” ~or “herd,” as it is often called! when they trade securities? Do some investors follow the lead of others when they trade? Such questions have interested researchers for some time, and are central to understanding the impact of institutional trading on securities markets and to understanding the way in which information becomes incorporated into market prices. 1
1,266 citations
TL;DR: Li et al. as mentioned in this paper investigated whether ownership structure significantly affects the performance of publicly listed companies in China within the framework of corporate governance and found that the mix and concentration of stock ownership do indeed significantly affect a company's performance.
794 citations
TL;DR: In this paper, the authors show that the realized returns of growth stocks have been low relative to other stocks, and that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks.
Abstract: It is well-established that the realized returns of ?growth? stocks have been low relative to other stocks. We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks. After controlling for this effect, there is no longer evidence of a stock return differential between growth stocks and other stocks. Our evidence is more consistent with investors having naively optimistic expectations about the prospects of growth stocks (e.g., Lakonishok, Shleifer, and Vishny, 1994) than with the existence of unidentified risk factors that are lower for growth stocks (e.g., Fama and French, 1992).
786 citations
TL;DR: In this paper, the authors investigate whether acquiring firms attempt to increase their stock price prior to a stock for stock merger in order to reduce the cost of buying the target, and they find that acquiring firms manage earnings upward in the periods prior to the merger agreement.
758 citations
TL;DR: In this article, the authors studied the relationship between average return and book-to-market equity (BE/ME) and found that small stocks have higher average returns than big stocks, while the size premium is weaker and less reliable than the value premium.
Abstract: The value premium in U.S. stocks returns is robust. The positive relation between average return and book-to-market equity (BE/ME) is as strong for 1929-63 as for the subsequent period studied in previous papers. Like others, we also find a size premium in stock returns. Small stocks have higher average returns than big stocks. The size premium is, however, weaker and less reliable than the value premium. The relations between average return and firm characteristics (size and BE/ME) are better explained by a three-factor risk model than by the behavioral hypothesis that investor overreaction causes characteristics to be compensated irrespective of risk loadings.
708 citations
TL;DR: In this paper, a Bayesian analysis of the return premiums showed that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world.
Abstract: The factors that drive cross-sectional differences in expected stock returns in emerging equity markets are qualitatively similar to those that have been documented for developed markets. Emerging market stocks exhibit momentum, small stocks outperform large stocks, and value stocks outperform growth stocks. There is no evidence that high beta stocks outperform low beta stocks. A Bayesian analysis of the return premiums shows that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world. Finally, there exists a strong cross-sectional correlation between the return factors and share turnover. THERE IS GROWING EMPIRICAL EVIDENCE that multiple factors are cross-sectionally correlated with average returns in the United States. Measured over long time periods, small stocks earn higher average returns than large stocks ~Banz ~1981!!. Fama and French ~1992, 1996! and Lakonishok, Shleifer, and Vishny ~1994! show that value stocks with high book-to-market ~B0M!, earnings-to-price ~E0P!, or cash f low to price ~C0P! outperform growth stocks with low B0M, E0P, or C0 P. Moreover, stocks with high return over the past three months to one year continue to outperform stocks with poor prior performance ~Jegadeesh and Titman ~1993!!. The evidence that beta is also compensated for in average returns is weaker ~Fama and French ~1992!, Kothari, Shanken, and Sloan ~1995!! The interpretation of the evidence is strongly debated. 1 Some believe that the premiums are a compensation for pervasive risk factors, others attribute them to firm characteristics or an inefficiency in the way markets incorporate information into prices. Yet others argue that the premiums may be biased by survivorship or data snooping. A motivation for examining inter
706 citations
Posted Content•
TL;DR: The authors show that shortsellers use information in these ratios about either (i) temporary mispricing, or (ii) unknown risk factors, to boost their investment returns, and that short-sellers avoid firms where the transaction costs of short-selling are high and where the low ratios are due to temporarily low fundamentals, rather than temporarily high prices.
Abstract: Firms with low ratios of fundamentals (such as earnings and book values) to market values are known to have systematically lower future stock returns. We document that short-sellers position themselves in the stock of such firms, and then cover their positions as the ratios revert to normal levels. We also show that short-sellers avoid firms where the transaction costs of short-selling are high and where the low ratios are due to temporarily low fundamentals, rather than temporarily high prices. Our evidence suggest that short-sellers use information in these ratios about either (i) temporary mispricing, or (ii) unknown risk factors, to boost their investment returns.
