On a Simple Econometric Approach for Utility-Based Asset Pricing Model

The Journal of Finance has published an important paper entitled A Simple Econometric Approach for Utility-Based Asset Pricing Model by Brown and Gibbon (1985). The main purpose of this paper is to extend the research of Brown and Gibbons (1985) and Karson, Cheng and Lee (1995) in estimating the relative risk aversion (RRA) parameter in utility-based asset pricing model. First, we review the distributions of RRA parameter estimate . Then, a new method to the distribution of is derived, and a Bayesian approach for the inference of is proposed. Finally, empirical results are presented by using market rate of return and riskless rate data during the period December 1925 through December 2001.     

A NEW APPROACH TO CONTROLLING FOR THIN TRADING

Recent research has shown that thin trading can seriously bias beta estimates. Present techniques for controlling this bias in research designs involve the adjustment of OLS betas. This paper presents a new methodology that controls for this bias by forming portfolios where the level of thin trading is held constant, while the difference of another variable, pertinent to a specific research design, is maximized across the portfolios. Directly controlling the level of thin trading avoids reliance on beta adjustment techniques. Further, the linear programming model permits the control of the mean and higher moments of additional variables across portfolios.     

The impact of sentiment on price discovery

We study how investor sentiment affects the speed with which prices reflect information. Price discovery is more timely for firms with greater sensitivity to sentiment, as measured by a sentiment beta. Our research improves our understanding of the price formation process when sentiment is not assumed to be constant. Our research design is novel as it considers a sentiment beta as well as economy‐wide sentiment. This provides more comprehensive evidence on the impact of differing types of sentiment on the price formation process.     

Dividend Announcements and Changes in Beta

This study examines changes in beta risk around dividend announcement dates. The evidence shows that beta changes are strongly influenced by the changing behavior of large and small betas. This implies that researchers who attribute risk changes to specific announcements may need to control their research design for regression order bias. Further research may also be needed to ascertain whether or not this regression order bias plays a significant role in the estimation of abnormal returns in event studies.     

Is Beta Dead or Alive?

The debate about whether beta is dead or alive has heated up once again. We believe the empirical work supporting either side of the argument is limited because market frictions are not adequately addressed. This study clarifies the controversy about the issue by creating a new moving-average beta and analyzing two market anomalies: the turn-of-the-year and the Monday effects. What is discovered in this research is (1) that a fundamental source of the problem underlying the two types of market anomalies is the persistence of market frictions that retard the arbitrage process; (2) that beta is seriously ill if the effects of market frictions are ignored; and (3) that beta is alive and well if the effects of market frictions are accommodated. Also, we show, by using an optimal lead/lag structure, the moving-average beta provides significantly higher explanatory power for the turn-of the-year and the Monday effects than betas created from ordinary least squares regression and Scholes-Williams and Fama-French methods because the moving-average beta accommodates the effects of market frictions into the body of beta itself. This new type of beta, a moving-average beta, is demonstrated to be robust.     

AUTOCORRELATION IN MARKET MODEL RESIDUALS

Autocorrelation in market model residuals affects the estimate of market risk measured by beta. Correction for autocorrelation can substantially change the estimate of beta for some common stocks. In view of the importance of beta estimates in financial research and investment practice, an examination is undertaken in this paper of the prevalence of autocorrelation and two of its causes. The evidence indicates that negative autocorrelation affects estimates of beta for a large number of stocks. In addition, negative autocorrelation is most prevalent among thinly traded and low-priced stocks.     

Risk Interpretation of the CAPM's Beta: Evidence from a New Research Method

This study tests the validity of using the CAPM beta as a risk control in cross‐sectional accounting and finance research. We recognize that high‐risk stocks should experience either very good or very bad returns more frequently compared to low‐risk stocks, that is, high‐risk stocks should cluster in the tails of the cross‐sectional return distribution. Building on this intuition, we test the risk interpretation of the CAPM's beta by examining if high‐beta stocks are more likely than low‐beta stocks to experience either very high or very low returns. Our empirical results indicate that beta is a strong predictor of large positive and large negative returns, which confirms that beta is a valid empirical risk measure and that researchers should use beta as a risk control in empirical tests. Further, we show that because the relation between beta and returns is U‐shaped, that is, high betas predict both very high and very low returns, linear cross‐sectional regression models, for example, Fama–MacBeth regressions, will fail on average to reject the null hypothesis that beta does not capture risk. This result explains why previous studies find no significant cross‐sectional relation between beta and returns.     

