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Stock (geology)
About: Stock (geology) is a research topic. Over the lifetime, 31009 publications have been published within this topic receiving 783542 citations.
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TL;DR: In this article, the authors examined the economic importance of the ability of nominal interest rates to forecast nominal excess returns on stocks and concluded that the forecasting ability of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks.
Abstract: Knowledge of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2% of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60% of the variance of the returns on the value weighted index, whereas the average return was two basis points higher. A STATISTICALLY SIGNIFICANT NEGATIVE correlation between nominal excess returns on stocks and nominal interest rates has been noted in the financial economics literature. In this paper we examine the economic importance of the ability of nominal interest rates to forecast nominal excess returns on stocks. The qualitative conclusion of the paper is that the forecasting ability of treasury bill rates is economically significant. The evidence suggests that this is true because both the expected value and the variance of the nominal stock excess returns depend in interesting ways on the nominal interest rate.' Our approach to evaluating the economic importance of the negative correlation between the nominal interest rate and stock returns is similar in spirit to Fama and Schwert (1977), who examine whether the statistically significant negative correlation between stock returns and nominal interest rates can be used to forecast times when the expected nominal risk premium on stocks is negative. They conclude that the negative slope coefficient in the regression of stock returns on treasury bill returns is not useful in predicting times when stocks do worse than bills. This is probably too stringent a measure of economic importance-we are able to show economic significance despite the inability of the model to consistently forecast periods with a negative risk premium. Our primary assumption is that the model used to forecast stock index returns is known to sophisticated investors; i.e., the model is predicting (market) expected
646 citations
TL;DR: In this paper, the authors analyzed the price impact and execution cost of 37 large investment management firms from July 1986 to December 1988 and found that market impact and trading cost are related to firm capitalization, relative package size, and the identity of the management firm behind the trade.
Abstract: All trades executed by 37 large investment management firms from July 1986 to December 1988 are used to study the price impact and execution cost of the entire sequence ("package") of trades that we interpret as an order. We find that market impact and trading cost are related to firm capitalization, relative package size, and, most importantly, to the identity of the management firm behind the trade. Money managers with high demands for immediacy tend to be associated with larger market impact. FINANCIAL ECONOMISTS HAVE LONG studied the equity trading process and its impact on stock prices. Much prior empirical research isolates individual trades and analyzes the behavior of the stock price around each trade. See, for example, Kraus and Stoll (1972a), Holthausen, Leftwich, and Mayers (1987, 1990), Keim and Madhavan (1991), Petersen and Umlauf (1991), Hausman, Lo, and MacKinlay (1992) and Chan and Lakonishok (1993). Evaluating the behavior of stock prices around trades provides a means of discriminating among various hypotheses as to the elasticity of the demand for stocks; yields an estimate of the cost of executing trades and a measure of the liquidity of a market; and permits tests of different models of the determination of quotes and transaction prices. For many institutional investors, however, even a moderately-sized position in a stock may represent a large fraction of the stock's trading volume. Accordingly, an investment manager's order is often broken up into several trades. It is often misleading, therefore, to consider an individual trade as the basic unit of analysis in the study of trading activity and its effects on prices. This paper uses the record of trades executed by 37 large investment manage
644 citations
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
640 citations
TL;DR: This article found that about 25 percent of Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993, and that the extent to which a firm is exposed to exchange-rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs.
Abstract: We find that about 25 percent of our sample of 171 Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993. The extent to which a firm is exposed to exchange-rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs. Highly leveraged firms, or firms with low liquidity, tend to have smaller exposures. Foreign exposure is found to increase with firm size. We also find that keiretsu multinationals are more exposed to exchange-rate risk than nonkeiretsu firms. IT IS CONVENTIONAL WISDOM that exchange-rate movements affect both the cash flows of a firm's operations and the discount rate employed to value these cash flows.' Measuring foreign exchange exposure is now a central issue of international financial management, and this issue has spawned a considerable amount of research. Existing empirical evidence on foreign exchange exposure, however, seems perplexing; studies have so far documented a weak link between contemporaneous exchange-rate fluctuations and stock returns of U.S. multinational firms.2 Gendreau (1994) finds it difficult and unconvincing that the weak results imply that exchange-rate changes have no effect on exporters' stock returns. Bartov arnd Bodnar (1994) attribute the observed insignificant relationship between exchange-rate changes and st;ock returns to probable problems associated with the previous studies' samiple selection procedure, or to mispricing caused by investors' errors in estimat
638 citations
TL;DR: In this paper, the authors examine whether the walkdown to beatable targets is associated with managerial incentives to sell stock after earnings announcements on the firm's behalf or from their personal accounts (through option exercises and stock sales).
Abstract: It has been alleged that firms and analysts engage in an “earnings-guidance game” where analysts first issue optimistic earnings forecasts and then “walk down” their estimates to a level that firms can beat at the official earnings announcement. We examine whether the walkdown to beatable targets is associated with managerial incentives to sell stock after earnings announcements on the firm’s behalf (through new equity issuance) or from their personal accounts (through option exercises and stock sales). Consistent with these hypotheses, we find that the walk-down to beatable targets is most pronounced when firms or insiders are net sellers of stock after an earnings announcement. These findings provide new insights on the impact of capital-market incentives on communications between managers and analysts.
637 citations