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.     

Value versus growth stock returns and the value premium: The Canadian experience 1985–2005

This paper provides further evidence on the value premium using Canadian data from 1985–2005 and a search process involving both price to earnings (P/E) and price to book value (P/BV) ratios. The study documents a consistently strong value premium over the sample period, which persisted in both bull and bear markets, as well as in recessions and recoveries. Moreover, the paper shows that a P/E based search process did a better job of identifying value stocks and arriving at more consistent and sizeable value premium than did a search process based on P/BVs. Copyright © 2009 ASAC. Published by John Wiley & Sons, Ltd.     

Comment: Regulatory procedures,investment opportunities,and stock valuation

Several recent studies of the effect of accounting treatment on the valuation of electric utilities have concluded that investors appear to favor normalizing firms by pricing equities of such firms relatively higher than the equities of flow-through firms. The observed higher price/earnings ratios (P/E ratios) for normalizing firms have usually been credited to the benefits of normalization, as perceived by investors. This article presents evidence that the observed preference for normalization companies is unrelated to accounting treatment. Rather, this preference is related to the fact that firms that obtain normalization benefits typically have lower costs than those which do not have such benefits. This characteristic of normalization firms results in their relatively higher P/E ratios.     

The structural stability of the market model after the Three Mile Island accident

This article examines the stability of alpha and beta in the market model resulting from the Three Mile Island accident. The data consist of weekly returns on 70 utility stocks. Both a dummy variable test and the Fisher F statistics are utilized to test for stability. In addition to the individual stocks, the 70 utilities are partitioned into two portfolios for the test—nuclear and non-nuclear. The main conclusions are 1) for the non-nuclear portfolio, no change is observed; 2) for the nuclear portfolio, alpha fell and beta rose—the impact, however, is transitory and insignificant; and 3) the behavior of the residuals suggests that the result is consistent with an efficient market.     

Environmental,Social, and Governance (ESG) Profiles,Stock Returns,and Financial Policy: Australian Evidence

This study investigates the independent effects of environmental (E), social (S), corporate governance (G), and the composite ESG ratings on stock returns and corporate financing decisions of the largest stocks in the Australian equity market. Firms with high composite ESG ratings tend to increase their leverage. For the individual ratings, we find different inferences: firms with low E and high G ratings tend to raise less debt. Firms with high G ratings hold less cash, while those with low G ratings have lower dividend payouts. S ratings have no impact on corporate financing decisions. There appears to be no significant difference in risk‐adjusted returns for portfolios based on ESG ratings, effectively indicating that there is no cost of ESG investment.     

The Analysis of 52‐Week High Investing Strategy Based on Herding Behavior

The present study develops zero‐costing strategies that are based on the 52‐week high and herding behavior. Proximity of the current price to the 52‐week high and the level of herding behavior of individual/institutional investors are the two criteria used to screen stocks. Because herding behavior affects stocks that are associated with value‐related beliefs that investors are reluctant to revise, the level‐of‐herding criterion uses the 52‐week high strategy to improve profits. The present study examines strategy profits in Taiwan, a market in which more than 70% of investors are individuals and where the level of herding among individual investors is higher than that for institutional investors. Empirical results found that profits earned using zero‐costing strategies, identified both using the 52‐week high and herding, were larger than those earned using only the 52‐week high strategy. Furthermore, stocks with values that were far from their 52‐week high made significant and positive profits through buy‐herding and by shorting sell‐herding stocks.     

Scale economies,entry, and welfare

This study shows how scale economies, initial size differences among firms, potential competition, and adjustment costs may influence the entry of firms into a dynamic oligopoly. It also examines the effects of these factors on the final size distribution of firms in an industry, and on the welfare levels of consumers and producers. We find that low to moderate scale economies are insufficient for Cournot-Nash competition to drive small firms from the market. Only when scale economies are quite high will the distribution of firm sizes become degenerate. Potential competition and the size of incumbent firms' capital stocks are additional barriers to entry. The welfare conclusion is that there may be a government role to preserve potential competition, but also to dissuade small firms from entering certain markets where there are economies of scale.     

