Topic
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, a consumption-based model was proposed to explain 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 the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latter feature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.
430 citations
TL;DR: In this article, the authors test whether stock market investors appropriately distinguish new and old information about firms and find that firms' stock returns are less responsive to stale news than individual investors overreact to stale information.
Abstract: This paper tests whether stock market investors appropriately distinguish new and old information about firms. The staleness of a news story is its textual similarity to the previous ten stories about the same firm. The tests show that firms' stock returns are less responsive to stale news. Even so, a firm's return on the day of stale news negatively predicts its return in the following week. Individual investors increase their tendencies to aggressively trade on news when news is stale. The return reversal after stale news is significantly larger in stocks with above-average individual investor trading activity on the day of the news. These results and others support the idea that individual investors overreact to stale information, leading to temporary movements in firms' stock prices. The findings are inconsistent with alternative interpretations of the empirical measure of staleness and the return reversal.
430 citations
TL;DR: The authors investigated the relation between common stock returns and inflation in twenty-six countries for the postwar period and found that there is a consistent lack of positive relation between stock returns with inflation in most of the countries.
Abstract: This paper investigates the relation between common stock returns and inflation in twenty-six countries for the postwar period. Our results do not support the Fisher Hypothesis, which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one-to-one correspondence with expected inflation. There is a consistent lack of positive relation between stock returns and inflation in most of the countries.
427 citations
TL;DR: This paper examined whether analysts resident in a country make more precise earnings forecasts for firms in that country than non-resident analysts and found an economically and statistically significant local analyst advantage even after controlling for firm and analyst characteristics.
426 citations
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TL;DR: In this paper, the difference in implied volatility between pairs of call and put options is used to measure deviations from put-call parity, and the authors find that stocks with relatively expensive calls outperform stocks with comparatively expensive puts by 51 basis points per week.
Abstract: Deviations from put-call parity contain information about future returns. Using the difference in implied volatility between pairs of call and put options to measure these deviations we find that stocks with relatively expensive calls outperform stocks with relatively expensive puts by 51 basis points per week. We find both positive abnormal performance in stocks with relatively expensive calls and negative abnormal performance in stocks with relatively expensive puts, a result which cannot be explained by short sales constraints. Using rebate rates from the stock lending market, we confirm directly that our findings are not driven by stocks that are hard to borrow. Options with more leverage generate greater predictability. Controlling for size, deviations from put-call parity are more likely to occur in options with underlying stocks that face more information risk. Deviations from put-call parity also tend to predict returns to a larger extent in firms that face a more asymmetric information environment, and in firms with high residual analyst coverage. We also find that the degree of predictability decreases over the sample period. Our results are consistent with mispricing during the earlier years of the study, with a gradual reduction of the mispricing over time.
426 citations