Behavioral Timing,Valuation and Postissue Performance of UK Initial Public Offerings

Using a sample of 1,926 UK initial public offerings (IPOs) launched from 1987 to 2007, this study introduces a new angle on testing the behavioral timing hypothesis in the context of UK IPOs via investigating relationships between the magnitude of IPOs misvaluation and postissue stock price and operating performance. IPO misvaluation is measured using (i) an intrinsic value of the firm estimated using residual income valuation model and (ii) intensity of IPO issuance activity. The findings show that stock price and operating underperformance in the postissue are directly linked to the degree of IPOs' misvaluation. Specifically, the stock price and operating performance are found to be significantly and robustly different between hot markets IPOs and cold market IPOs 3 years postissue. We also show that overvalued IPOs have lower long-run stock returns, but outperforming operating performance, than undervalued IPOs do. Our findings are broadly consistent with the behavioral explanations of the poor stock price and operating performance, supporting the U.S. results of Purnanandam and Swaminathan [2004 Purnanandam, A. and B. Swaminathan. “Are IPOs Really Underpriced?” Review of Financial Studies, 17, (2004), pp. 811–848.[Crossref], [Web of Science ®] , [Google Scholar]] and Loughran and Ritter [2000 Loughran, T. and J. Ritter. “Uniformly Least Powerful Tests of Market Efficiency.” Journal of Financial Economics, 55, (2000), pp. 361–389.[Crossref], [Web of Science ®] , [Google Scholar]].     

Anchoring-Adjusted Capital Asset Pricing Model

What happens when the capital asset pricing model is adjusted for the anchoring and adjustment heuristic of Tversky and Kahneman [1974 Tversky, A., and D. Kahneman. “Judgment Under Uncertainty: Heuristics and Biases.” Science, 185, (1974), pp. 1124–1131.[Crossref], [PubMed], [Web of Science ®] , [Google Scholar]]? The surprising finding is that adjusting the capital asset pricing model for anchoring provides a plausible unified framework for understanding almost all of the key asset pricing anomalies. The anomalies captured in the theoretical framework include the well-known size and value effects, high alpha of low beta stocks, accruals, low volatility anomaly, momentum effect, stock splits, and reverse stock splits. The market equity premium is also larger with anchoring. This suggests that the anchoring-adjusted capital asset pricing model may provide the needed unifying structure to behavioral finance.     

Investor Attention and Global Stock Returns

The author constructs a direct measure of investor attention toward global benchmark indices using Google search volume and empirically examines its impact on stock returns. The author documents a significant decrease in index returns following an increase in investor attention. This result is consistent with the investor recognition hypothesis (Merton [1987 Merton, R. “A Simple Model of Capital Market Equilibrium with Incomplete Information.” Journal of Finance, 42, (1987), pp. 483–510.[Crossref], [Web of Science ®] , [Google Scholar]]) and the finding of no-media premium in the United States (Fang and Peress [2009 Fang, L., and J. Peress. “Media Coverage and the Cross-section of Stock Returns.” Journal of Finance 64, (2009), pp. 2023–2052.[Crossref], [Web of Science ®] , [Google Scholar]]). Additional tests suggest that the attention effect may be attributable to local and U.S. investors. Finally, such negative effect of attention is found to be strengthened (weaken) in the market with positive (negative) sentiments.     

Stock Price Reaction to News: The Joint Effect of Tone and Attention on Momentum

The authors find that the market's underreaction to good news is a driver of Gutierrez and Kelly's [2008 Gutierrez, R. and E. K. Kelly. “The Long-lasting Momentum in Stock Returns.” The Journal of Finance, 63, (2008), pp. 415–447.[Crossref], [Web of Science ®] , [Google Scholar]] weekly momentum returns. By employing a dataset of 10.1 million news items in 4 regions (the U.S., Europe, Japan, and Asia Pacific), they find that stocks having important and positive news exhibit stronger return continuation. The study findings suggest that investors in international markets have similar underreaction to the same news characteristics.     

