Stock returns and product market competition: beyond industry concentration

The main purpose of this paper is to provide direct evidence that product market structure affects stock returns. This is not only through industry concentration, as found in Hou and Robinson (J Finance 61:1927–1956, 2006), but also based on firms’ product substitutability and industry market size. Furthermore, the predictive power of product substitutability and market size for stock returns is not subsumed by industry concentration. Our results highlight the multi-dimensional structure of product market competition and its impact on asset prices.     

The relationship between aggregate managed fund flows and share market returns in Australia

This paper presents the relation between aggregate equity managed fund flows and excess share market returns in Australia and evaluates the issue of causality therein. Using a large data set of 3613 managed funds for the period January 1990 to September 2009, the paper addresses two important questions yet to be addressed within the Australian market: First, for research question one; it aims to determine whether a positive feedback process exists between aggregate equity managed fund flows and excess share market returns. Second, for research question two; it examines the relation between unexpected aggregate equity managed fund flows and excess share market returns. The empirical findings contribute to the literature by confirming, in Australia, aggregate equity managed fund flows do not Granger-cause excess share market returns; however, compelling evidence reveals that share market returns do in fact Granger-cause managed fund flows. These findings support those of Edwards and Zhang (1998), who find similar evidence for the United States over the sample period 1961–1996. In addition, aggregate equity managed fund flows are found to be positively related to excess share market returns, indicating herding behavior.     

Does volume help in predicting stock returns? An analysis of the Australian market

This paper presents an analysis of the relationship between trading volume and stock returns in the Australian market. We test this hypothesis by using data from a sample of firms listed on the Australian stock market for a period of 5 years from January 2001 to December 2005. We explore this relationship by focusing on the level of trading volume and thin trading in the market. Our results suggest that trading volume does seem to have some predictive power for high volume firms and in certain industries of the Australian market. However, for smaller firms, trading volume does not seem to have the same predictive power to explain stock returns in Australia.     

Pricing assets with higher moments: Evidence from the Australian and us stock markets

This paper investigates the importance of higher moments of return distributions in capturing the variation of average stock returns for companies listed in the leading S&P US and Australian indices. We find that Australian stocks are more negatively skewed but less leptokurtic than US stocks. As a result, we find that co-skewness plays a more important role in explaining Australian returns while co-kurtosis is consistently influential for US stock returns. We postulate that the differences in results are related to the underlying firm characteristics of the companies in the two indices, where principally the Australian firms are noticeably smaller than their US counterparts and concentrated in a smaller number industry sectors. This implies that for many smaller exchanges around the world higher moment characteristics displayed by the US market may not be applicable. We also show our results are robust to partly explaining average stock returns in the presence of size, value, and momentum effects.     

Market risk exposure of merger arbitrage in Australia

We investigate the risk‐return characteristics of merger arbitrage in the Australian market for corporate control, whereby hedge fund managers acquire companies subject to a takeover offer. On average, a strategy of buying target companies and short‐selling bidders making scrip offers would have generated an annual return of 30 per cent from 1985 to 2008, excluding transaction costs, compared to the return on the broader market of 12 per cent. However, performance is not market neutral, being positively associated with market returns during downturns and inversely related to market movements during rising markets. The payoffs to this strategy are analogous to a short straddle, whereby the investor is short a call and put option at the same exercise price. These results are consistent with large‐sample evidence from the United States and the United Kingdom and have not previously been documented in Australia, in which prior evidence is based only on cash deals during the 1990s.     

Real and Financial Industry Booms and Busts

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. Our results show how real and financial factors interact in industry business cycles. In competitive industries, we find that high industry-level stock market valuation, investment, and financing are followed by sharply lower operating cash flows and abnormal stock returns. Analyst estimates are positively biased and returns comove more. In concentrated industries these relations are weak and generally insignificant. Our results are consistent with participants in competitive industries not fully internalizing the negative externality of industry competition on cash flows and stock returns.     

Dynamic Linkages among Budget Deficits,Interest Rates and the Stock Market*

This paper examines the dynamic linkages among the federal budget deficit, interest rates and the stock market for the United States from 1960 to 2006. The empirical strategy includes vector autoregression (VAR) and Granger causality analyses. The results suggest that budget deficits negatively impact upon stock returns, which implies a violation of the Ricardian Equivalence Proposition. Further analysis shows a higher sensitivity of stock returns to corporate taxes than to public spending. Finally, it is shown that although taxes are relevant for corporate profits in the short run, budget deficits are important for the stock market in the long run.     

