Showing papers on "Stock (geology) published in 2002"
TL;DR: In this article, the authors show that expected market illiquidity positively affects ex ante stock excess return, suggesting that expected stock ex ante excess return partly represents an illiquid price premium, which complements the cross-sectional positive return-illiquidity relationship.
5,636 citations
TL;DR: In this paper, the authors examine the role of dispersion in analysts' earnings forecasts in predicting the cross-section of future stock returns and find that stocks with higher dispersion have significantly lower future returns than similarly similar stocks.
Abstract: We provide evidence that stocks with higher dispersion in analysts’ earnings forecasts earn lower future returns than otherwise similar stocks. This effect is most pronounced in small stocks and stocks that have performed poorly over the past year. Interpreting dispersion in analysts’ forecasts as a proxy for differences in opinion about a stock, we show that this evidence is consistent with the hypothesis that prices will ref lect the optimistic view whenever investors with the lowest valuations do not trade. By contrast, our evidence is inconsistent with a view that dispersion in analysts’ forecasts proxies for risk. IN THIS PAPER WE ANALYZE THE ROLE of dispersion in analysts’ earnings forecasts in predicting the cross section of future stock returns. We find that stocks with higher dispersion in analysts’ earnings forecasts earn significantly lower future returns than otherwise similar stocks. In particular, a portfolio of stocks in the highest quintile of dispersion underperforms a portfolio of stocks in the lowest quintile of dispersion by 9.48 percent per year. This effect is strongest in small stocks, and stocks that have performed poorly over the past year. Our results are robust to various risk-adjustment techniques, and are inconsistent with an interpretation of dispersion in analysts’ forecasts as a proxy for risk. We postulate that dispersion in analysts’ earnings forecasts can be viewed as a proxy for differences of opinion among investors. Differences of opinion are typically modeled via dogmatic beliefs or asymmetric information sets, and have been included in numerous models that relax the standard
2,003 citations
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TL;DR: In this article, the authors use a simple model to outline the conditions under which corporate investment will be sensitive to non-fundamental movements in stock prices and find strong support for this prediction.
Abstract: We use a simple model to outline the conditions under which corporate investment will be sensitive to non-fundamental movements in stock prices. The key cross-sectional prediction of the model is that stock prices will have a stronger impact on the investment of firms that are “equity dependent†– firms that need external equity to finance their marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales (1997), we find strong support for this prediction. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile. We also verify several other predictions of the model.
1,095 citations
TL;DR: A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement has taken place in only 38 of them as discussed by the authors, while before 1990, the respective numbers were 34 and 9.
Abstract: The existence and the enforcement of insider trading laws in stock markets is a phenomenon of the 1990s. A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement—as evidenced by prosecutions—has taken place in only 38 of them. Before 1990, the respective numbers were 34 and 9. We find that the cost of equity in a country, after controlling for a number of other variables, does not change after the introduction of insider trading laws, but decreases significantly after the first prosecution.
975 citations
TL;DR: In this article, the authors developed a stock market model with differences of opinion and short-sales constraints and found that stocks whose change in breadth in the prior quarter is in the lowest decile of the sample underperform those in the top decile by 6.38% in the twelve months after formation.
874 citations
TL;DR: This paper investigated the impact of stock markets and banks on economic growth using a panel data set for the period 1976-98 and applying recent GMM techniques developed for dynamic panels and found that stock markets positively influence economic growth and these findings are not due to potential biases induced by simultaneity, omitted variables or unobserved country-specific effects.
Abstract: This paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976-98 and applying recent GMM techniques developed for dynamic panels. On balance, we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity, omitted variables or unobserved country-specific effects.
764 citations
TL;DR: This paper used a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash-flow expectations and changes in discount rates (i.e., expected-return news).