Herding Behavior in CEE Stock Markets Under Asymmetric Conditions: A Quantile Regression Analysis

This article investigates herding behavior in ten Central and East European (CEE) stock markets by using daily data on stock prices for 384 companies from January 2, 2003, to December 31, 2013. Our study is based on the methodology developed by Chang, Cheng, and Khorana [2000 Chang, Eric, Joseph Cheng, and Ajay Khorana. “An Examination of Herd Behavior in Equity Markets: An International Perspective.” Journal of Banking and Finance, 24, (2000), pp. 1651–1679.[Crossref], [Web of Science ®] , [Google Scholar]], adapted to detect herding behavior under different market conditions. The authors use quantile regression analysis as an estimation method and find evidence of herding behavior in all CEE countries, except for Poland and Romania. When the market is up and the trading volume increases, investors become enthusiastic and optimistic, neglecting their own information and following each other in buying transactions. Conversely, when the market declines, driven by panic and fear, investors follow the market consensus and engage in overselling transactions.     

What Explains Herd Behavior in the Chinese Stock Market?

This article examines the causes of herd behavior in the Chinese stock market. Using the nonlinear model of Chang, Cheng, and Khorana [2000 Chang, E. C., J. W. Cheng, and A. Khorana. “An Examination of Herd Behavior in Equity Markets: An International Perspective.” Journal of Banking and Finance, 24, (2000), pp. 1651–1679.[Crossref], [Web of Science ®] , [Google Scholar]], the authors of this article find robust evidence of herding in both the up and down markets. They contribute to the existing literature by exploring the underlying reasons for herding in China. It is shown that analyst recommendation, short-term investor horizon, and risk are the principal causes of herding. However, the authors cannot find evidence that relates herding to firm size, nor can they detect significant differences in herding between state-owned enterprises and non–state-owned enterprises.     

Hidden links in the warranted rate of growth: the supermultiplier way out

Post Keynesian models consider growth to be demand-led – a logical consequence of Keynes's principle of effective demand. After Harrod's seminal paper in 1939 Harrod, R. F. 1939. An essay in dynamic theory. Economic journal, 49, 14–33.[Crossref], [Web of Science ®] , [Google Scholar] they try to unearth the hidden variables that might allow the adaptation of the warranted rate, determined from the supply side, to demand-growth expectations that supposedly have an autonomous source. The purpose of this paper is to show that an investment function based on the accelerator and integrated in a supermultiplier is able to shape the warranted rate in consonance with the autonomous trend. The supermultiplier reveals itself as a stable and stabilising mechanism when demand is split into permanent and transient. Hopefully the paper will build bridges with other Keynesian, Kaleckian and Sraffian strands that have so far dismissed the supermultiplier solution because of its apparently inherent instability.     

Multiple product qualities in monopoly: Sailing the RMS Titanic into the economics classroom

In this pedagogical contribution the authors extend the traditional three-class tariff employed in the French passenger railway system with the more resonant story of the service quality variations associated with the three passenger classes of the ill-fated RMS Titanic. In doing so, they provide economics instructors with an opportunity to integrate the well-known motion picture Titanic (Cameron and Landau 1997 Cameron, J., and J. Landau. 1997. Titanic. Los Angeles: 20th Century Fox, Paramount Pictures, and Lightstorm Entertainment. [Google Scholar]) into the teaching of economics. This article provides instructors with resources that can be used to link historical and modern travel examples of price discrimination in order for students to reach a “deeper understanding of course concepts” (Salemi 2002 Salemi, M. K. 2002. An illustrated case for active learning. Southern Economic Journal 68 (3): 721–31.[Crossref], [Web of Science ®] , [Google Scholar], 725).     

Productive physical investment and growth: testing the validity of the AK model from a panel perspective

In this article, we analyse the relationship between productive physical investment and economic growth from a panel perspective for a sample of 61 countries spanning the period 1950 to 1992. The analysis can be thought of as two-fold. First, we test the empirical validity of AK models following the logic by Jones (1995 Jones, CI. 1995. Time series properties of endogenous growth models. Quarterly Journal of Economics, 110: 495–525. [Crossref], [Web of Science ®] , [Google Scholar]). For that purpose, we determine the degree of persistence of physical investment rates and growth by employing recently developed panel unit-root tests that enable us to make more reliable inferences about the existence of stochastic trends in the series. Second, we estimate the long-run effect of physical investment on growth by using panel data techniques rather than cross-section regressions. Overall, our findings cast doubts on the rejection of the empirical validity of the AK model, as suggested by Jones’ analysis.     