Lead–Lag Effects in Australian Industry Portfolios

This study finds that returns to stocks with relatively high market capitalizations lead returns to stocks with relatively low market capitalizations in Australian industry portfolios. These lead–lag patterns or positive cross-correlations are found in both daily and weekly returns and continue to hold even after the market factor is removed. The results for weekly returns are consistent with the findings of Hou (Rev Fin Stud 20:1113–1138, 2007) who found significant lead–lag effects in weekly returns to US industry portfolios. However while that study found stronger lead–lag effects for industries with relatively small average market capitalizations this study finds that industries with larger average market capitalizations have stronger lead–lag effects. This may be caused by industry momentum created by positive news to the leader stocks of an industry, and implies investors can gain significantly by investing in the smaller firms of prominent industries, following an earlier shock to the corresponding leader stocks.     

Corporate capital expenditure decisions and the market value of the firm

This paper is an ‘event-time’ study of the common stock prices of a sample of 658 corporations around the dates on which they publicly announced their future capital expenditure plans. For industrial firms, announcements of increases (decreases) in planned capital expenditures are associated with significant positive (negative) excess stock returns. For public utility firm, neither increases nor decreases in planned capital expenditures are associated with significant excess stock returns. We interpret the evidence as being consistent with the hypothesis that managers seek to maximize the market value of the firm in making their corporate capital expenditure decisions.     

PERFORMANCE OF STOCKS RECOMMENDED ON THE BASIS OF INSIDER TRADING ACTIVITY

The purpose of this paper is to assess whether abnormal returns could have been earned by an investor who concentrated solely on the stocks listed in the Consensus of Information (COI) monthly newsletters. Using residual-based techniques, the authors find that (1) stocks listed in the COI newsletters were characterized by excess positive returns over the four months immediately preceding listing and that (2) users of the COI's recommendations could have earned moderate excess returns by systematically acquiring shares of these companies and holding them over a twelve-month period starting in the month the newsletter is published or one month hence. Given that the recommendations yielding the largest abnormal returns to noninsiders were based on a mixture of open market purchases and exercised stock options, definitive conclusions with respect to the predictive implications of exercised stock options cannot be drawn.     

Industry Concentration,Firm Efficiency and Average Stock Returns: Evidence from Australia

This study examines the relationship between industry concentration and level of firm efficiency and their effect on cross-sectional stock returns in Australian market. Our analysis shows that industry concentration and firm efficiency have independent effects on stock returns. By forming 25 double-sorted portfolios based on industry concentration and firm efficiency, INEFFICIENT firms in concentrated industry earn highest stock returns, while EFFICIENT firms in concentrated industry earn lowest stock returns. Also we find that industry concentration appears to be associated with market share while efficiency has a greater effect on firm earnings. In our cross-sectional regressions, industry concentration shows a positive relationship with average stock returns while firm efficiency shows a negative association with average stock returns. The concentration and efficiency effects are persistent throughout the sample period and is robust after controlling for size and book-to-market.     

International income-shifting regulations: Empirical evidence from Australia and Canada

This study examines market reactions to two different approaches to reduce income shifting in an international setting. The two methods are described and event studies are performed using stock market data from Canada and Australia. Samples of companies from both countries are partitioned into firms predicted to be affected versus unaffected by each country's event. Australia's regulation taxes profits arising in low-tax subsidiaries at Australian rates. Canada's method defines acceptable transfer prices (arm's-length transactions) and describes enforcement and audit policies. We find evidence of stock market reactions on some of the event dates for Australian and Canadian firms affected by these two approaches.     

Information diffusion and the predictability of New Zealand stock market returns

This paper examines the impact of international predictors from liquid markets on the predictability of excess returns in the New Zealand stock market using data from May 1992 to February 2011. We find that US stock market return and VIX contribute significantly to the out‐of‐sample forecasts at short horizons even after controlling for the effect of local predictors, while the contribution by Australian stock market return is not significant. We further demonstrate that the predictability of New Zealand stock market returns using US market predictors could be explained by the information diffusion between these two countries.     

R&D and performance persistence: Evidence from the United Kingdom

There is compelling evidence from both the United States and United Kingdom suggesting that R&D investment is positively related to operating and/or market performance. This study extends prior research on R&D and valuation by further examining the sustainability or persistence of operating growth and market performance as a result of R&D investments.We use a large dataset of U.K. companies during the period 1990–2003 and our findings confirm the relation between R&D intensity and consistent growth in Sales and Gross Income, but only in the cases when a firm needs to engage in R&D activity because of the industry in which it operates. Moreover, our evidence indicates not only a positive relation between R&D intensity and subsequent risk-adjusted excess returns among firms that engage in R&D as testified by prior literature, but we also show that R&D intensity improves persistence in excess stock returns: the highest R&D-intensity firms are found to earn higher risk-adjusted excess returns more consistently than the sample median return, compared to lower R&D-intensity firms, as well as firms with no R&D. We interpret this finding as consistent with at least some form of market mispricing.     