Abstract: I use a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash-flow expectations (i.e., cash-flow news) and changes in discount rates (i.e., expected-return news). The VAR yields three main results. First, firm-level stock returns are mainly driven by cash-flow news. For a typical stock, the variance of cash-flow news is more than twice that of expected-return news. Second, shocks to expected returns and cash flows are positively correlated for a typical small stock. Third, expected-return-news series are highly correlated across firms, while cash-flow news can largely be diversified away in aggregate portfolios. BY DEFINITION, A FIRM'S STOCK RETURNS are driven by shocks to expected cash flows (i.e., cash-flow news) and/or shocks to discount rates (i.e., expectedreturn news). There is a substantial body of research measuring the relative importance of cash-flow and expected-return news for aggregate portfolio returns (e.g., Campbell (1991) and Campbell and Ammer (1993)), but virtually no evidence on the relative importance of these components at the firm level. In this paper, I estimate a vector autoregression (VAR) from a large firmlevel panel (the 1954 to 1996 CRSP-COMPUSTAT intersection). The VAR and Campbell's (1991) return-decomposition framework enable me to decompose the firm-level stock return into cash-flow and expected-return news and to estimate how important these two sources of stock-return variation are for an individual firm. In addition, I measure whether positive cash-flow news is typically associated with an increase or decrease in expected returns.
738 citations
TL;DR: The authors studied the costs of short selling equities from 1926 to 1933, using the publicly observable market for borrowing stock and found that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis.
665 citations
TL;DR: In this article, the authors measure the effect of actual short-selling costs and constraints on trading strategies that involve short selling and find the loans of initial public offering (IPO), DotCom, large-cap, growth and low-momentum stocks to be cheap relative to the strategies' documented profits.
576 citations
TL;DR: In this paper, the authors assemble an annual time series of bid-ask spreads on Dow Jones stocks from 1900-2000, along with an annual estimate of the weighted-average commission rate for trading NYSE stocks since 1925.
Abstract: I assemble an annual time series of bid-ask spreads on Dow Jones stocks from 1900-2000, along with an annual estimate of the weighted-average commission rate for trading NYSE stocks since 1925. Spreads are cyclical, especially during periods of market turmoil. The sum of half-spreads and one-way commissions, multiplied by annual turnover, is an estimate of the annual proportional cost of aggregate equity trading. This cost drives a wedge between aggregate gross equity returns and net equity returns. This wedge can account for only a small part of the observed equity premium, but all else equal the gross equity premium is perhaps 1% lower today than it was early in the 1900's. Finally, I present evidence that the transaction cost measures that also proxy for liquidity - spreads and turnover - predict stock returns one year or more ahead. High spreads predict high stock returns; high turnover predicts low stock returns. These liquidity variables dominate traditional predictor variables, such as the dividend yield. The evidence suggests that time-series variation in aggregate liquidity is an important determinant of conditional expected stock market returns.
517 citations
TL;DR: In this paper, the authors investigated the dynamic interdependence of the major stock markets in Latin America using data from 1995 to 2000, and found that there is one cointegrating vector which appears to explain the dependencies in prices.
Abstract: This study investigates the dynamic interdependence of the major stock markets in Latin America. Using data from 1995 to 2000, we examine the stock market indexes of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. The index level series are non-stationary and so we employ cointegration analysis and error correction vector autoregressions (VAR) techniques to model the interdependencies. We find that there is one cointegrating vector which appears to explain the dependencies in prices. The results are robust to sensitivity tests based on translating indexes to US dollars (i.e., a common currency for all the markets) and to partitioning the sample into periods before and after the Asian and Russian financial crises of 1997 and 1998, respectively. Our results suggest that the potential for diversifying risk by investing in different Latin American markets is limited.
TL;DR: In this paper, the authors study how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings and find that firms with relatively more informative disclosures bring the future forward so that current returns reflect more future earnings news.
Abstract: This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures “bring the future forward” so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm’s disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price.
TL;DR: This article found that the extent to which stock prices lead earnings is positively related to the percentage of institutional ownership, which is consistent with institutional owners using non-earnings information to predict future earnings.
