Showing papers on "Stock (geology) published in 2006"
TL;DR: The authors study how investor sentiment affects the cross-section of stock returns and find that when sentiment is low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks.
Abstract: We study how investor sentiment affects the cross-section of stock returns. We predict that a wave of investor sentiment has larger effects on securities whose valuations are highly subjective and difficult to arbitrage. Consistent with this prediction, we find that when beginning-of-period proxies for sentiment are low, subsequent returns are relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, on the other hand, these categories of stock earn relatively low subsequent returns.
3,454 citations
TL;DR: This paper found that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in R&D, less investment in PPE, more focus, and higher leverage.
2,476 citations
TL;DR: The authors examine the effect of securities laws on stock market development in 49 countries and find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets.
Abstract: We examine the effect of securities laws on stock market development in 49 countries. We find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets.
1,769 citations
TL;DR: This article showed that lack of transparency increases R2 by shifting firm-specific risk to managers and that opaque stocks with high R2s are also more likely to crash, that is, to deliver large negative returns.
1,468 citations
TL;DR: In this article, the role of information uncertainty in price continuation anomalies and cross-sectional variations in stock returns was investigated, and it was shown that greater information uncertainty should produce relatively higher expected returns following good news and relatively lower expected returns after bad news.
Abstract: There is substantial evidence of short-term stock price continuation, which the prior literature often attributes to investor behavioral biases such as underreaction to new information. This paper investigates the role of information uncertainty in price continuation anomalies and cross-sectional variations in stock returns. If short-term price continuation is due to investor behavioral biases, we should observe greater price drift when there is greater information uncertainty. As a result, greater information uncertainty should produce relatively higher expected returns following good news and relatively lower expected returns following bad news. My evidence supports this hypothesis. THERE IS SUBSTANTIAL EVIDENCE OF SHORT-TERM stock price continuation, which the prior literature often attributes to investor underreaction to new information. Examples include the positive serial correlation of returns at 3- to 12-month horizons (Jegadeesh and Titman (1993)), post-earnings announcement stock price drift in the direction indicated by the earnings surprise, and post-event return drift in the direction of the announcement date return. 1 In this paper I investigate how information uncertainty contributes to this phenomenon. By information uncertainty, I mean ambiguity with respect to the implications of new information for a firm’s value, which potentially stems from two sources: the volatility of a firm’s underlying fundamentals and poor information. 2 My main hypothesis is that if investors underreact to public
1,213 citations
TL;DR: In this paper, the response of U.S., German and British stock, bond and foreign exchange markets to real-time macroeconomic news is characterized using a unique high-frequency futures dataset.
1,082 citations
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TL;DR: The authors examined the information transmission mechanism linking oil futures with stock prices, where they examined the lead and lag cross-correlations of returns in one market with the others and investigated the dynamic interactions between oil futures prices traded on the New York Mercantile Exchange (NYMEX) and US stock prices.
Abstract: This study analyzes the information transmission mechanism linking oil futures with stock prices, where we examine the lead and lag cross-correlations of returns in one market with the others We investigate the dynamic interactions between oil futures prices traded on the New York Mercantile Exchange (NYMEX) and US stock prices, which allows us to examine the effects of energy shocks on financial markets In particular, we examine the extent to which these markets are contemporaneously correlated, with particular attention paid to the association of oil price indexes with the SP 12 major industry stock price indices and 3 individual oil company stock price series We also examine the extent to which price changes or returns in one market dynamically lead returns in the others and whether volatility spillover effects exist across these markets Using VAR model estimates for various time series of returns we find that petroleum industry stock index and our three oil company stocks are the only series where we can reject the null hypothesis that oil futures do not lead Treasury Bill rates and stock returns, while we can reject the hypothesis that oil futures lag these other two series Finally, the return volatility evidence for oil futures leading individual oil company stocks is much weaker than is the evidence for returns themselves
940 citations
TL;DR: In this paper, the authors predict that more profitable firms have higher expected returns, as do firms with higher book-to-market equity ratio (Bt/Mt), expected profitability, and expected investment.
877 citations
TL;DR: In this paper, the authors present strong evidence that option trading volume contains information about future stock prices, and they find that stocks with low put-call ratios outperform stocks with high putcall ratios by more than 40 basis points on the next day and more than 1% over the next week.
