Stock (geology)

About: Stock (geology) is a research topic. Over the lifetime, 31009 publications have been published within this topic receiving 783542 citations.

Explaining the Cross‐Section of Stock Returns in Japan: Factors or Characteristics?

Abstract: Japanese stock returns are even more closely related to their book-to-market ratios than are their U.S. counterparts, and thus provide a good setting for testing whether the return premia associated with these characteristics arise because the characteristics are proxies for covariance with priced factors. Our tests, which replicate the Daniel and Titman ~1997! tests on a Japanese sample, reject the Fama and French ~1993! three-factor model, but fail to reject the characteristic model. FINANCIAL ECONOMISTS HAVE EXTENSIVELY STUDIED the cross-sectional determinants of U.S. stock returns, and contrary to theoretical predictions, find very little cross-sectional relation between average stock returns and systematic risk measured either by market betas or consumption betas. In contrast, the cross-sectional patterns of stock returns are closely associated with characteristics like book-to-market ratios, capitalizations, and stock return momentum. 1 More recent research on the cross-sectional patterns of stock returns documents size, book-to-market, and momentum in most developed countries. Fama and French ~1993, 1996, and 1998! argue that the return premia associated with size and book-to-market are compensation for risk, as described in a multifactor version of Merton’s ~1973! Intertemporal Capital Asset Pricing Model ~ICAPM! or Ross’s ~1976! Arbitrage Pricing Theory. They propose a three-factor model in which the factors are spanned by three zero-investment portfolios: Mkt is long the market portfolio and short the risk-free asset; SMB is long small capitalization stocks and short large capitalization stocks; and HML is long high book-to-market stocks and short low book-to-market stocks.

Delayed Reaction to Good News and the Cross‐Autocorrelation of Portfolio Returns

Abstract: We document a directional asymmetry in the small stock concurrent and lagged response to large stock movements. WVhen returns on large stocks are negative, the concurrent beta for small stocks is high, but the lagged beta is insignificant. When returns on large stocks are positive, small stocks have small concurrent betas and very significant lagged betas. That is, the cross-autocorrelation puzzle documented by Lo and MacKinlay (1990a) is associated with a slow response by some small stocks to good, but not to bad, common news. Time series portfolio tests and cross-sectional tests of the delay for individual securities suggest that existing explanations of the cross-autocorrelation puzzle based on data mismeasurement, minor market imperfections, or time-varying risk premiums fail to capture the directional asymmetry in the data. IN AN ARTICLE ANALYZING the source of contrarian profits, Lo and MacKinlay (1990a) point out that the return on a portfolio of small stocks is correlated with the lagged return on a portfolio of large stocks. Lo and MacKinlay also point out a size asymmetry, noting that the return on a portfolio of large stocks is not correlated with the lagged return on small stocks.1 Boudoukh, Richardson, and Whitelaw (1994, hereafter BRW), among others, show that this cross-autocorrelation between large and small stock portfolio returns can also be characterized by the autocorrelation of the small stock portfolio. However, Lo and MacKinlay (1990a and 1990b) argue that such autocorrelation cannot be explained by appeals to traditional nontrading arguments. Thus, a search for new, more viable, explanations of why small stock returns can be predicted by past larger stock returns has begun. BRW categorize extant explanations into three camps: "Loyalists," "Revisionists," and "Heretics." Loyalists defend the efficiency of stock markets by pointing to data mismeasurement or to market imperfections as the sources of the predictability. Revisionists attribute the predictability of small stock returns to time-varying risk premiums. Finally, Heretics attribute the predictability to market fads, bubbles, or overreaction. Each explanation is typically

Transparency, Price Informativeness, and Stock Return Synchronicity: Theory and Evidence

Abstract: This paper argues that, contrary to the conventional wisdom, stock return synchronicity (or R2) can increase when transparency improves. In a simple model, we show that, in more transparent environments, stock prices should be more informative about future events. Consequently, when the events actually happen in the future, there should be less “surprise” (i.e., less new information is impounded into the stock price). Thus a more informative stock price today means higher return synchronicity in the future. We find empirical support for our theoretical predictions in 3 settings: namely, firm age, seasoned equity offerings (SEOs), and listing of American Depositary Receipts (ADRs).

Capital account liberalization, the cost of capital, and economic growth

Abstract: Three things happen when emerging economies open their stock markets to foreign investors. First, the aggregate dividend yield falls by 240 basis points. Second, the growth rate of the capital stock increases by an average of 1.1 percentage points per year. Third, the growth rate of output per worker rises by 2.3 percentage points per year. Since the cost of capital falls, investment booms, and the growth rate of output per worker increases when countries liberalize the stock market, the increasingly popular view that capital account liberalization brings no real benefits seems untenable.