The equity premium and market integration: Evidence from international data

This paper examines the equity premium puzzle by looking at stock market data from 39 countries. For each of these countries, average total return as well as excess returns was estimated for the past 20–30 years. I find that emerging markets have higher excess returns than developed markets, but when adjusted for risk developed markets have higher returns. I test the theory that degree of integration with global markets is a major explanatory factor for differences in excess returns, as the demand for domestic equities may be greater in countries that are less integrated and thus have less access to alternative overseas assets. I find a positive relationship between degree of integration and excess returns, which is evidence in favor of this theory.     

Taxes,dividend yields and returns in the UK equity market

The higher rate of taxation on dividend income relative to capital gains has been offered as an explanation for the positive relation between stock returns and dividend yields among US firms. In the UK the relative tax rates are the reverse of those in the US. Thus, UK data provides an independent test of the tax-based approach to explaining the relation between stock returns and dividend yields. We find that high yielding stocks earn positive risk adjusted returns, whereas low yielding stocks earn negative risk adjusted returns. We also detect evidence of non-linearity in the performance of zero-dividend stocks. Controlling for firm size, seasonality and market risk we find a significant positive relation between dividend yields and returns. We conclude that the evidence is inconsistent with a tax-based explanation.     

Exchange-traded funds,persistence in tracking errors and information dissemination

We estimate tracking errors from 26 exchange-traded funds (ETFs) utilizing three different methods and test their relative performance using Jensen's model. We find that tracking errors are significantly different from zero and display persistence. Based on Jensen's alpha, risk adjusted returns are significantly inferior to benchmark returns for all ETFs with two exceptions at conventional significance levels revealing that passive investment strategy does not outperform market returns. We then examine the degree to which frequently used factors such as expense ratio, dividends, exchange rate and spreads of trading prices may be underlying sources of tracking errors causing this underperformance. We find that the change in the exchange rate is a significant source of tracking errors. Our serial correlation test, runs test and panel regression analysis reveal that Asian markets display relatively greater persistence and therefore are less efficient in disseminating information and noisier in filtering the information contained in returns.     

Bond market event study methods

The procedures used in corporate bond event studies to date fail to control for heteroskedasticity due to differences in return volatility by term-to-maturity, rating, and other factors resulting in low test power. Bond return standardization yields considerably more powerful tests. Also, due to infrequent trading, use of bond transaction price observations over several days before and after an event, while giving more weight to returns calculated from transactions closer to the event, yields considerably more powerful tests than returns based solely on transactions the day before and the day after the event. Exploring the test bias caused by overlapping event dates, we find that, adjusted for rating and maturity, the correlation among standardized abnormal bond returns is small but that even fairly small correlations can result in biased test statistics. A bond market modification of the Kolari and Pynnönen (2010) procedure corrects this bias.     

The efficiency of the buy-write strategy: Evidence from Australia

We examine the performance of the buy-write option strategy (BWS) on the Australian Stock Exchange and analyse whether such an investment opportunity violates the efficient market hypothesis on the basis of its risk and returns. This study investigates the relationship between buy-write portfolios returns and past trading volume and other fundamental financial factors including dividend yield, firm size, book to market ratio, earnings per share (EPS), price earnings ratio and value stocks within these portfolios. We also test the profitability of the buy-write strategy during bull and bear markets. Consistent with the literature, it is observed that BWS offers superior risk adjusted returns for low levels of out-of-moneyness and contrary evidence is observed for deeper out-of-money portfolios. Consistent with a preference for options with a maturity of around 3 months in Australia, this research shows that quarterly rebalancing periods offer better returns for the BWS.     

WHAT DETERMINES SEO OFFER‐DAY RETURNS?

We examine seasoned equity offering (SEO) initial‐day returns after controlling for the dilution effect from the SEO discount and new shares offered. Contrary to the existing literature that ignores the effect of dilution, we find that initial‐day returns are not consistently positive. Modeling adjusted initial‐day returns, we show that dilution‐adjusted initial‐day returns respond to partial price adjustments reflecting both private and public information. Additional determinants of SEO offer‐day returns include lockup length, discount reversal, prior operating performance, and underwriter reputation. Long‐run tests reveal that adjusted initial‐day returns are not predictive of postissuance long‐term performance.     

On the drivers of technical analysis profits in cryptocurrency markets: A Distributed Lag approach

The cryptocurrency literature on technical analysis has largely ignored drivers of technical analysis return adjusted by transaction costs (i.e., adjusted returns). To that end, we propose a Heterogeneous Autoregressive Distributed Lag Model of Returns (HARDL-R) to examine the impact from EPU, VIX, and SP500 returns to adjusted returns. We provide evidence that these three drivers matter during bubble periods compared to non-bubble periods. When not differentiating bubble periods, we find that VIX is the only driver influencing the dynamics of adjusted returns from 2016 to 2021. These findings remain relatively stable after controlling for the volume of transactions.     