Abstract: We present strong evidence that option trading volume contains information about future stock prices. Taking advantage of a unique data set, we construct put-call ratios from option volume initiated by buyers to open new positions. Stocks with low put-call ratios outperform stocks with high put-call ratios by more than 40 basis points on the next day and more than 1% over the next week. Partitioning our option signals into components that are publicly and nonpublicly observable, we find that the economic source of this predictability is nonpublic information possessed by option traders rather than market inefficiency. We also find greater predictability for stocks with higher concentrations of informed traders and from option contracts with greater leverage. Copyright 2006, Oxford University Press.
741 citations
TL;DR: In this article, the authors studied publicly-traded companies involved in producing alcohol, tobacco, and gaming and found that sin stocks are less held by certain institutions, such as pension plans, and less followed by analysts than other stocks.
Abstract: We provide evidence for the effects of social norms on markets by studying "sin" stocks - publicly-traded companies involved in producing alcohol, tobacco, and gaming. We hypothesize that there is a societal norm to not fund operations that promote vice and that some investors, particularly institutions subject to norms, pay a financial cost in abstaining from these stocks. Consistent with this hypothesis, sin stocks are less held by certain institutions, such as pension plans (but not by mutual funds who are natural arbitrageurs), and less followed by analysts than other stocks. Consistent with them facing greater litigation risk and/or being neglected because of social norms, they outperform the market even after accounting for well-known return predictors. Corporate financing decisions and time-variation in norms for tobacco also indicate that norms affect stock prices. Finally, we gauge the relative importance of litigation risk versus neglect for returns. Sin stock returns are not systematically related to various proxies for litigation risk, but are weakly correlated to the demand for socially responsible investing, consistent with them being neglected.
688 citations
TL;DR: This article examined the relation between corporate social performance and stock returns in the UK and found that the poor financial reward offered by such firms is attributable to their good social performance on the environment and, to a lesser extent, the community aspects.
Abstract: This study examines the relation between corporate social performance and stock returns in the UK. We closely evaluate the interactions between social and financial performance with a set of disaggregated social performance indicators for environment, employment, and community activities instead of using an aggregate measure. While scores on a composite social performance indicator are negatively related to stock returns, we find the poor financial reward offered by such firms is attributable to their good social performance on the environment and, to a lesser extent, the community aspects. Considerable abnormal returns are available from holding a portfolio of the socially least desirable stocks. These relationships between social and financial performance can be rationalized by multi-factor models for explaining the cross-sectional variation in returns, but not by industry effects.
TL;DR: Barberis et al. as mentioned in this paper found that while a stock's future return is unrelated to the firm's past accounting-based performance, it is strongly negatively related to the "intangible" return, the component of its past return that is orthogonal to the company's past performance.
Abstract: The book-to-market effect is often interpreted as evidence of high expected returns on stocks of “distressed” firms with poor past performance. We dispute this interpretation. We find that while a stock’s future return is unrelated to the firm’s past accounting-based performance, it is strongly negatively related to the “intangible” return, the component of its past return that is orthogonal to the firm’s past performance. Indeed, the book-to-market ratio forecasts returns because it is a good proxy for the intangible return. Also, a composite equity issuance measure, which is related to intangible returns, independently forecasts returns. DURING THE PAST DECADE, financial economists have puzzled over two related observations. The first is that over long horizons, future stock returns are negatively related to past stock returns. The second is that stock returns are positively related to price-scaled variables such as the book-to-market ratio (BM). Perhaps the most prominent interpretations of these effects are offered by DeBondt and Thaler (1985, 1987), Lakonishok, Shleifer, and Vishny (1994, LSV), and Fama and French (1992, 1993, 1995, and 1997). The DeBondt and Thaler and LSV papers argue that the reversal and book-to-market effects are a result of investor overreaction to past firm performance. Specifically, LSV argue that in forecasting future earnings, investors overextrapolate a firm’s past earnings growth, and as a result stock prices of firms with poor past earnings (which tend to have high BM ratios) get pushed down too far. When the actual earnings are realized, prices recover, resulting in high returns for high BM firms. This basic idea is formalized in a paper by Barberis, Shleifer, Vishny (1998, BSV). LSV provide support for this hypothesis by showing that a firm’s future returns are negatively related to its past 5-year sales growth. In contrast, Fama and French argue that, since past performance is likely to be negatively associated with changes in systematic risk, high BM firms are likely to be riskier, and hence require higher expected returns. Specifically,
TL;DR: In this paper, the authors show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions.
Abstract: We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecasts future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.
TL;DR: Yogo et al. as discussed by the authors proposed a coherent story that explains both the cross-sectional variation in expected stock returns and the time variation in the equity premium, which is a trade-off between risk and return.