Abstract: Articles in the financial press suggest that institutional investors are overly focused on current profitability, which suggests that as institutional ownership increases, stock prices reflect less current period information that is predictive of future period earnings. On the other hand, institutional investors are often characterized in academic research as sophisticated investors and sophisticated investors should be better able to use current-period information to predict future earnings compared with other owners. According to this characterization, as institutional ownership increases, stock prices should reflect more current-period information that is predictive of future period earnings. Consistent with this latter view, we find that the extent to which stock prices lead earnings is positively related to the percentage of institutional ownership. This result holds after controlling for various factors that affect the relation between price and earnings. It also holds when we control for endogenous portfolio choices of institutions (e.g., institutional investors may be attracted to firms in richer information environments where stock prices tend to lead earnings). Further, a regression of stock returns on order backlog, conditional on the percentage of institutional ownership, indicates that institutional owners place more weight on order backlog compared with other owners. This result is consistent with institutional owners using non-earnings information to predict future earnings. It also explains, in part, why prices lead earnings to a greater extent when there is a higher concentration of institutional owners.
TL;DR: In this article, the role of select macroeconomic variables, i.e., GNP, the consumer price index, the money supply, the interest rate, and the exchange rate on stock prices in five ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand) was investigated.
TL;DR: This article used a simple model to outline the conditions under which corporate investment is sensitive to non-fundamental movements in stock prices and found that stock prices have a stronger impact on the investment of "equity dependent" firms - firms that need external equity to finance marginal investments.
Abstract: We use a simple model to outline the conditions under which corporate investment is sensitive to non-fundamental movements in stock prices. The key prediction is that stock prices have a stronger impact on the investment of "equity dependent" firms - firms that need external equity to finance marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales [1997], we find support for this hypothesis. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile.
TL;DR: In this article, a review of traditional and new sectoral research approaches to partial or national building stocks to provide a context for assessing an integrated approach to the German building stock with methodological propositions for improving the synergy between different sectoral approaches.
Abstract: Activities related to refurbishment of the building stock as a percentage of all building work have been constantly growing in most central European countries over the last 20 years. The main argument in this paper is the need to improve knowledge about composition of the existing building stock, the dynamics of its transformation and to relate this to the different actors in property professions. A review is presented of traditional and new sectoral research approaches to partial or national building stocks to provide a context for assessing an integrated approach to the German building stock with methodological propositions for improving the synergy between different sectoral approaches. Detailed consideration is given to life cycle analysis, building product modelling, historical building research and new simulation techniques. Sustainability indicators and the integration of building stock, infrastructure and land use are discussed. Depuis une vingtaine d'annees, les activites liees a la rehabilitatio...
TL;DR: In this article, the authors investigated the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG) to provide a structure of causality among these markets in contemporaneous time.
Abstract: This study investigates the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG). The DAG representation provides a structure of causality among these markets in contemporaneous time. Building on this contemporaneous structure and the estimated error correction model, innovation accounting techniques are applied. The results show that the Japanese market is among the most highly exogenous and the Canadian and French markets among the least exogenous in our nine-market study. The U.S. market is highly influenced by its own historical innovations, but it is also influenced by market innovations from the U.K., Switzerland, Hong Kong, France and Germany. The U.S. market is the only market that has a consistently strong impact on price movements in other major stock markets in the longer-run.
TL;DR: In this paper, the authors examine a sample of firms that adopt target ownership plans, under which managers are required to own a minimum amount of stock, and find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance.
TL;DR: In this paper, the authors focus on one of the most simple of corporate transactions, the stock split, and report a drift of 9% in the year following a split announcement.
Abstract: An emerging literature looking at self-selected, corporate news events concludes thatmarketsappeartounderreacttonews.Recenttheoreticalarticleshaveexploredwhyorhow underreaction might occur. However, the notion of underreaction is contentious.We revisit this issue by focusing on one of the most simple of corporate transactions,the stock split. Prior studies that report abnormal return drifts subsequent to splits donotappeartobespurious,noraconsequenceofmisspecifiedbenchmarks.Usingrecentcases, we report a drift of 9% in the year following a split announcement. We con-siderfundamentaloperatingperformanceasasourceoftheunderreactionandfindthatsplitting firms have an unusually low propensity to experience a contraction in futureearnings. Further, analysts’ earnings forecasts are comparatively low at the time of thesplitannouncementandrevisesluggishlyovertime.Togethertheseresultsareconsistentwiththenotionofmarketunderreactiontotheinformationincorporatenewsevents.