Within-groups wage inequality and schooling: further evidence for Portugal

This article provides further evidence on the positive impact of schooling on within-groups wage dispersion in Portugal, using data on male workers from the 2001 wave of the European Community Household Panel. The issue of schooling endogeneity is taken into account by using the latest available instrumental-variable technique for quantile regression, i.e. the control-function estimator due to Lee (2007 Lee, S. 2007. Endogeneity in quantile regresssion models: a control function approach. Journal of Econometrics, 141: 1131–58. [Crossref], [Web of Science ®] , [Google Scholar]). The findings are compared with earlier results based on different techniques, i.e. the instrumental-variable estimator due to Arias et al. (2001 Arias, O, Hallock, KF and Sosa-Escudero, W. 2001. Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data. Empirical Economics, 26: 7–40. [Crossref] , [Google Scholar]) and the standard exogeneity-based estimator due to Koenker and Bassett (1978 Koenker, R and Bassett, G. 1978. Regression quantiles. Econometrica, 46: 33–50. [Crossref], [Web of Science ®] , [Google Scholar]).     

Impatience and Inconsistency in Intertemporal Choice: An Experimental Analysis

In this article the experiment carried out by Takahashi et al. [2009 Takahashi, T., T. Hadzibeganovic, S. A. Cannas, T. Makino, H. Fukui, and S. Kitayama. “Cultural Neuroeconomics of Intertemporal Choice.” Neuroendocrinology Letters, 30, (2009), pp. 185–191.[PubMed], [Web of Science ®] , [Google Scholar]] is replicated to analyze the influence of culture, gender, origin (urban or rural), and socioeconomic level on the impulsivity and consistency of decision-making processes concerning monetary gains and losses. The results indicate that Spanish students show inconsistency, and more impulsivity over gains (i.e., more impatience, as they discount delayed outcomes more rapidly) than do Japanese and American students. Additionally, participants from urban areas show more impatience over gains than do participants from rural ones, women are more impatient than men are over losses, and participants of different socioeconomic levels show differences in their impulsivity parameters.     

Herding by Foreign Institutional Investors: An Evidential Exploration for Persistence and Predictability

The primary objective of the study is to explore the predictability of herding patterns of foreign institutional investors in the Indian market using high frequency data over a period from January 2003 to June 2014. Herding of an individual stock was measured estimating a simple volume based ratio and persistence of trends was detected using the runs test (Wald and Wolfowitz [1940 Wald, A., and J. Wolfowitz. “On a Test Whether Two Samples are from the Same Population.” The Annals of Mathematical Statistics, 11, (1940), pp. 147–162.[Crossref] , [Google Scholar]]) on that ratio. Predictability of herding behavior has been successfully modeled by applying 7 data mining models using various measures of performance. Market regulators may consider our findings to regulate the foreign institutional investors trading to make the financial system more transparent and robust.     

The Information Environment,Informed Trading,and Volatility

The relation between informed trading and volatility is analyzed using the change in the proportion of informed transactions calculated through the probability of informed trading variable. The analysis relates to the Spanish market during 1997–2010, given that the Spanish market covers a very diverse range of listed companies. Some companies are comparable to companies listed on U.S. markets while others are smaller in size and have a lower trading volume and inferior quality of information. The methodology is based on a modification of the model proposed by Avramov, Chordia, and Goyal [2006 Avramov, D., T. Chordia, and A. Goyal. “The Impact of Trades on Daily Volatility.” Review of Financial Studies, 19, (2006), pp. 1241–1277.[Crossref], [Web of Science ®] , [Google Scholar]]. The authors’ proposal incorporates the change in the proportion of informed transactions, calculated with intraday data, into the volatility model. The results are also presented using a conditional volatility model in which the change in the proportion of informed transactions is incorporated. These results attest to the influence of informed trading as a price-stabilizing factor in heavily traded and highly capitalized stocks (familiar stocks). Informed trading leads to a marked decrease in volatility for these particular stocks both in periods of calm and crisis.     