Equally Weighted Portfolios of Randomly Selected Stocks and the Individual Investor

The article contrasts 500 randomly formed equally weighted portfolios (1/N) to 221 actively managed stock funds, individual stocks, and the IBrX-50 index, representing indexed stock funds, considering transaction costs. The sample are the 50 stocks in IBrX-50 index in January 2007 throughout 60 months. Investors are likely to achieve greater returns and return-to-risk ratios with a randomly formed 1/N portfolio than with a stock fund, particularly those targeting retail investors, or one of the 50 stocks also randomly drawn. These portfolios would also outperform the IBrX-50. Robustness tests with variations in size and frequency of rebalancing do not change conclusions.     

Do single‐stock circuit breakers provide a safety net for Canadian investors?

This study looks at the market impact of recent regulatory changes in Canada that provide for trading halts on individual stocks that experience large upside or downside movements. The focus is on all stocks traded on the Toronto Stock Exchange since the inception of the single‐stock circuit breaker rule (SSCB) in February 2012, to replace the short‐sale uptick rule. The results support pricing efficiency: material information that caused the circuit breaker is incorporated in stock prices on the day of the halt (neither overreaction nor underreaction), with no decline in market liquidity. Using trade‐by‐trade data constructed on five‐minute trading intervals, we refine the daily results, and show that shocks in realized volatility are focused in the 10‐minute trading interval surrounding the halts. While circuit breakers provide a limited safety net for investors when their stocks are subject to severe volatility, they do not allow for a quick turnaround for stocks experiencing severe price decline events.     

Order imbalance and the dynamics of index and futures prices

This study uses transaction records of index futures and index stocks, with bid/ask price quotes, to examine the impact of stock market order imbalance on the dynamic behavior of index futures and cash index prices. Spurious correlation in the index is purged by using an estimate of the “true” index with highly synchronous and active quotes of individual stocks. A smooth transition autoregressive error correction model is used to describe the nonlinear dynamics of the index and futures prices. Order imbalance in the cash stock market is found to affect significantly the error correction dynamics of index and futures prices. Order imbalance impedes error correction particularly when the market impact of order imbalance works against the error correction force of the cash index, explaining why real potential arbitrage opportunities may persist over time. Incorporating order imbalance in the framework significantly improves its explanatory power. The findings indicate that a stock market microstructure that allows a quick resolution of order imbalance promotes dynamic arbitrage efficiency between futures and underlying stocks. The results also suggest that the unloading of cash stocks by portfolio managers in a falling market situation aggravates the price decline and increases the real cost of hedging with futures. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:1129–1157, 2007     

Property and liability stockholder yields and accounting profits

The market rate of return and related risk of a group of 23 property-liability insurers are explored. The focus is on the return earned by the stockholders of these firms. Previous studies have only examined the accounting rate of return. This study compares the accounting rate of returns to stockholder yields. Several factors that effect the return earned by shareholders are reviewed.The average return on the property-liability stocks studies was 4.0 percentage points greater than the accounting rate of return (0.14 vs 0.10). This evidence suggests that studies based only on accounting rates of return under-estimate returns earned by property-liability shareholders. On a risk-return basis property-liability profits were found not to be significantly different from the general stock market. However, several individual firms had superior stockholder yields. The beta for the group of firms was 1.09.     

对包钢股票β值的检验

β值是指企业的系统风险,也就是企业不能通过投资分散掉的风险。例如全球经济形势,利率水平等所产生的风险。企业的β系数表示了资产的回报率对市场变动的敏感程度,可以衡量该资产的不可分散风险。本文基于投资组合理论,首先简单分析了单个资产系统风险对于确定单个资产收益率的重要意义,随后运用上证指数（000001）与包头钢铁有限责任公司的股票（600010）的相关数据,运用E-views6.0进行一元线性回归分析,确定了包钢集团的β值。最后,本文对得到的模型进行了统计意义与计量经济学检验,为今后计算单项资产β值实现规避风险的研究提供了有益的借鉴。本文选取了包钢股票2009年9月至2014年9月近五个年度的月度数据,运用EXCEL、新浪股票、E-views6.0等相关网络及系统软件对其进行分析研究,最终得出包钢股票的β值。     

浙江需“中端崛起,高端突破”

浙江经济总量虽居全国第四,但是,浙江的产业经济主体,主要集中在传统制造业,而且是以中小企业为主体,而这种特征,决定了浙江的产业升级,长路漫漫。所谓,浙江未来的产业发展,首先是实现目前的中小企业的升级换代,从低附加值的产业,过渡到大众产业,从产业链的最低端,延伸到中端。     

Switching Between the Banking and Metals and Mining Sectors of Australia*

Using the Australian banking and metals and mining industries as the categories in the Barberis and Shleifer model, this study demonstrates switching in the Australian stock market. Switching occurs when investors move into an industry by selling off stocks of an alternate industry, thus causing negative lagged cross‐correlation between those industries. Our results, based on daily returns, suggest that category‐level investor sentiment may drive observed switching patterns in the Australian stock market and not fundamental risk factors. Our results also show that switching does not necessarily only occur between value and growth stocks or large‐cap and small‐cap stocks.     