Is Beta Dead or Alive?

The debate about whether beta is dead or alive has heated up once again. We believe the empirical work supporting either side of the argument is limited because market frictions are not adequately addressed. This study clarifies the controversy about the issue by creating a new moving-average beta and analyzing two market anomalies: the turn-of-the-year and the Monday effects. What is discovered in this research is (1) that a fundamental source of the problem underlying the two types of market anomalies is the persistence of market frictions that retard the arbitrage process; (2) that beta is seriously ill if the effects of market frictions are ignored; and (3) that beta is alive and well if the effects of market frictions are accommodated. Also, we show, by using an optimal lead/lag structure, the moving-average beta provides significantly higher explanatory power for the turn-of the-year and the Monday effects than betas created from ordinary least squares regression and Scholes-Williams and Fama-French methods because the moving-average beta accommodates the effects of market frictions into the body of beta itself. This new type of beta, a moving-average beta, is demonstrated to be robust.     

On the conditional relationship between beta and return in international stock returns

This paper examines the conditional relationship between beta and return in international stock returns between January 1970 and July 1998 using the approach of Pettengill et al. [Pettengill, G., Sundaran, S., & Mathur, I. (1995). The conditional relation between beta and return. J Financ Quant Anal, 30, 101–116] (1995).Consistent with previous research, there is a flat unconditional relationship between beta and return. However, when the sample is split into up market and down market months, there is support for the relationship. There is a significant positive relationship between beta and return in up market months and a significant negative relationship between beta and return in down market months. Subsidiary results highlight a January effect in the conditional beta and return relationship.     

Adjusted accounting beta,operating leverage and financial leverage as determinants of market beta: A synthesis and empirical evaluation

This article reexamines and synthesizes two streams of research dealing with the relationship between market beta and accounting risk measures. It is shown that, with some minor rearrangement the Mandelker and Rhee (1984) model can be shown to be as a decomposition of the familiar accounting beta (Beaver, Kettler and Scholes 1970) into operating leverage, financial leverage, and an adjusted accounting beta. The adjusted accounting beta can be further decomposed into productivity gains and the relative cyclical sensitivity of the accounting flows of the firm. Empirical estimates of this extension made using three accounting flow measures in addition to earnings show that the intrinsic business risk factor not identified in the original Mandelker and Rhee model is the most significant explanatory factor related to market beta.     

Market conditions,risk, and real estate portfolio returns: Some empirical evidence

This research examined the return behavior of a portfolio of American and New York Stock Exchange real estate firms. A dummy variable procedure was used to test for excess return and/or change in risk behavior across market conditions. The findings were as follows. First, no excess return was found for any model specification. Second, no changes in beta were found using the benchmark approach. The beta shifted when an up market was defined as a nonrecessionary period; the beta behaved procyclically. However, the subperiod tests indicated that effect was transitory and period specific.     

The Errors in the Variables Problem in the Cross-Section of Expected Stock Returns

Recent research has documented the failure of market beta to capture the cross-section of expected returns within the context of a two-pass estimation methodology. However, the two-pass methodology suffers from the errors-in-variables (EIV) problem that could attenuate the apparent significance of market beta. This article provides a new correction for the EIV problem that is robust to conditional heteroscedasticity. After the correction, I find more support for the role of market beta and less support for the role of firm size in explaining the cross-section of expected returns. While the EIV correction leads to a diminished role of firm size, the size variable remains a significant force in explaining the cross-section of expected returns.     

Option Trading and the Intervalling Effect Bias in Beta

Prior studies show that the beta coefficient of a security changes systematically as the length of measurement interval is varied. This phenomenon, which is called the intervalling effect bias in beta, has been attributed to the friction in the trading system that causes the delays in the price-adjustment process. This study shows that option listing is associated with a decline in the beta intervalling effect bias. The decline is most pronounced for small firms. We also find that our sample firms grow significantly after option listing. Since prior research indicates that market value is a major determinant of the magnitude of the intervalling effect, we re-examine our results using a subsample that controls for market value. The results indicate that the decline in the beta bias from the pre-listing to post-listing period is still prevalent after we control for the change in firm size. Overall, the evidence is consistent with the notion that option trading reduces the delays in the price-adjustment process, which in turn reduces the intervalling effect bias in beta.     