Abstract: When utility is nonseparable in nondurable and durable consumption and the elasticity of substitution between the two consumption goods is sufficiently high, marginal utility rises when durable consumption falls. The model explains both the crosssectional variation in expected stock returns and the time variation in the equity premium. Small stocks and value stocks deliver relatively low returns during recessions, when durable consumption falls, which explains their high average returns relative to big stocks and growth stocks. Stock returns are unexpectedly low at business cycle troughs, when durable consumption falls sharply, which explains the countercyclical variation in the equity premium. EXPLAINING THE VARIATION IN EXPECTED RETURNS across stocks and the variation in the equity premium over time as trade-offs between risk and return is a challenge for financial economists. In his review article on market efficiency, Fama (1991, p. 1610) concludes In the end, I think we can hope for a coherent story that (1) relates the cross-section properties of expected returns to the variation of expected returns through time, and (2) relates the behavior of expected returns to the real economy in a rather detailed way. Or we can hope to convince ourselves that no such story is possible. This paper proposes a “coherent story” that satisfies both criteria. A well-known empirical fact in finance is the high average returns of small stocks relative to big stocks (i.e., low relative to high market equity stocks) and of value stocks relative to growth stocks (i.e., high relative to low bookto-market equity stocks). The evidence suggests that there are size and value premia in the cross-section of expected stock returns. In an equilibrium asset ∗ Motohiro Yogo is with the Wharton School of the University of Pennsylvania. This paper is a sub
TL;DR: The authors show that the joint behavior of stock prices and TFP favors a view of business cycles driven largely by a shock that does not affect productivity in the short run, but affects productivity with substantial delay, and therefore does not look like a monetary shock.
Abstract: We show that the joint behavior of stock prices and TFP favors a view of business cycles driven largely by a shock that does not affect productivity in the short run ? and therefore does not look like a standard technology shock ? but affects productivity with substantial delay ? and therefore does not look like a monetary shock. One structural interpretation for this shock is that it represents news about future technological opportunities which is first captured in stock prices. This shock causes a boom in consumption, investment, and hours worked that precedes productivity growth by a few years, and explains about 50 percent of business cycle fluctuations. (JEL G12, E32, E44)
TL;DR: In this paper, the authors investigated the dynamic relation between net individual investor trading and short-horizon returns for a large cross-section of NYSE stocks and found that risk-averse individuals tend to buy stocks following declines in the previous month and sell following price increases.
Abstract: This paper investigates the dynamic relation between net individual investor trading and short-horizon returns for a large cross-section of NYSE stocks. The evidence indicates that individuals tend to buy stocks following declines in the previous month and sell following price increases. We document positive excess returns in the month following intense buying by individuals and negative excess returns after individuals sell, which we show is distinct from the previously shown past return or volume effects. The patterns we document are consistent with the notion that risk-averse individuals provide liquidity to meet institutional demand for immediacy.
TL;DR: In this article, the authors argue that price formation in equity markets has a significant geographic component linked to the trading patterns of local residents, and that the local comovement of stock returns is not explained by economic fundamentals and is stronger for smaller firms with more individual investors and in regions with less financially sophisticated residents.
Abstract: We document strong comovement in the stock returns of firms headquartered in the same geographic area. Moreover, stocks of companies that change their headquarters location experience a decrease in their comovement with stocks from the old location and an increase in their comovement with stocks from the new location. The local comovement of stock returns is not explained by economic fundamentals and is stronger for smaller firms with more individual investors and in regions with less financially sophisticated residents. We argue that price formation in equity markets has a significant geographic component linked to the trading patterns of local residents.
TL;DR: In this paper, the authors propose and test a novel economic mechanism that generates stock return predictability on both the time series and the cross-section, and find substantial support for it.
Abstract: We propose and test a novel economic mechanism that generates stock return predictability on both the time series and the cross section. In our model, investors’ income has two sources, wages and dividends, that grow stochastically over time. As a consequence, the fraction of total income produced by wages changes over time depending on economic conditions. We show that as this fraction fluctuates, the risk premium that investors require to hold stocks varies as well. We test the main implications of the model and find substantial support for it. A regression of stock returns on lagged values of the labor income to consumption ratio produces statistically significant coecients and adjusted R 2 ’s that are larger than those generated when using the dividend price ratio. Tests of the cross sectional implication find considerable improvements on the performance of both the conditional CAPM and CCAPM when compared to their unconditional counterparts.
TL;DR: In this paper, the authors model an IPO company's optimal response to the presence of sentiment investors, and generate refutable predictions regarding the extent of long-run underperformance, offer size, flipping, and lockups.
