Beta adjustment methods

This study is an analysis of the forecasting ability of adjusted and unadjusted betas. Based on the Canadian data for 252 stocks, random errors in betas are the most important reason for the poor predictive ability of individual security betas. Most of this random error is eliminated if securities are grouped into portfolios. However, further improvements in forecasting ability are gained by adjusting the security betas for bias and inefficiency. Five methods of adjusting the naive beta estimates have been tried, including two methods not tested before. These two, Vasicek's two-stage method and order-bias adjustment method, gave results generally superior to others.     

An econometric assessment of the Canadian wage and price control program: 1975:4–1977:4

This paper presents an econometric assessment of the Canadian Wage and Price Control Program. The assessment is specifically designed to determine whether controls have been effective in reducing the long-run inflation rate in Canada. The method of evaluation of the control program is to compare the behavior of inflation under controls to the behavior which would have occurred in the absence of controls. In addition, the paper analyzes inflation in the post-control period to test for the “catch-up” phenomenon. The results suggest that the control program exercised a permanent effect on the inflation rate.     

Demographics in consumer behavior

Four criticisms against using socioeconomic and demographic (SED) factors in consumer behavior are reviewed: dissatisfaction with models of consumption behavior developed by economists and sociologists, obsolescence of SED factors in mass consumption societies, poor predictions produced by SED factors, and a grass-is-greener attitude held by consumer researchers. The insights offered substantially hurt the validity of these criticisms. Strategies for better theory and research in consumer behavior using SED factors are described.     

The stable dividend hypothesis

This paper presents a theoretical analysis of the stable dividend hypothesis. By invoking the existence of liquidity needs and liquidation costs, a rationale is provided for investors' desire to stabilize the dividend component of return on their portfolios. The market equilibrium implications of this type of investment behavior are then derived.     

Usefulness of financial ratios in a single industry

This paper reports the findings of a study on the relationship and ratio grouping of a well-published set of financial ratios within the context of a single, homogenous industry. The findings provide some insight into the validity of using single-industry ratio averages as standards to evaluate individual firm performance. Factor analysis was used to study the interrelationship among the ratios and to determine whether these ratios group in the “traditional” category of ratios suggested in the financial statement analysis literature. This analysis was followed by a cluster analysis of the composite ratios derived from the factor analysis to determine whether any consistent and stable statistical grouping of firms developed over time within the industry. These analyses were done for 72 companies for the period 1966–1975 using Dunn and Bradstreet ratios and Compustat data.     

Product familiarity and information processing strategies: An exploratory investigation

A theoretical and empirical examination of the relationship between product class familiarity and usage of information processing strategies is presented. Four major dimensions of information processing strategies are identified and used to conceptualize the linkage between product class familiarity and usage of particular strategies. Research hypotheses are tested in an exploratory study using a laboratory choice situation. Implications of the study with respect to usage of specific strategies and for future research are discussed.     

Impact of alternative length estimation and prediction periods on the stability of security and portfolio betas

This study examines how the forecast errors of beta predictions are influenced by the following: 1) the length of the estimation period, 2) the length of the prediction period, 3) the size of the portfolio, and 4) the risk class of the security or portfolio. The mean-square error is utilized as the forecast error measure, and the components of the mean-square error (bias, inefficiency, and random error) are analyzed to determine the source of the forecast error.     

More on public information and stock price

In a recent issue of this journal [2] McCain and Millar examined whether “favorable” and unfavorable” stock analyses appearing in the Wall Street Journal column “Heard on the Street” could be used to predict one-day, seven-day, and six-month price movements of the affected stocks. In this note we question the conclusions of that study based upon methodological grounds.     

Determining the cost of common equity capital: The direct method

One of the most critical aspects of the corporate capital budgeting process is the determination of a proper “hurdle rate” or “cut-off” rate to employ in the screening of proposed uses of funds. This hurdle rate is now commonly referred to in both industry and the literature of financial management as the cost of capital. General agreement on how to measure the equity component of the cost of capital (i.e., the cost of common equity) has not yet been achieved by either practitioners or theorists. A unique approach that shows considerable promise differs from the abstract mathematical techniques typically used. It involves quizzing directly a sample of the corporation's existing common stockholders as to their dividend and capital gain expectations. Proper interpretation of the responses can provide top corporate management with an estimate of the cost of equity capital, as represented by the returns (expected) by shareholders. Thus, top level management has more complete information from the firm's owners on the returns that are expected from the investment of retained earnings.     

Retailing strategy for customer growth and new customer attraction

The image that current and potential customers have of a retail store affects the magnitude of patronage at that store. In attempting to increase store patronage, management of a retail store must look to people who already are customers, as well as to people who are not current customers. The appropriate strategy depends upon the dimensions used by people in their evaluation of the store. The hypothesis is tested that the strategy used for gaining increased patronage from customers may have to differ from that used to gain patronage from noncustomers.Field survey techniques were used to collect data from 225 adult females. Respondents evaluated three large retail department stores, which were believed to have distinct images in the minds of female shoppers, on the basis of a set of 12 semantic scales that represented various store attributes. Each respondent indicated frequency of shopping at each store. The data were analyzed by two different multiple discriminant analyses. For the customer growth strategy, the semantic scale measures were used to develop a discriminant model for each store to determine which attributes would be the best predictors of shopping frequency. The analysis relevant to the strategy of new customer attraction differed. First, shoppers were classified as loyal to one store on the basis of their rates of shopping at each store. Second, the 36 attribute measurements (12 scales for 3 stores) were factor analyzed, and three factors were extracted. Those attributes which loaded highest on each of the factors for each store were used as predictor variables in the discriminant analysis.The results of this study indicate that different marketing strategies may be required for increasing sales to existing customers and attracting new customers. In addition, consumers do not necessarily differentiate similar type retail stores on the same dimension.     

Longitudinal organizational research in field settings

Managers, theorists, and researchers are interested in studying organizational phenomena such as technological change, organizational development, and leadership effectiveness over a period of time. However, a review of the literature in the field of organizational behavior and management indicates that a limited number of empirically based studies rigorously investigate changes within organizations. This article looks at the salient characteristics and issues facing those engaged in longitudinal research. While much more theoretical and methodological work is needed to improve the rigor of this type of research, some researchers have forged ahead and have attempted to conduct longitudinal research in field settings. A select few of these studies are presented to illustrate what can be accomplished by longitudinal research and what needs to be improved in such research designs. In conclusion, the authors offer some suggestions that may serve to increase the number of longitudinal organizational research studies in the future.