The Stock market impact of social pressure: The South African divestment case

Using the South African divestment case, this study tests the hypothesis that social pressure affects stock returns. Both short-run (3-, 11-, and 77-day periods) and long-run (13-month periods) tests of stock returns surrounding U.S. corporate announcements of decisions to staf or leave, South Africa were performed. Tests of the impact of institutional portfolio managers to divest stocks of U.S. firms staying in South Africa were also performed. Results indicate there was a negative wealth impact of social pressure: stock prices of firms announcing plans to stay in South Africa fared better relative to stock prices affirms announcing plans to leave.     

Private debt, unused credit lines, and seasoned equity offerings

We study a sample of SEOs to examine the impact of private debt and unused credit lines on SEO underpricing and long-run stock and operating performance. We do not find significant effects of private debt financing on SEO underpricing and long-run stock underperformance. However, firms with more bank debt and unused lines of credit exhibit significantly better pre-issue operating performance. Changes in operating performance from the pre-issue year to the post-issue period are negatively related to the size of unused credit lines. Capital spending decreases with the size of unused credit lines in the year prior to SEOs, but increases following SEOs. Our overall evidence suggests that the post-issue operating performance we observed may be a result of overinvestment, which is enhanced by unused credit lines.     

The influence of private equity and venture capital on the post-IPO performance of newly-public acquirers

This paper examines the influence of private equity (PE) and venture capital (VC) ownership on the post-initial public offering (IPO) performance of newly-public acquirers. Our results show that acquirers with PE- or VC-backing at the time of the IPO perform better long-term than acquirers without such backing. More importantly, while acquirers without financial backing experience negative long-run returns from first-year acquisitions, acquirers with continued PE- and VC-backing perform significantly better when making acquisitions within the first year after going public. However, acquiring firms and investors should be aware that for mergers in the second and third year post-IPO, continued VC ownership has a detrimental long-term impact. In contrast, higher levels of continued PE ownership tend to have a positive relationship with long-run performance.     

Ownership structure and post-issue operating performance of firms conducting seasoned equity offerings in Thailand

This paper investigates the post-issue operating performance of companies that conducted seasoned equity offerings (SEO) in the Stock Exchange of Thailand (SET) during the period 1991 to 1994. It is documented that SEO firms exhibited declining operating performance after the offering. Further, there is a negative relation between inside ownership concentration and postissue operating performance decline. In support of the signaling effect, the ratio of issue proceeds to pre-issue equity also negatively relates to post-issue operating performance. Further, the negative relation between issue proceeds and operating performance decline is intensified among SEO firms with high insider ownership concentration. The finding offers evidence in support of agency conflicts and information asymmetry and suggests that the two factors are operating simultaneously.     

Economic policy uncertainty and stock market returns: New evidence

This paper investigates the predictive performance of the Chinese economic policy uncertainty (EPU) index constructed by Davis, Liu, and Sheng (2019) in forecasting the returns of China’s stock market. Using the univariate and bivariate predictive regression model, we confirm that the monthly EPU index can significantly and negatively impact the next month’s stock returns, and has better out-of-sample predictability than the existing EPU index and several macroeconomic variables. By comparing the forecasting effect of the EPU index before and during special events with sharply increased uncertainty, we find that the EPU’s forecasting power decline rapidly when an event of sharply increased uncertainty occurs. Finally, our conclusions are consistent through a batch of robustness tests.     

Analyst Following,Institutional Investors and Pricing of Future Earnings: Evidence from Korea

This paper examines the role of sophisticated investors in pricing future earnings in Korea. Using the future earnings response coefficient (FERC) model, we test the effect of analyst following and institutional ownership on the informativeness of stock returns for future earnings. We find that the informativeness of stock returns for future earnings, measured as the FERC, increases with the analyst following and institutional ownership. We also investigate how the recently introduced Regulation Fair Disclosure in Korea affects the informativeness of stock returns for future earnings and its relation with analyst following and institutional ownership. The results show that the regulation decreases the FERC in general and its relation with analyst following, suggesting that analysts' superior ability is impaired after the regulation.     

Heterogeneous relationship between IPO return and risk across idiosyncratic variance characteristics

This paper analyzes the levels and changes in the post-IPO stock return volatility and provides insights into market responses to the presence of firm-specific risk. First, we document a negative relation between initial idiosyncratic volatility level and the post-IPO volatility change in that initially low volatility firms have more volatility increase and vice verse. This evidence suggests fundamental firm-specific changes after the IPO. Further, we find that underpricing and short-run post-IPO returns are positively related to the initial and corresponding idiosyncratic risk level. This finding suggests that underpricing compensates investors for acquiring costly information and firm-specific risk information is being incorporated into offer prices. Finally, we find that higher long-run post-IPO performance is related to both lower initial risk level and decreasing risk in the first year after the IPO.     