Abstract: We model an IPO company’s optimal response to the presence of sentiment investors. “Regular” investors are allocated stock that they subsequently sell to sentiment investors. Because sentiment demand may disappear prematurely, carrying IPO stock in inventory is risky, so for regulars to break even the stock must be underpriced. The issuer still gains as the offer price capitalizes part of the regulars’ expected trading gain. This resolves the empirical puzzle that issuers do not appear to price their stock aggressively in hot markets. The model generates new refutable predictions regarding the extent of long‐run underperformance, offer size, flipping, and lockups.
TL;DR: In this paper, a generic dynamic material flow analysis model is presented and applied for the diffusion of concrete in the Dutch dwelling stock for the period of 1900-2100, and the results show that construction and demolition flows follow a cyclical behaviour.
TL;DR: In this paper, the authors estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents, where the fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark.
Abstract: We estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents. The fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark. An evolutionary selection mechanism based on relative past profits governs the dynamics of the fractions and switching of agents between different beliefs or forecasting strategies. A strategy attracts more agents if it performed relatively well in the recent past compared to other strategies. We estimate the model to annual US stock price data from 1871 until 2003. The estimation results support the existence of two expectation regimes, and a bootstrap F-test rejects linearity in favor of our nonlinear two-type heterogeneous agent model. One regime can be characterized as a fundamentalists regime, because agents believe in mean reversion of stock prices toward the benchmark fundamental value. The second regime can be characterized as a chartist, trend following regime because agents expect the deviations from the fundamental to trend. The fractions of agents using the fundamentalists and trend following forecasting rules show substantial time variation and switching between predictors. The model offers an explanation for the recent stock prices run-up. Before the 90s the trend following regime was active only occasionally. However, in the late 90s the trend following regime persisted and created an extraordinary deviation of stock prices from the fundamentals. Recently, the activation of the mean reversion regime has contributed to drive stock prices back closer to their fundamental valuation.
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TL;DR: The authors found that stock returns are abnormally negative before executive option grants and abnormally positive afterward, and that most of the abnormal return pattern around option grants is attributable to backdating of option grant dates.
Abstract: Extant studies document that stock returns are abnormally negative before executive option grants and abnormally positive afterward. We find that this return pattern is much weaker since August 29, 2002, when the SEC requirement that option grants must be reported within two business days took effect. Furthermore, in those cases in which grants are reported within one day of the grant date, the pattern has completely vanished, but it continues to exist for grants reported with longer lags, and its magnitude tends to increase with the reporting delay. We interpret these findings as evidence that most of the abnormal return pattern around option grants is attributable to backdating of option grant dates.
TL;DR: This article developed a method to generate estimates of higher frequency covariances when one variable is observed at lower frequencies (e.g., quarterly changes in institutional ownership and monthly stock returns).
Abstract: Although the relation between quarterly changes in institutional investor ownership and contemporaneous stock returns is well documented, the source of the relation remains unclear because institutional ownership data are unavailable at higher frequencies. In this study, we develop a method to generate estimates of higher frequency covariances when one variable is observed at lower frequencies (e.g., quarterly changes in institutional ownership and monthly stock returns). Our method provides evidence that institutional trading has both temporary and permanent price effects and that the latter is associated with information effects.
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TL;DR: This article found that insider buying climbs as stocks change from growth to value categories, and insider buying is also greater after lower stock returns and lower after high stock returns, consistent with a version of overreaction which says that prices of value stocks tend to lie below fundamental values.
Abstract: Insider transactions are not random across growth and value stocks. We find that insider buying climbs as stocks change from growth to value categories. Insider buying is also greater after lower stock returns, and lower after high stock returns. These findings are consistent with a version of overreaction which says that prices of value stocks tend to lie below fundamental values, and prices of growth stocks tend to lie above fundamental values.
TL;DR: In this article, a multi-period agency model of stock-based executive compensation in a speculative stock market is presented, where investors have heterogeneous beliefs and stock prices may deviate from underlying fundamentals.
Abstract: We present a multiperiod agency model of stock-based executive compensation in a speculative stock market, where investors have heterogeneous beliefs and stock prices may deviate from underlying fundamentals and include a speculative option component. This component arises from the option to sell the stock in the future to potentially overoptimistic investors. We show that optimal compensation contracts may emphasize short-term stock performance, at the expense of long-run fundamental value, as an incentive to induce managers to pursue actions which increase the speculative component in the stock price. Our model provides a different perspective on the recent corporate crisis than the “rent extraction view” of executive compensation. Copyright 2006, Wiley-Blackwell.