Salaried employment and earnings in Indonesia: new evidence on the selection bias

This article uses household survey data to estimate the determinants of earnings in Indonesia, a country where nonsalaried work is widespread and earnings data are available for salaried employees only. We deal with the selection bias by estimating a Full-Information Maximum Likelihood (FIML) system of equations, where selection into the labour market is modelled in a multinomial setting. We find that some estimated parameters of the earnings equation differ from a binomial selection procedure by Heckman (1979 Heckman, J. 1979. Sample selection bias as a specification error. Econometrica, 47: 153–61. [Crossref], [Web of Science ®] , [Google Scholar]), in particular for those variables with the strongest impact on the selection into the different labour-market statuses. However, the estimated returns to education are unaffected, even when we deal with the endogeneity of educational attainment following Duflo (2001 Duflo, E. 2001. Schooling and labour market consequences of school construction in Indonesia: evidence from an unusual policy experiment. American Economic Review, 91: 795–813. [Crossref], [Web of Science ®] , [Google Scholar]). Overall, our findings show that the choice of the selection rule affects the estimates of the earnings determinants in the Indonesian labour market.     

Comparisons of robust tests for shifts in trend with an application to trend deviations of real exchange rates in the long run

We study the finite sample properties of tests for structural changes in the trend function of a time series that do not require knowledge of the degree of persistence in the noise component. The tests of interest are the quasi-Feasible Generalized Least Squares (FGLS) procedure by Perron and Yabu (2009b Perron, P and Yabu, T. 2009b. Testing for shifts in trend with an integrated or stationary noise component. Journal of Business and Economic Statistics, 27: 369–96. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) and the weighted average of the regression t-statistics by Harvey et al. (2009 Harvey, DI, Leybourne, SJ and Taylor, AMR. 2009. Simple, robust, and powerful tests of the breaking trend hypothesis. Econometric Theory, 25: 995–1029. [Crossref], [Web of Science ®] , [Google Scholar]), both of which have the same limit distribution whether the noise component is stationary or has a unit-root. We analyse the finite sample size and power properties of these tests under a variety of Data-Generating Processes (DGPs). The results show that the Perron–Yabu test has greater power overall. With respect to the size, the Harvey–Leybourne–Taylor test exhibits larger size distortions unless a moving-average component is present. Using the Perron and Yabu procedure to test for structural changes in the trend function of long-run real exchange rates with respect to the US dollar indicates that for 17 out of 19 countries, the series have experienced a shift in trend since the late nineteenth century.     

Economic class and the distribution of income: a time-series analysis of the UK economy, 1955–2010

This paper contributes to our understanding of the determinants and dynamics of surplus-value using quarterly UK data, 1955–2010, and the Johansen (1988 Johansen, S. 1988. Statistical analysis of cointegrated vectors. Journal of Economic Dynamic and Control, 12: 231–54. [Crossref], [Web of Science ®] , [Google Scholar], 1991 Johansen, S. 1991. Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) cointegration and vector error correction model (VECM). A model is introduced to define this Marxian concept, before we explain distribution, paying attention to three forces that are traditionally seen as drivers of power in this struggle: (i) working class militancy; (ii) the size of the ‘reserve army’ of the unemployed; and (iii) political party. Our results demonstrate the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.     

Will the skill-premium in the Netherlands rise in the next decades?

While the skill-premium has been rising sharply in the US and the UK for 20 years, the Dutch skill-premium decreased for much of that period and only started to rise in the early 90s. In this article, we investigate whether the Dutch skill-premium will rise in the next decades. To answer this question, we forecast the skill-premium using the Katz and Murphy (1992 Katz, L and Murphy, K. 1992. Changes in relative wages, 1963–1987: supply and demand factors. Quarterly Journal of Economics, 107: 35–78. [Crossref], [Web of Science ®] , [Google Scholar]) and the Krusell et al. (2000 Krusell, P, Ohanian, L, Ríos-Rull, J-V and Violante, G. 2000. Capital-skill complementarity and inequality: a macroeconomic analysis. Econometrica, 68: 1029–53. [Crossref], [Web of Science ®] , [Google Scholar]) models. The Katz and Murphy model (KM) explains demand shifts by skill-biased technological change in unobservable variables captured by a time trend. In contrast, the Krusell et al. model (KORV) explains demand shifts by (observable) changes in the capital stock under a capital-skill complementarity technology. The results show that while the KM model predicts that the skill-premium will have increased by 30% in 2020, based on realistic predictions of the stock of capital, the KORV model predicts that the skill-premium will remain between ?5 and +5% of its 1996 level.     