商业银行偿付能力风险、流动性风险与银行体系风险

宏观审慎监管需要微观基础.研究商业银行偿付能力风险与流动性风险和银行体系风险的关系,有助于监管当局制定合适的监管工具,有效管理银行业的系统性风险.中国未曾爆发过真正意义的银行业危机,因而研究影响银行业系统性风险的因素成为难题.在借鉴风险二维定义属性基础上,本文对商业银行偿付能力风险和流动性风险如何影响银行业稳定进行了实证分析.分析结果表明,当商业银行偿付能力上升时,银行风险承担会上升,进而增加银行倒闭的预期损失;商业银行流动性风险的上升也会增加银行倒闭的预期损失;商业银行偿付能力提高时,流动性风险会降低;商业银行流动性风险上升时,偿付能力风险也上升.     

Market power and systematic risk

This paper examines the relationship between market power variables and the systematic risk, beta, of a firm. The study controls for the effects of dividend policy, liquidity, and earnings growth. Market power is measured by firm size (both sales and assets), proportion of industry sales, and the industry's four-firm concentration ratio. The study finds only a weak relationship between individual firm market power and firm risk, but there is evidence of a strong negative relationship between industry concentration and the market risk of the firms in an industry. This indicates that firms in concentrated industries experience lower capital costs than firms in less-concentrated industries. The existence of limit pricing is suggested as an explanation for this finding.     

Is the profitability of Indian stocks compensation for risks?

This paper examines the profitability of the Indian stock market using an extensive new data set that includes 1,515 stocks and covers a time-period spanning 1992 to 2014. Using both the popular Jegadeesh-Titman and the 52-week momentum trading strategies, we discover that portfolios of all stocks and various portfolios of industry stocks are profitable. These profits, we find, disappear once we account for a range of market and macroeconomic factors, suggesting that market and industry profits are compensation for risks. Our results survive a battery of robustness tests.     

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.     

Bridging the gap: How sustainable development can help companies create shareholder value and improve financial performance

This study examines the effect of integrating sustainability into corporate strategy on various aspects of shareholder value creation and financial performance in the British capital market. The employed method is based on the content analysis of corporate disclosures and a new technique for assessing the adoption of the corporate sustainability concept (embracing the environmental, social, and financial aspects of a company's policies at the same time). Using extensive data of FTSE 350 firms covering the years 2006–2012, 65 companies were selected as meeting corporate sustainability criteria. For the above period, we find that these firms were characterized by higher financial risk exposure, lower asset growth rates, lower BV/MV ratios, lower EVA ratios, and higher MVA ratios. Such relations were generally present among different size and industry groupings. The results support the thesis that firms that incorporate sustainability issues into their business operations are better able to leverage their resources toward stronger financial performance and shareholder value creation than other companies. The paper contributes to the literature by offering a more holistic approach to corporate sustainable performance measurement and shedding additional light on its relation to financial performance in the context of the recent global financial crisis and its direct aftermath.     

The Roles of Gender and Marital Status on Risky Asset Allocation Decisions

We analyze data on asset allocations in individual retirement accounts to examine the roles of marital status and gender on investment decisions. We utilize data from two birth cohorts to understand the relationship over a wide age range. We find that, in their 30s and early 40s, men are more likely to hold a majority of their funds in stocks in individual retirement accounts compared to women. The gender difference disappears around retirement age; however, a significant difference by marital status emerges in that age group. Divorced and widowed individuals are less likely to hold a majority of their funds in stocks compared to married individuals in their 60s. While there exists a positive gap in stock holdings between married men and married women in their 30s, the gender gap is nonexistent among older individuals. Using paired data on stock holdings in the older birth cohort, we show that husbands' and wives' asset allocations in individual retirement accounts are strongly correlated, coinciding with the lack of a gender gap in stock holdings among older couples.