TL;DR: This article investigated the relation between option-based executive compensation and market measures of risk for a sample of commercial banks during the period of 1992-2000 and found that the structure of executive compensation induces risk-taking, and the stock of option based wealth also induces risk taking.
Abstract: We investigate the relation between option-based executive compensation and market measures of risk for a sample of commercial banks during the period of 1992–2000. We show that following deregulation, banks have increasingly employed stock option-based compensation. As a result, the structure of executive compensation induces risk-taking, and the stock of option-based wealth also induces risk-taking. The results are robust across alternative risk measures, statistical methodologies, and model specifications. Overall, our results support a management risk-taking hypothesis over a managerial risk aversion hypothesis. Our results have important implications for regulators in monitoring the risk levels of banks.
TL;DR: In this article, the perquisites of CEOs, focusing on personal use of company planes, were studied and the authors found no significant associations between CEOs' per-quisites and their compensation or percentage ownership, but variables related to personal CEO characteristics, especially long-distance golf club memberships, have significant explanatory power for personal aircraft use.
01 Sep 2006
TL;DR: In this paper, the authors take stock of the developments of "nascent entrepreneurs" (or firms in gestation) research so far, and suggest directions for future research efforts along those lines.
Abstract: The key ideas behind the empirical study of 'nascent entrepreneurs'—or 'firms in gestation'—are the following: First, the research aims to identify a statistically representative sample of on-going venture start-up efforts. Second, these start-up efforts are subsequently followed over time so that insights can be gained also into process issues and determinants of outcomes. This approach over comes several shortcomings of archival data and/or cross-sectional surveys, such as under coverage of the smallest and youngest entities and non-comparability across countries; selection bias resulting from including only start-up efforts that actually resulted in up-and-running businesses, as well as hindsight bias and memory decay resulting from asking survey questions about the start-up process retrospectively. The approach further gets the temporal order of measurement right for causal analysis.
The purpose of this paper is to take stock of the developments of ‘nascent entrepreneur’—or ‘firm gestation’—research so far, and to suggest directions for future research efforts along those lines. For this purpose a review has been made of some 75 journal articles, book chapters, conference papers and research reports from the Panel Study of Entrepreneurial Dynamics (PSED); its international counterpart studies, and scholarly articles based on the Global Entrepreneurship Monitor (GEM) data.
The review covers empirical findings organized under the following headings: Person factors leading to nascent entrepreneur status; The discovery process; The exploitation process; Some particular themes (Teams; Gender; Ethnicity, and Growth aspirations), and Aggregate level antecedents and effects of nascent entrepreneurship. After taking stock of the theoretical and methodological developments so far in this line of research the rear end of the manuscript is devoted to a thorough discussion of Further development needs presented as a comprehensive set of specific propositions regarding improvements that can be made in future research efforts within this general research approach.
The review has attempted to shows that the PSED/GEM approach to capturing on-going start-up efforts and studying their concurrent development longitudinally is a basically sound, workable approach that has opened up a new and very promising avenue for entrepreneurship research. While many interesting results have already been reported and while considerable improvements on both the method and theory sides of research have been made, there is still room and need for further improvements. While no researcher should be expected to consider all these improvements their identification should facilitate other researchers’ progress in this area of research. From the perspective of a new entrant to the field it is still close to virgin ground and the interesting opportunities and challenges to take on are innumerable.
TL;DR: This article investigated the link between a firm's competitive environment and the idiosyncratic volatility of its stock returns and found that firms enjoying high market power, or established in concentrated industries, have lower volatility.
Abstract: We investigate the link between a firm’s competitive environment and the idiosyncratic volatility of its stock returns. We find that firms enjoying high market power, or established in concentrated industries, have lower idiosyncratic volatility. We posit that competition affects volatility in two distinct ways. Market power works as a hedging instrument that smoothes out idiosyncratic fluctuations. Also, market power lowers information uncertainty for investors and therefore return volatility. We find strong support for both effects. Our results contribute to the understanding of recent trends of idiosyncratic volatility and confirm the link between stock performance and firm's competitive environment.
TL;DR: In this paper, the authors model the relationship between asset float (tradeable shares) and speculative bubbles and show that the bubble size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling.
Abstract: We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short-sales constraints trade a stock with limited float because of insider lockups. A bubble arises as price overweighs optimists’ beliefs and investors anticipate the option to resell to those with even higher valuations. The bubble’s size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling. Consistent with the internet experience, the bubble, turnover, and volatility decrease with float and prices drop on the lockup expiration date.