TL;DR: In this paper, the authors examine pairs of large, ''Siamese twin'' companies whose stocks are traded around the world but have different trading and ownership habitats Twins pool their cash flows, so, with integrated markets, twin stocks should move together However, the difference between the prices of twin stocks appears to be correlated with the markets on which they are traded most.
TL;DR: In this article, the authors investigate stock option exercise decisions by over 50,000 employees at seven corporations and find that employees exercise in response to stock price trends, and that exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons.
Abstract: We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors influence exercise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends—exercise is positively related to stock returns during the preceding month and negatively related to returns over longer horizons. Consistent with psychological models of values that include reference points, employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year.
TL;DR: A phenomenological study of stock price fluctuations of individual companies, which finds that the tails of the distributions can be well described by a power-law decay, well outside the stable Lévy regime.
Abstract: We present a phenomenological study of stock price fluctuations of individual companies. We systematically analyze two different databases covering securities from the three major U.S. stock markets: ~a! the New York Stock Exchange, ~b! the American Stock Exchange, and ~c! the National Association of Securities Dealers Automated Quotation stock market. Specifically, we consider~i! the trades and quotes database, for which we analyze 40 million records for 1000 U.S. companies for the 2-yr period 1994‐95; and ~ii! the Center for Research and Security Prices database, for which we analyze 35 million daily records for approximately 16 000 companies in the 35-yr period 1962‐96. We study the probability distribution of returns over varying time scales Dt, where Dt varies by a factor of ’10 5 , from 5 min up to ’4 yr. For time scales from 5 min up to approximately 16 days, we find that the tails of the distributions can be well described by a power-law decay,
TL;DR: In this paper, the authors review different approaches used in identifying and classifying stocks and advocate that an holistic approach (e.g., involving a broad spectrum of complementary techniques) be used in future stock identification studies.
TL;DR: A stock identification symposium was held as part of the 128th annual meeting of the American Fisheries Society (AFS), Hartford, Connecticut, USA, 23-27 August 1998, to summarize the current state of knowledge of stock identification issues, problems and methodologies, as well as identify future directions for stock identification research.
TL;DR: In this article, the authors measure the growth in open-market stock repurchases and the manner in which stock repurchase and dividends are used in U.S. corporations, and find that aggregate repurchase has increased dramatically over this period: the number and value of repurchase program announcements has grown from 115 and $15.4 billion in 1985 to 755 and $115 billion in 1996.
Abstract: The paper measures the growth in open-market stock repurchases and the manner in which stock repurchases and dividends are used in U.S. corporations. We find that aggregate repurchases have increased dramatically over this period: the number and value of repurchase program announcements has grown from 115 and $15.4 billion in 1985 to 755 and $115 billion in 1996. Actual share repurchases have grown from approximately $8.8 billion in 1985 to over $63 billion in 1996. These repurchases represent an economically important source of payouts, and are responsible for much of the variation in aggregate payouts. Nonetheless they are still small relative to the $142 billion in dividends paid by industrial firms listed on Compustat in 1996. Stock repurchases and dividends are used at different times from one another, by different kinds of firms. Stock repurchases are very pro-cyclical, while dividends increase steadily over time. Dividends are paid by firms with higher "permanent" operating cash flows, while repurchases are used by firms with higher "temporary", non-operating cash flows. Repurchasing firms also have much more volatile cash flows and distributions. These results are consistent with the view that the flexibility inherent in repurchase programs is one reason why they are sometimes used instead of dividends.
TL;DR: In this paper, the authors evaluate the performance of models for the covariance structure of stock returns, focusing on their use for optimal portfolio selection, and compare the models' forecasts of future covariances and the optimized portfolios' out-of-sample performance.
Abstract: We evaluate the performance of models for the covariance structure of stock returns, focusing on their use for optimal portfolio selection. We compare the models’ forecasts of future covariances and the optimized portfolios’ out-of-sample performance. A few factors capture the general covariance structure. Portfolio optimization helps for risk control, and a three-factor model is adequate for selecting the minimum-variance portfolio. Under a tracking error volatility criterion, which is widely used in practice, larger differences emerge across the models. In general more factors are necessary when the objective is to minimize tracking error volatility.
TL;DR: In this paper, the role of detrended wealth in predicting stock returns was studied. But the authors focused on the long-term and not the short-term, and they used U.S. quarterly stock market data to find that these trend deviations in wealth are strong predictors of both real stock returns and excess returns over a Treasury bill rate.