中美贸易摩擦对国际贸易板块的冲击--基于事件研究法

中美建交40周年以来,中美经贸关系既有合作又有摩擦。自2018年3月美国向中国部分商品加征关税,中美贸易战正式打响,中美贸易摩擦持续升级,导致国际贸易板块剧烈波动,引发投资者恐慌情绪。本文基于事件研究法,分析"正面"和"负面"中美贸易摩擦新闻事件分别对国际贸易板块的影响,首先通过对"窗口期"平均异常收益率进行分析,为投资者分别提供在中美贸易新闻"正面""负面"事件冲击下利用股市"T+1"交易机制对国际贸易板块进行投资时获利的最佳投资点;其次通过对"窗口期"累计异常收益率的分析,为投资者分别提供在中美贸易"正面""负面"两种新闻事件冲击下对国际贸易板块进行投资的最佳区间,最大化其超额收益。为投资者在中美贸易摩擦时期对国际贸易板块进行投资时,合理的规避风险、最大化其超额收益,同时提升投资者在负面新闻事件发出时的情绪,减少国际贸易公司市值的进一步缩水。     

Alpha and Persistence in Real Estate Fund Performance

This paper investigates whether fund managers investing in the direct real estate market can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has typically focused on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom, covering up to 280 funds over the period 1981 to 2006. The widespread finding is that very few managers appear to be able to generate excess risk-adjusted returns. Furthermore, there is little evidence of performance persistence in either fund returns or risk-adjusted fund returns.     

Liquidity and stock returns in pure order-driven markets: evidence from the Australian stock market

This paper examines the relationship between liquidity and stock returns in the pure order-driven stock market of Australia. The bid-ask spread, turnover rate, and amortized spread are used as proxies for liquidity. In addition to liquidity, other factors that have been found to influence stock returns, such as beta and size, are also considered. Seemingly unrelated regressions (SUR) and the cross-sectionally correlated timewise autoregressive (CSCTA) model form the methodological basis for this research. A small liquidity premium is found in the Australian market, which persists for the entire year. There is also strong evidence of a negative size effect.     

剩余收益模型与股票未来回报

本文采用Hou et al.(2012)公司基本面盈余预测模型并结合剩余收益模型对上市公司的内在价值进行估计,并分析内在价值与市价比率(V/P)与股票未来回报之间的关系。我们发现基于V/P分组的投资组合,在未来一至三年规模调整的持有超额回报套利分别达到15.2%、37.9%和55.9%;在控制了市账比等因素以后,V/P对股票未来回报仍然具有显著的预测作用。本文的研究克服了以往文献中运用证券分析师盈余预测进行剩余收益模型估值的内在局限,并提供了我国资本市场背景下切实可行的基于剩余收益模型估值的投资组合策略。     

Sources of gains to shareholders from bankruptcy resolution

Using a logistic regression model, we identify the characteristics of firms whose shareholders are likely to benefit from bankruptcy resolution. That is, winners (losers) are firms whose shareholders experience positive (negative) excess returns after bankruptcy filing. We find that winners are relatively smaller firms with higher proportions of convertible debt, tend to file for bankruptcy for strategic reasons, have low share-ownership concentration, and suffer comparatively larger pre-filing stock price declines. Among winners, shareholder returns are greater for firms that have higher levels of private debt and research and development (R&D) expenditures, and operate in more concentrated industries. In addition, our analysis indicates that an ex ante trading strategy of purchasing bankrupt stocks with a greater than 50% probability of being a winner on the day after bankruptcy filing and holding the stocks for a year, on an average, can generate average compounded and excess compounded holding-period returns of +71% and +42%, respectively.     

Accounting‐Based Probabilistic Prediction of ROE,the Residual Income Valuation Model and the Assessment of Mispricing in the Swedish Stock Market

Using Swedish stock market data, this study investigates whether an investment strategy based on publicly available accounting information can generate abnormal investment returns. The strategy involves two steps. First, an accounting‐based probabilistic prediction model of changes in the medium‐term book return on owners' equity (ROE) is estimated. Second, market expectations of changes in medium‐term ROE are assessed through observed stock prices and the residual income valuation model. Stock market positions over 36‐month holding periods are taken when the accounting‐based predictions of ROE and the market expectations differ. Over the period 1983–2003, the investment strategy generated values of Jensen's alpha corresponding to an average monthly excess return for a hedge position of up to 0.8% for a sample of manufacturing companies. In the main this hedge return was caused by strong positive returns to the long positions, and additional analyses show that the returns appear to have been affected by a positive market sentiment bias (i.e., positive ROE surprises being associated with stronger price reactions than negative ROE surprises) making out‐of‐sample inferences somewhat dubious. Furthermore, most of the investment returns accrued over holding periods up to around 1995, with no indications of market mispricing over the last third (1995–2003) of the investment period. The empirical results are consistent with market investors having become more sophisticated in their use of publicly available accounting information over time.