TL;DR: In this article, the authors explore whether this change is driven by global integration and therefore likely to be permanent, or if it is a temporary phenomenon associated with the recent stock market bubble.
Abstract: A stylized fact in the portfolio diversification literature is that diversifying across countries is more effective than diversifying across industries in terms of risk reduction. But with the rise in comovement across national stock markets since the mid-1990s, this no longer appears to be true. We explore whether this change is driven by global integration and therefore likely to be permanent, or if it is a temporary phenomenon associated with the recent stock market bubble. Our results point to the latter hypothesis. In the aftermath of the bubble, diversifying across countries may therefore still be effective in reducing portfolio risk.
TL;DR: In this article, the authors show that when countries liberalize their stock markets, firms that become eligible for purchase by foreigners (investible), experience an average stock price revaluation of 10.4 percent.
Abstract: When countries liberalize their stock markets, firms that become eligible for purchase by foreigners (investible), experience an average stock price revaluation of 10.4 percent. Since the covariance of the median investible firm's stock return with the local market is 30 times larger than its covariance with the world market, liberalization reduces the systematic risk associated with holding investible securities. Consistent with this fact: 1) the average effect of the reduction in systematic risk is 3.4 percentage points, or roughly one third of the total effect; and 2) variation in the firm-specific response is directly proportional to the firm-specific change in systematic risk. The statistical significance of this proportionality persists after controlling for changes in expected future profits and index inclusion criteria such as size and liquidity.
TL;DR: A data mart is constructed to reduce the size of stock data and fuzzification techniques with the grey theory is combined to develop a fuzzy grey prediction as one of predicting functions in the system to predict the possible answer immediately.
Abstract: The purpose of this paper is to predict the stock price instantly at any given time. One problem with predicting stock prices is that there may be a large or small difference in two continuous sets of data. The other problem is that the volume of stock data is so large that it affects our ability to use it. To solve these problems, we constructed a data mart to reduce the size of stock data and combined fuzzification techniques with the grey theory to develop a fuzzy grey prediction as one of predicting functions in our system to predict the possible answer immediately. To demonstrate that our system is working correctly, we used our prediction system to analyse stock data and to predict the stock price promptly at a specific time. The system can effectively help stock dealers deal with day trading.
TL;DR: This paper found that consumers grow confident when investors grow bullish, and that low consumer confidence is followed by high stock returns more often than it is following by low stock returns, but they did not find that consumer confidence declines when stock prices decline but investors need not fear that declines in consumer confidence would be followed by low stocks returns.
Abstract: Financial advisors who worked to restrain exuberant investors in the late 1990s, worked equally hard to lift desperate investors in the early 2000s. Will lower stock prices sap the confidence of consumers? Will lower consumer confidence extinguish all hope for investors? We study the consumer confidence measures of the Conference Board and the University of Michigan and the investor sentiment measures of the American Association of Individual Investors and Investor's Intelligence. We find that consumers grow confident when investors grow bullish. Consumer confidence declines when stock prices decline but investors need not fear that declines in consumer confidence would be followed by low stocks returns. Low consumer confidence is followed by high stock returns more often than it is followed by low stock returns.
TL;DR: In this article, the authors investigate the profitability of momentum investment strategy in six Asian stock markets and find that a diversified country-neutral strategy generates small but statistically significant returns during 1981-1994, when they control for size and turnover effects.
Abstract: We investigate the profitability of momentum investment strategy in six Asian stock markets. Unrestricted momentum investment strategies do not yield significant momentum profits. Although we find that a diversified country-neutral strategy generates small but statistically significant returns during 1981–1994, when we control for size and turnover effects we find that the country-neutral profits dissipate. Our evidence suggests that the factors that contribute to the momentum phenomenon in the United States are not prevalent in the Asian markets.
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TL;DR: In this paper, the authors studied the relationship between stock market developments and consumer confidence in eleven European countries over the years 1986-2001 and found that stock returns and changes in sentiment are positively correlated for nine countries, with Germany as the main exception.