Unexpected Inflation,Capital Structure,and Real Risk‐adjusted Firm Performance

Managers can improve real risk‐adjusted firm performance by matching nominal assets with nominal liabilities, thereby reducing the sensitivity of real risk‐adjusted returns to unexpected inflation. The net asset value of US equity real estate investment trusts (REITs) serves as a good proxy for nominal assets and, accordingly, we use a sample of US REITs to test our hypothesis. We find that for the firms in our sample: (i) their real risk‐adjusted performance, and (ii) their inflation‐hedging qualities are inversely related to deviations from this ‘matching‐nominals’ argument. In addition to providing managers with a vehicle to maximize real risk‐adjusted performance, our findings also provide investors with the tools to infer inflation‐hedging qualities of equity investments.     

Partial Price Adjustments and Equity Carve‐Outs

We examine the extent to which market‐adjusted ex date returns reflect public information for 271 equity carve‐outs in 1988–2006. Although prior studies focus on ex post determinants of equity carve‐out and initial public offering returns, our study is the first to explore ex ante predictors of equity carve‐out returns. We use three primary variables: filing range adjustments, the percentage of the offering used to retire subsidiary debt or to pay dividends, and the CBOE Volatility Index (VXO) to predict initial returns. We show that 11–35% of the variation in market‐adjusted equity carve‐out returns can be predicted using public information known prior to the offer date.     

Size Anomalies in U.S. Bank Stock Returns

The largest commercial bank stocks, ranked by total size of the balance sheet, have significantly lower risk‐adjusted returns than small‐ and medium‐sized bank stocks, even though large banks are significantly more levered. We uncover a size factor in the component of bank returns that is orthogonal to the standard risk factors, including small minus big, which has the right covariance with bank returns to explain the average risk‐adjusted returns. This factor measures size‐dependent exposure to bank‐specific tail risk. These findings are consistent with government guarantees that protect shareholders of large banks, but not small banks, in disaster states.     

Institutional Ownership and Return Reversals Following Short‐Term Return Consistency

Securities with consistently strong positive (negative) returns during the previous two weeks have future returns that are higher (lower) than those that do not. The results hold for various robustness checks, including those involving firm size, share turnover, past return levels, and bid‐ask bounce. The returns to short horizon consistency trading strategies are reliable through time and are both economically and statistically significant. There is also some evidence that longer periods of consistency lead to greater risk‐adjusted profits. Most surprising is that this effect holds only for those firms with high institutional ownership.     

A Tale of Two Anomalies: Higher Returns of Low‐Risk Stocks and Return Seasonality

Prior studies have shown that low beta and low volatility stocks earn higher average returns than high beta and high volatility stocks, contradicting the prediction of the capital asset pricing model and the fundamental relationship between risk and return. In this paper, we demonstrate that this phenomenon is driven by the seasonality of stock returns. We show that the risk‐return tradeoff does hold in the nonsummer months, and that switching to a portfolio of low‐risk stocks in summer outperforms—both in terms of absolute and in risk‐adjusted returns—buy and hold strategies as well as the Sell in May strategy of switching to treasury bills in summer.     

Does information risk affect the implied cost of equity capital? An analysis of PIN and adjusted PIN

Using a unique dataset of Korean listed companies for which trade initiators are correctly identifiable, we estimate bias-free PIN (probability of informed trading) that is no longer subject to the trade misspecification problem and test whether it is related to expected returns. Unlike prior studies, we find that bias-free AdjPIN, the adjusted PIN purged of a liquidity component, is positively related to implied cost of equity. Our findings suggest that the errors in PIN variables hamper a proper identification of PIN pricing in prior studies.     

我国IPO长期市场表现的实证研究——基于超常收益率不同测度方法的比较分析

本文选取1995年1月至2000年12月沪深两市774个A股IPO样本,计算IPO的等权平均、流通市值加权平均和总市值加权平均收益率,并使用不同的市场指数及配比股票组合的收益率加以调整来评价IPO的长期市场表现。经过事件时间和日历时间的实证研究发现:(1)我国IPO在上市后3年内总体上表现出长期强势。(2)IPO长期超常收益率对使用何种参照指标的收益率来调整以及使用何种加权平均方法很敏感。CAR和日历时间研究的结果更明显地表明我国IPO存在长期强势特征,而且使用市值加权平均方法计算的正超常收益率更为显著。(3)Fama-French三因素模型和CAPM模型回归的截距项都表明我国IPO存在正的长期超常收益率。     