Size and book-to-market factors in the relationship between average stock returns and average book returns: some evidence from an emerging market

The present paper examines the association between average stock returns and average book returns and addresses the question as to whether there are common size and book-to-market factors in earnings and returns. The results of the empirical research, conducted in the Athens Stock Exchange, suggest that when the sample firms are grouped into size, book-to-market portfolios stock returns properly reflect differences in the evolution of accounting profitability. Moreover, it is found that the return on investment (ROI) measure contains size and book-to-market factors analogous to the mimic risk factors inherent in stock returns, in the sense that they capture information missed by ROI.     

Hedge fund attributes and volatility around equity offerings

The purpose of this paper is to explore the potential influence of hedge fund attributes on idiosyncratic volatility (IVOL) in excess stock returns for 705 firms undergoing seasoned equity offerings (SEOs). This investigation is important due to the pervasive concerns about the impact of hedge funds on volatility. We choose a time frame from 1999 to 2005 covering two periods that could impact IVOL differently: the internet-technology bubble period and the post-bubble period. Our time frame includes the breakpoint year of 2000 that marks a downward trend in IVOL from 2000 to 2008. We explore this IVOL drop for a sample of SEOs and find that the decline in IVOL for this sample can be primarily related to the rapid increase in the hedge fund industry size and to the increasing use of leverage by hedge funds. This trend is also related to the increasing use of a relative value (arbitrage) strategy and the decreasing use of an event-driven strategy. IVOL for our sample also appears to decrease with greater hedge fund performance except when hedge funds are riding the pre-SEO stock price run-up. The downward shift in IVOL for our SEO sample around their offering dates is better explained by hedge fund attributes than by non-hedge fund attributes. In conclusion, our findings suggest that the rapid increase in the hedge fund industry offer an explanation for the mysterious decline in IVOL that has been witnessed since 2000.     

Inflation, output, and stock prices: Evidence from two major emerging markets

Research in economics and finance documents a puzzling negative relationship between stock returns and inflation rates in markets of industrialized economies. The present study investigates this relationship for Korea and Mexico. We show that the negative relationship between the real stock returns and unexpected inflation persists after purging inflation of the effects of the real economic activity. Johansen and Juselius cointegration tests verify that the long-run equilibrium between stock prices and general price levels is weak. However, in both economies, stock prices and general price levels seem to show a strong long-run equilibrium with the real economic activity. This paper benefited from the constructive suggestions of an anonymous referee. The remaining errors are the authors’ responsibility. Financial support from the Dr. Robert B. Pamplin, Jr., School of Business Administration, University of Portland, is greatly appreciated.     

Insider trading around open-market share repurchases

We examine insider trading around open-market share repurchases and find that insiders trade passively in 3 months prior to repurchase announcements and in up to 12 months following the announcements. Furthermore, both pre-announcement and post-announcement abnormal insider trading is unrelated to short-term announcement returns but correlated with long-term post-announcement returns. Our results indicate that corporate insiders trade passively around repurchase announcements in accordance with their perceived undervaluation to exploit the long-run abnormal stock returns related to the events.     

Prioritization of government expenditure on health in India: A fiscal space perspective

Unequal distribution of fiscal resources and lower prioritization of budget towards healthcare are the most important challenges in achieving universal health coverage in India. This study has examined relationships between government health expenditure and fiscal space (i.e. tax revenue, non-tax revenue, fiscal transfer, and borrowings) in twenty-one states of India for the period of 1980–2014. Our panel regression results imply that mobilization of tax revenue has a positive impact, while borrowings have a negative impact on the allocation of government expenditure on healthcare in the long-run. The panel quantile regression results show that states associated with the low and middle level of revenue growth have been mobilizing finance through central government transfer and borrowings in short-run. Further, the panel vector error correction models show that sum of the lagged coefficients of borrowings have a greater impact on health financing process as compared to other sources of fiscal space at short-run, and the speed of adjustment towards long-run equilibrium is relatively slower. The overall analysis concludes that less domestic revenue mobilization and higher dependency of borrowings for healthcare financing may create fiscal stress on state finances in the long-run, and thereby it could possibly reduce the prioritization of spending. Therefore, improvement in revenue growth and proper utilization of fiscal transfer would be appropriate policy implications from this study.     

Order-invariant tests for proper calibration of multivariate density forecasts

Established tests for proper calibration of multivariate density forecasts based on Rosenblatt probability integral transforms can be manipulated by changing the order of variables in the forecasting model. We derive order-invariant tests. The new tests are applicable to densities of arbitrary dimensions and can deal with parameter estimation uncertainty and dynamic misspecification. Monte Carlo simulations show that they often have superior power relative to established approaches. We use the tests to evaluate generalized autoregressive conditional heteroskedasticity-based multivariate density forecasts for a vector of stock market returns and macroeconomic forecasts from a Bayesian vector autoregression with time-varying parameters.     