中国能源利用效率β收敛性的区域研究

在生产理论框架下,构建投入导向、规模报酬不变的超效率DEA模型,利用全国30个省市(不含西藏)2000-2014年数据测度出我国八大经济区域的全要素能源效率,并建立收敛回归模型对八大区域能源利用效率进行β收敛检验.分析发现:我国能源利用效率呈现出"一降两波动一稳、总体上升"的态势,且存在绝对β收敛和条件β收敛.分地区来看,黄河中游地区、长江中游地区和西南地区通过绝对β收敛检验,且收敛速度高出全国水平;北部沿海地区各省市能源利用效率差异在增加.对条件β收敛而言,除南部沿海地区在产业结构作用下和西北地区在技术进步作用下条件β收敛系数不显著,其他各区域在技术进步、产业结构和对外开放程度的作用下均存在条件β收敛.     

Determinants of market beta: the impacts of firm-specific accounting figures and market conditions

This article examines and extends research on the relation between the capital asset pricing model market beta, accounting risk measures and macroeconomic risk factors. We employ a beta decomposition approach that nests competing models with different business risk proxies and allows to frame cross-model comparison. Because model tests require estimated independent variables resulting in measurement error, we empirically estimate three comparable model specifications with instrumental variable estimators and for the first time provide thorough instrument diagnostics in this setting. Correcting for the heretofore neglected weak instruments problem we find that growth risk (i.e., the risk of firm sales variations that are inconsistent with the market wide trends), is the business risk that explains cross-sectional variations in market beta best.     

A Direct Test of Roll's Conjecture on the Firm Size Effect

Empirical research indicates that small firms earn higher average rates of return than large firms, even after accounting for beta risk. Roll conjectured that the small firm effect might be attributed to improper estimation of security betas. The evidence shows that while the direction of the bias in beta estimation is consistent with Roll's conjecture, the magnitude of the bias appears to be too small to explain the firm size effect.     

A conceptual foundation of design and implementation research in accounting information systems

This structured literature review focuses on the design and implementation of systems in Accounting Information System (AIS) research. The review has two objectives: 1) To look in depth at AIS research regarding the design and implementation of information systems related to accounting in the last fifteen years; 2) To understand design and implementation issues in AIS. To do so, this research examines the current state of design and implementation research in the domain of AIS, using a structured review of abstracts in top-level Information Systems, Accounting, and AIS journals. Using a design science in IS theoretical framework, the review categorizes themes and trends in AIS literature. Some of the most relevant themes include audit/auditors, enterprise resource planning, monitoring and control, adoption, and decision making. The most relevant issues include training, commitment, investment, culture, and existing business processes. The research includes gaps, limitations, and opportunities for future research.     

SELECTIVITY,MARKET TIMING,AND RANDOM BETA BEHAVIOR OF MUTUAL FUNDS: A GENERALIZED MODEL

This paper presents a generalized varying parameter model to investigate the performance of mutual funds. The model allows beta nonstationarity to include both market timing and random beta behavior; therefore, it can be regarded as a general case of previous research. Forty-three funds with a wide range of objectives are examined. The generalized varying parameter results indicate that about 30 percent of the funds show selectivity, 19 percent have random betas, and 14 percent indicate significant, yet negative, market timing performance. Therefore, mutual funds, as a group, show no market timing ability. The apparent ability to select undervalued securities, however, seems to conflict with the efficient markets hypothesis.     

Diffusion of integrated reporting,insights and potential avenues for future research

This study reviews the diffusion of integrated reporting (IR) research. The systematic literature review method is used to review the effects of IR at the organisational level, determinants of IR adoption and integrated report quality (IRQ), assurance on IR, economic consequences of IR/IRQ, and research design issues to set agendas for future research. The review covers 119 peer-reviewed IR articles published in 36 journals between 2012 and 2021. It finds that the IR literature is dominated by organisational-level studies, but there is limited research on the economic consequences of IR/IRQ, and the findings are inconclusive to date. Further, the factors that determine IR adoption/IRQ are not conclusive, and there is scarce research on IR assurance. This review contributes to the emerging IR literature and provides valuable insights to the International Integrated Reporting Council (IIRC) in establishing the IR framework as a global reporting norm in practice.