Abstract: This paper studies the (short-run) relationship between stock market developments and consumer confidence in eleven European countries over the years 1986-2001. We find that stock returns and changes in sentiment are positively correlated for nine countries, with Germany as the main exception. Moreover, stock returns generally Granger-cause consumer confidence at very short horizons (two weeks to one month), but not vice versa. The stock market-confidence relationship is driven by expectations about economy-wide conditions rather than personal finances. This suggests that the confidence channel is not part of the conventional wealth effect, but a separate transmission channel.
TL;DR: The authors analyzes the intraday interdependence of order flows and price movements for actively traded NYSE stocks and their Chicago Board Options Exchange (CBOE)-traded options.
Abstract: 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. Stock net trade volume (buyer-initiated volume minus seller-initiated volume) has strong predictive ability for stock and option quote revisions, but option net trade volume has no incremental predictive ability. This suggests that informed investors initiate trades in the stock market but not in the option market. On the other hand, both stock and option quote revisions have predictive ability for each other. Thus, while information in the stock market is contained in both quote revisions and trades, information in the option market is contained only in quote revisions. Copyright 2002, Oxford University Press.
TL;DR: In this article, the authors provide empirical evidence on the economic benefits of negotiating trades in the upstairs trading room of brokerage firms relative to the downstairs market, and they find that upstairs trades tend to have lower information content and lower price impacts than downstairs trades.
Abstract: We provide empirical evidence on the economic benefits of negotiating trades in the upstairs trading room of brokerage firms relative to the downstairs market. Using Helsinki Stock Exchange data, we find that upstairs trades tend to have lower information content and lower price impacts than downstairs trades. This is consistent with the hypotheses that the upstairs market is better at pricing uninformed liquidity trades and that upstairs brokers can give better prices to their customers if they know the unexpressed demands of other customers. We find that these economic benefits depend on price discovery occurring in the downstairs market. Copyright 2002, Oxford University Press.
TL;DR: This paper found that the informational efficiency of corporate bond prices is similar to that of the underlying stocks, and that stocks do not lead bonds in reflecting firm-specific information, even at short return horizons.
Abstract: Using a unique dataset based on daily and hourly high-yield bond transaction prices, we find the informational efficiency of corporate bond prices is similar to that of the underlying stocks. We find that stocks do not lead bonds in reflecting firm-specific information. We further examine price behavior around earnings news and find that 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.
TL;DR: This article examined whether the stock price response to bad and good earnings shocks changes as the relative level of the market changes and found that the difference between bad news and good news earnings response coefficients rises with the market.
Abstract: We examine whether the price response to bad and good earnings shocks changes as the relative level of the market changes. The study is based on a complete sample of annual earnings announcements during the period 1988 to 1998. The relative level of the market is based on the difference between the current market P/E and the average market P/E over the prior 12 months. We find that the stock price response to negative earnings surprises increases as the relative level of the market rises. Furthermore, the difference between bad news and good news earnings response coefficients rises with the market. ONE OF THE LONGEST RUNNING empirical debates in finance regards the relative pricing of"value" and "glamour" stocks. Beginning with early work by Basu (1983) and Stattman (1980), evidence has accumulated that excess returns on value stocks-that is, the issues of companies for which the ratio of earnings, cash flow, or book value per share is large relative to stock price-are greater than returns on glamour stocks, for which these ratios are small. On one side, Fama and French (1992, 1993, 1995, 1996) argue that the observed differential between the returns on value and glamour stocks represents a risk premium. The alternative view, articulated by Lakonishok, Shleifer, and Vishny (1994), is that the market fails to efficiently price value and glamour stocks. Extending Lakonishok et al. (1994), recent work in behavioral finance by, for example, Barberis, Shleifer, and Vishny (BSV, 1998) and Daniel, Hirshleifer, and Subrahmanyam (1998) argues that the value/glamour effect is the result of investor psychology. In particular, the model in BSV allows for investor underreaction (in the intermediate term) to single shocks and investor overreaction (in the longer term) to a series of shocks. This model also implies an asymmetry in the returns to value and glamour stocks following a news shock. Following a string of positive shocks observed in, say, glamour stocks, the investor in this model expects another positive shock, that is, he expects the earnings to trend. If good news is announced, the market re