The Information Content of Concurrently Announced Earnings, Cash Dividends, and Stock Dividends: An Investigation of the Chinese Stock Market

The firms listed on China's stock market are less than ten years old and to date there has been relatively little research on the usefulness of their accounting disclosures for investors. This study focuses on the information content of annual earnings and dividend announcements made by listed Chinese companies. Earnings, cash dividends, and stock dividends are announced concurrently in China and so this allows for tests of their information usefulness and of the interactions between the three signals. Based on a data set of up to 1,232 announcements, we find that unexpected earnings, proxied by earnings changes, are positively related to abnormal returns. Thus, earnings are used by investors in setting market prices. Stock dividends corroborate or attenuate the earnings signal. If the sign of the unexpected stock dividend (increase, decrease) is the same as the sign of the unexpected earnings, then the earnings signal is stronger. If the signs are opposite, the earnings signal is weaker. Unexpected cash dividends have little impact on the earnings signal. Stock dividends per se have a small association with stock returns. In contrast, cash dividends have no discernible association with stock returns and this is consistent with dividend irrelevance arguments. Our results are robust across a number of sensitivity tests.     

An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

Ownership structure,expectations, and short sales on the Nasdaq

We estimate expected short interest for Nasdaq stocks. Extending prior work, our research is among the first to investigate the impact of ownership structure on short-selling activity. We find that short interest is negatively related to institutional ownership and positively related to inside ownership; stocks with greater liquidity and smaller relative spreads are more heavily shorted. We also develop a measure of the unanticipated level of short selling; relative to the reported amount of short interest, this unexpected level of short selling seems at first to better represent the opinions of informed investors engaging in costly short-selling activities. However, the power of the unanticipated level of short-selling factor is displaced when we make allowances for traditional market, firm-size, and momentum variables.     

The long-run and short-run effects of exchange-rate volatility on exports: The case of Australia and New Zealand

In this paper we obtain and interpret estimates of the short- and long-run influence of exchange-rate volatility (or risk) on the volume of trade of two Pacific-Basin Countries, Australia and New Zealand, in the generalized floating exchange-rate period. For each country, a unique, theoretically consistent long-run function is estimated, as well as a short-run dynamic demand function that is formally superior to a number of previous estimates.     

Return interval,dependence structure,and multivariate normality

We focus on changes in the multivariate distribution of index returns stemming purely from varying the return interval, assuming daily to quarterly returns. Whereas long-tailedness is present in daily returns, we find that, in agreement with a well-established idea, univariate return distributions converge to normality as the return interval is lengthened. Such convergence does not occur, however, for multivariate distributions. Using a new method to parametrically model the dependence structure of stock index returns, we show that the persistence of a dependence structure implying negative asymptotic dependence in return series is the reason for the rejection of multivariate normality for low return frequencies.     

The relationship between carbon dioxide emissions and economic growth: quantile panel-type analysis

This paper samples the data of 138 countries during the 1971–2007 period, and performs an empirical test to validate the relationship between carbon dioxide emissions and economic growth. It first performs panel data analysis and quantile regression analysis to estimate the long-run elasticity relationships, and then analyzes the short-run error correction model to verify the causal relationship between the two. The empirical results indicate the following. (1) The long-run relationship between global carbon dioxide emissions and GDP is stable, with 32.6% of the sampled countries showing cross-coupling of the two (with an elasticity value of greater than 1), 47.1% reporting relative-decoupling (with an elasticity value between 0 and 1), and 20.3% seeing absolute-decoupling (with an elasticity value of smaller than 0). (2) The quantile regression shows that long-run elasticity declines along with the rise of carbon dioxide emission quantiles. In other words, cross-coupling turns into relative-decoupling. (3) The analysis of short-run panel data and quantile regressions mostly support the feedback relationship between carbon dioxide emissions growth and economic growth. This is consistent with the hypothesis developed by Kuznets. (4) According to the results of the quantile regression, the higher the quantiles, the faster and more stable of the short-run error-correction mechanism of the adjustments from short-run disequilibrium to long-run equilibrium. (5) Under the low-quantile carbon dioxide emissions growth and economic growth, the relationship between these two is not stable of the short-run disequilibrium adjustments in the error-correction adjustment process. However, the relationship between these two is steady and feedback in the case of high quantiles. Therefore, the first priority to combat global warming is to focus on the countries with high economic growth and high carbon dioxide emissions growth.