Abstract: This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement in wealth one that produces a deviation from its shared trend with consumption and labor income. Using U.S. quarterly stock market data, we find that these trend deviations in wealth are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the earnings yield, the dividend payout ratio, and several other popular forecasting variables. Why should wealth, detrended in this way, forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption-aggregate (human and nonhuman) wealth ratio forecasts the expected return on aggregate wealth, or the market portfolio. Although this ratio is not observable, we demonstrate that its important predictive components may be expressed in terms of observable variables, namely in terms of consumption, nonhuman wealth, and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio.
Journal Article•
TL;DR: This article developed an approach for estimating expected returns and applied it to the analysis of returns on Treasury securities and also addressed implications for analyzing stock returns. But they pointed out that actual returns are not a reasonable proxy for expected returns.
Abstract: Finance theory indicates that investor decisions are based on expected, rather than actual, returns. Nevertheless, nearly all research into asset-pricing models has been based on actual returns. The author points out that actual returns are not a reasonable proxy for expected returns. He develops an approach for estimating expected returns and applies it to the analysis of returns on Treasury securities. He also addresses implications for analyzing stock returns.
Posted Content•
TL;DR: In this article, the authors derived a simple relationship between expected stock returns and market illiquidity in a model with a single representative investor using CRSP data for the period 1984-1992, and ISSM intraday data from the year 1988.
Abstract: Models of price formation in securities markets suggest that privately informed investors are a significant source of market illiquidity. Since illiquidity increases the round-trip trading cost of an investor, this implies that uninformed investors will demand higher rates of return from securities in which informational asymmetries are more severe. In this paper we derive a simple relationship between expected stock returns and market illiquidity in a model with a single representative investor. Using CRSP data for the period 1984-1992, and ISSM intraday data for the year 1988, we investigate the empirical relation between stock returns and measures of market illiquidity. We find a significant relation between required rates of return and our measure of market illiquidity using two types of test. First, following Amihud and Mendelson (1986), we control for the effects of firm size and systematic risk, as well as the quoted spread; and secondly, following Fama and French (1993), we adjust for risk factors related to the overall market, firm size, and the book-to-market ratio.
TL;DR: Caballero et al. as discussed by the authors showed that realistic time-to-build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature.
Abstract: We are grateful to Olivier Blanchard, Whitney Newey, James Stock, an editor, three anonymousreferees, and seminar participants at Brown, CEPR-Champoussin, Chicago, Columbia, EconometricŽ.Society Meetings Caracas and Tokyo , EFCC, Harvard, IMPA, LSE, NBER, Princeton, Rochester,Ž.SITE, Toronto, U. de Chile, and Yale for their comments. Financial support to Caballero from theŽ. Ž .National Science and Sloan Foundations and to Engel from FONDECYT Grant 195-510 and theŽ.Mellon Foundation Grant 9608 is gratefully acknowledged.2Since plants’ entry is excluded from their sample, these statistics are likely to represent lowerbounds on the degree of lumpiness in plants’ investment patterns.3We use the word ‘‘project’’ to emphasize the fact that the actual implementation of a projectmay cover more than a year-observation; realistic time-to-build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature.4Ž.See Chirinko 1994 for a survey of the empirical investment literature.
TL;DR: For instance, the stock for Alcatel, a French telecommunications equipment manufacturer, dropped about 40 percent one day and fell another 6 percent over the next few days as mentioned in this paper. But the stock shot up 10 percent on the fourth day.
Abstract: Individual investors and professional stock and currency traders know better than ever that prices quoted in any financial market often change with heart-stopping swiftness. Fortunes are made and lost in sudden bursts of activity when the market seems to speed up and the volatility soars. Last September, for instance, the stock for Alcatel, A French telecommunications equipment manufacturer, dropped about 40 percent one day and fell another 6 percent over the next few days. In a reversal, the stock shot up 10 percent on the fourth day.
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TL;DR: In this article, the authors analyze what type of news moved the market in those days of extreme market jitters and find that movements are triggered by both local and neighbor-country news.
Abstract: In the chaotic financial environment of East Asia in 1997-98, daily changes in stock prices of as much as 10 percent became commonplace. The authors analyze what type of news moved the market in those days of extreme market jitters. They find that movements are triggered by both local and neighbor-country news. News about agreements with international organizations and credit rating agencies have the most weight. Some of those large changes in stock prices, however, cannot be explained by any apparent substantial news but seem to be driven by herd instincts in the market itself. On average, the one-day market rallies are sustained with the largest one-day losses are recovered - suggesting that investors overreact to bad news.
TL;DR: In this article, the authors investigate to what extent important results on relations among stock returns and macroeconomic factors from major markets are valid in a small open economy by utilizing the multivariate vector autoregressive (VAR) approach on Norwegian data.