Long-term adjusted volatility: Powerful capability in forecasting stock market returns

We develop the long-term adjusted volatility (LV_ADJ) by removing the interference information of short-term volatility from the simple long-term volatility and examine the role of LV_ADJ in the predictability of stock market returns. Using a sample from January 2000 to December 2019 and considering 19 popular predictors, LV_ADJ positively predicts the next-month returns of S&P 500 and the univariate model with LV_ADJ has the best forecasting performance with adjusted in-sample r-squared of 3.825%, out-of-sample r-squared of 3.356%, return gains of 5.976%, CER gains of 4.708 and Sharpe ratio gains of 0.394. The predictive information of LV_ADJ is independent of that obtained from the 19 popular predictors. Furthermore, we find that LV_ADJ also has predictive power for long-term (3–12 months) stock returns, and can forecast returns of industry portfolios and characteristic portfolios.     

A UK Empirical Test of the Larson-Gonedes Exchange Ratio Model

This paper adopts the Larson-Gonedes merger exchange ratio determination model to investigate the bargaining area in UK takeovers involving share-for-share exchanges. The model focuses on price-earnings ratios rather than share price returns and so is more consistent with practical valuation methods than other approaches. The basic model is extended for the UK to consider both cash alternative offers and mixed offers involving cash and equity consideration. The model is tested on a sample of 95 UK takeovers between 1984 and 1988 using consecutively unadjusted, FT All Share Index adjusted and beta adjusted price bases. The analysis adopts the conventional chi-square test used by Conn and Nielsen but, in addition, a new test is developed based on a Generalised Likelihood Ratio. We find that on an unadjusted price basis there is greater support for the Larson-Gonedes model in the UK than Conn and Nielsen found for the US. However, our extended model based on adjusted prices provides more cautious support. In addition, we conduct a sensitivity analysis to test the robustness of the results and provide further evidence on the wealth effects on acquiring and acquired company shareholders.     

Growth Capital‐Backed IPOs

Growth capital investing is the financing of growing businesses that are investing in tangible assets and the acquisition of other companies. Growth capital is common in retailing, restaurant chains, and health care management, and represents 12% of all venture capital (VC)‐backed initial public offerings (IPOs). Since 1980, investing in growth capital‐backed IPOs has produced mean three‐year style‐adjusted buy‐and‐hold returns of +25.2%, in contrast to style‐adjusted returns of approximately zero for other VC‐backed and buyout‐backed IPOs. One‐third of growth capital‐backed IPOs are rollups and these have produced much higher returns for investors than rollups without a financial sponsor.     

The relationship between mutual fund fees and expenses and their effects on performance

Fees charged by mutual funds include front-end load charges, deferred sales charges that decrease over time, redemption fees that are imposed whenever shares are sold, and 12b-1 fees. Fees may be justified if they allow the fund to lower other costs or improve performance. In this paper, we find that, on average, 12b-1 fees, deferred sales charges, and redemption fees increase expenses whereas funds with front-end loads generally have lower expenses. We also find that funds with 12b-1 fees and redemption fees, on average, earn higher risk adjusted returns but funds with front-end load charges earn lower risk adjusted returns.     

The Impact of Macroeconomic and Financial Variables on Market Risk: Evidence from International Equity Returns

Using a GARCH approach, we estimate a time–varying two–factor international asset pricing model for the weekly equity index returns of 16 OECD countries. We find significant time–variation in the exposure (beta) of country equity index returns to the world market index and in the risk–adjusted excess returns (alpha). We then explain these world market betas and alphas using a number of country–specific macroeconomic and financial variables with a panel approach. We find that several variables including imports, exports, inflation, market capitalisation, dividend yields and price–to–book ratios significantly affect a country's exposure to world market risk. Similar conclusions are obtained by using lagged explanatory variables, and thus these variables may be useful as predictors of world market risks. Several variables also significantly impact the risk–adjusted excess returns over this time period. Our results are robust to a number of alternative specifications. We further discuss some economic hypotheses that may explain these relationships.     

Information trading by corporate insiders based on accounting accruals: forecasting economic performance

In this paper, we test whether directors’ (corporate insiders) trading in Australia, based on accounting accruals, provides incremental information in forecasting a firm's economic performance. We determine that directors’ trading on negative accruals in larger firms has greater forecasting content and is associated with 1‐year‐ahead bull market phases. Moreover, arbitrage portfolios set up to mimic insider trading can earn 1‐year‐ahead excess size‐adjusted arbitrage returns of up to 12.2 per cent. Results are consistent with directors hiding their trades in liquid well‐traded firms and in providing incremental information above that supplied by a continuous information regime.