Stock market index

About: Stock market index is a(n) research topic. Over the lifetime, 10003 publication(s) have been published within this topic receiving 199478 citation(s). The topic is also known as: stock index.

Detecting long-run abnormal stock returns: The empirical power and specification of test statistics

Abstract: We analyze the empirical power and specification of test statistics in event studies designed to detect long-run (one- to five-year) abnormal stock returns. We document that test statistics based on abnormal returns calculated using a reference portfolio, such as a market index, are misspecified (empirical rejection rates exceed theoretical rejection rates) and identify three reasons for this misspecification. We correct for the three identified sources of misspecification by matching sample firms to control firms of similar sizes and book-to-market ratios. This control firm approach yields well-specified test statistics in virtually all sampling situations considered.

Improved Methods for Tests of Long-Run Abnormal Stock Returns

Abstract: We analyze tests for long-run abnormal returns and document that two approaches yield well-specified test statistics in random samples. The first uses a traditional event study framework and buy-and-hold abnormal returns calculated using carefully constructed reference portfolios. Inference is based on either a skewnessadjusted t-statistic or the empirically generated distribution of long-run abnormal returns. The second approach is based on calculation of mean monthly abnormal returns using calendar-time portfolios and a time-series t-statistic. Though both approaches perform well in random samples, misspecification in nonrandom samples is pervasive. Thus, analysis of long-run abnormal returns is treacherous. COMMONLY USED METHODS TO TEST for long-run abnormal stock returns yield misspecified test statistics, as documented by Barber and Lyon ~1997a! and Kothari and Warner ~1997!. 1 Simulations reveal that empirical rejection levels routinely exceed theoretical rejection levels in these tests. In combination, these papers highlight three causes for this misspecification. First, the new listing or survivor bias arises because in event studies of long-run abnormal returns, sampled firms are tracked for a long post-event period, but firms that constitute the index ~or reference portfolio! typically include firms that begin trading subsequent to the event month. Second, the rebalancing bias arises because the compound returns of a reference portfolio, such as an equally weighted market index, are typically calculated assuming periodic ~generally monthly! rebalancing, whereas the returns of sample firms are compounded without rebalancing. Third, the skewness bias arises because the distribution of long-run abnormal stock returns is positively skewed, * Graduate School of Management, University of California, Davis. This paper was previously entitled “Holding Size while Improving Power in Tests of Long-Run Abnormal Stock Re

Correlations in Price Changes and Volatility Across International Stock Markets

Abstract: The short-run interdependence of prices and price volatility across three major international stock markets is studied. Daily opening and closing prices of major stock indexes for the Tokyo, London, and New York stock markets are examined. The analysis utilizes the autoregressive conditionally heteroskedastic (ARCH family of statistical models to explore these pricing relationships. Evidence of price volatility spillovers from New York to Tokyo, London to Tokyo, and New, York to London is observed but no price volatility spillover effects in other directions are found for the pre-October 1987 period.

Correlations in Price Changes and Volatility across International Stock Markets

Abstract: The short-run interdependence of prices and price volatility across three major international stock markets is studied Daily opening and closing prices of major stock indexes for the Tokyo, London, and New York stock markets are examined The analysis utilizes the autoregressive conditionally heteroskedastic (ARCH) family of statistical models to explore these pricing relationships Evidence of price volatility spillovers from New York to Tokyo, London to Tokyo, and New York to London is observed, but no price volatility spillover effects in other directions are found for the pre-October 1987 period Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies

Understanding Risk and Return

Abstract: This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns; but in the presence of human capital or stock market mean reversion, the coefficient of relative risk aversion is much higher than the price of stock market risk.