Explaining the Delayed Effect of Monetary Policy: The Role of Inventories and Factor-hoarding

This paper proposes a new model accounting for the delayed effect of monetary policy shocks on output. The key feature of the model is to distinguish a variety of margins (i.e., inventory adjustments, hours per worker, efforts and employments) on which firms adjust output in response to macroeconomic shock. When these multiple margins are properly introduced to an otherwise standard modern monetary business cycles model, the interplay between inventory adjustments and the one-period lag in adjusting employment can produce the hump-shaped response of output to monetary shock. Given the weak evidence on habit formation at household level found in Dynan (2000) Dynan, K. (2000). Habit formation in consumer preferences: evidence from panel data. American Economic Review, 90 (3), 391–406. doi: 10.1257/aer.90.3.391[Crossref], [Web of Science ®] , [Google Scholar] and Flavin and Nakagawa (2008) Flavin, M., &; Nakagawa, S. (2008). A model of housing in the presence of adjustment costs: a structural interpretation of habit persistence. American Economic Review, 98, 474–495. doi: 10.1257/aer.98.1.474[Crossref], [Web of Science ®] , [Google Scholar], therefore, this paper provides an alternative explanation for the delayed effect of monetary policy without relying on the habit formation.     

Linear and nonlinear Granger-causality between short-term and long-term interest rates during business cycles

This paper is about the causal relationship between short-term and long-term interest rates in the US and Canada. To that end, we apply a linear Granger causality test introduced by Toda and Yamamoto (1995 Toda, H. Y., and T. Yamamoto. 1995. “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes.” Journal of Econometrics 66 (1–2): 225–250. doi:10.1016/0304-4076(94)01616-8.[Crossref], [Web of Science ®] , [Google Scholar]) and the nonlinear Granger causality test of Diks and Panchenko (2006 Diks, C., and V. Panchenko. 2006. “A New Statistic and Practical Guidelines for Nonparametric Granger Causality Testing.” Journal of Economic Dynamics and Control 30 (9–10): 1647–1669. doi:10.1016/j.jedc.2005.08.008.[Crossref], [Web of Science ®] , [Google Scholar]). By combining linear causality effects with the nonlinear ones, it is seen that the most common Granger causality direction between short-term and long-term interest rates is a bidirectional one. We also find that nonlinear Granger causality can be found where no linear causality had been uncovered. Moreover, our findings show that during recent business cycles, the federal funds rate (in the US) and the overnight rate (in Canada) still Granger-cause long-term interest rates significantly.     

The Interest Rate Brake on Maturity Transformation

Must banks match asset and liability maturities, as William Barnett and Walter E. Block (2009 Barnett, William and Walter E. Block. “Time Deposits, Dimensions and Fraud.” Journal of Business Ethics 88, 4 (2009): 711–716.[Crossref], [Web of Science ®] , [Google Scholar], 2011 Barnett, William and Walter E. Block. “Rejoinder to Bagus and Howden on Borrowing Short and Lending Long.” Journal of Business Ethics 100, 2 (2011): 229–238.[Crossref], [Web of Science ®] , [Google Scholar]), as well as Ivan Jankovic (2011) Jankovic, Ivan. “Economic Calculation, Maturity Mismatching and the Credit Cycle.” New Perspectives on Political Economy 7, 1 (2011): 105–124. [Google Scholar], surmise? While we agree with these authors that issuances of fiduciary media breed financial instability, we disagree that maturity transformation represents such a case. Maturity transformation — otherwise known as borrowing short-term and lending long-term — guided by several base legal principles, does not result in the issuance of fiduciary media. Most notable among these principles is that any credit issued must be funded by borrowing of a positive duration, i.e., not via a demand deposit. We demonstrate that two factors instigate larger degrees of maturity transformation than would otherwise be the case, breeding potential instability: a continual increase in the credit supply and the provision of a lender of last resort. We also show that the interest rate is a natural stabilizing brake on the over-issuance of longer-dated credit against short-term financing.