TL;DR: In this article, substantial long-run post-issue underperformance by "rms making straight and convertible debt o!erings from 1975 to 1989 was documented. But the authors found that the underperformance was more severe for smaller, younger, and NASDAQ-listed " rms, and for " rm issuing speculative grade debt, and they concluded that debt o!'erings are signals that the "rm is overvalued.
TL;DR: Cross-frontier analysis as mentioned in this paper measures the relative efficiency of different organizational forms by computing the efficiency of each stock (mutual) firm relative to a reference set consisting of all mutual (stock) firms.
Abstract: This article introduces a new approach, cross-frontier analysis, for estimating the relative efficiency of alternative organizational forms in an industry. The technique is illustrated by analyzing a sample of stock and mutual property-liability insurers using nonparametric frontier efficiency methods. Cross-frontier analysis measures the relative efficiency of each organizational form by computing the efficiency of each stock (mutual) firm relative to a reference set consisting of all mutual (stock) firms. We test agency-theoretic hypotheses about organizational form, including the managerial discretion and expense preference hypotheses. The results indicate that stocks and mutuals are operating on separate production and cost frontiers and thus represent distinct technologies. Consistent with the managerial discretion hypothesis, the stock technology dominates the mutual technology for producing stock outputs and the mutual technology dominates the stock technology for producing mutual outputs. However, consistent with the expense preference hypothesis, the stock cost frontier dominates the mutual cost frontier. Our findings thus suggest a richer interpretation of organizational form than provided by previous researchers.
TL;DR: This article analyzes the intraday interdependence of order flows and price movements for actively traded NYSE stocks and their Chicago Board Options Exchange (CBOE)-traded options to suggest that informed investors initiate trades in the stock market but not in the option market.
Abstract: This paper analyzes the intraday interdependence of price movements and order flows for actively traded NYSE stocks and their CBOE-traded options. Stock net-buy volume (buyer-initiated volume minus seller-initiated volume)has strong predictive ability for subsequent stock and option returns, but call or put net-buy volume has little predictive ability. Furthermore, stock returns lead option returns more than they lag even after controlling for net-buy volume. Therefore, our results indicate that order flows in the stock market are informative but order flows in the option market are not, and suggest that informed investors submit trades primarily in the stock market rather than in the option market. There is also some evidence for the non-informational linkage between the two markets. Stock net-buy volume is positively (negatively) related to lagged call (put) returns, suggesting that option dealers dynamically hedge their outstanding short option positions when the option deltas change. However, call or put net-buy volume is not correlated with stock net-buy volume or lagged stock returns, suggesting that option traders do not use options for hedging or at least do not readjust their hedged positions frequently.
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TL;DR: This article found that managers are sensitive to mispricing as completion rates are higher in cases where undervaluation may be a more important factor, and trades are linked to price movements; managers buy more shares when prices fall and reduce their buying when prices rise.
Abstract: During the 1980s, U.S. firms that announced stock repurchase programs earned favorable long-run returns. Recently, concerns have been raised regarding the robustness of these findings. This comes at a time of explosive worldwide growth in the adoption of repurchase programs. This study provides out-of-sample evidence for 1,060 Canadian repurchase programs announced between 1989 and 1997. As in the U.S., the Canadian stock market seems to discount the information contained in repurchase announcements. Value stocks announcing repurchase programs have particularly favorable returns. Canadian law requires companies to report how many shares they repurchase on a monthly basis. We find that managers are sensitive to mispricing as completion rates are higher in cases where undervaluation may be a more important factor. Moreover, trades are linked to price movements; managers buy more shares when prices fall and reduce their buying when prices rise.
TL;DR: In this article, the authors examined the informational efficiency of the corporate bond market relative to the market for the underlying stock and found that stocks do not lead bonds in reflecting firm specific information, and that the relative informativeness of high yield bond prices is driven largely by the bonds' liquidity rather than the structure of the dealer market for corporate bonds.
Abstract: Using a unique dataset including daily and hourly high yield bond transactions prices, we examine the informational efficiency of the corporate bond market relative to the market for the underlying stock. In contrast to previous research utilizing weekly or monthly dealer quotes, we find that stocks do not lead bonds in reflecting firm specific information. We further consider the impact of firm specific information on corporate bond prices by examining price behavior around earnings releases and find that this information is quickly incorporated into both bond and stock prices, even at short return horizons. Finally, we find that measures of market quality are no poorer for the bonds in our sample than for the underlying stocks. Our results suggest that the relative informativeness of high yield bond prices is driven largely by the bonds' liquidity rather than the structure of the dealer market for corporate bonds.