The Cross‐Section of Expected Stock Returns: What Have We Learnt from the Past Twenty‐Five Years of Research?

I review the recent literature on cross-sectional predictors of stock returns. Predictive variables used emanate from informal arguments, alternative tests of risk-return models, behavioural biases, and frictions. More than fifty variables have been used to predict returns. The overall picture, however, remains murky, because more needs to be done to consider the correlational structure amongst the variables, use a comprehensive set of controls, and discern whether the results survive simple variations in methodology .     

传闻消息对我国上市公司股价影响的实证分析

本文通过有关我国上市公司的传闻消息对上市公司股价影响的实证分析,得出在消息公布日前2天以及后3天的时间段里,传闻消息对股价有正影响,从而给投机者带来了非正常收益,但是从长期来看,传闻消息不会给投资者带来任何非正常收益。另外,通过对各类传闻消息对股价影响的进一步分析,发现在诸类传闻消息中,主力类传闻对上市公司股价的影响最为显著,能给投机者带来很大的非正常收益。     

Corporate Real Estate and Stock Market Performance

An interesting question in corporate real estate literature is whether real estate can improve the stock market performance of property-intensive non-real estate firms. Using a data set comprising 75 non-real estate corporations that own at least 20 percent properties, this paper empirically assesses and compares the pair-wise return, total risk, systematic risk and Jensen abnormal return performance of composite (with real estate) and hypothetical business (without real estate) firms. We employed Morgan Stanley Capital International world equity index instead of a local market index to provide some insights into the performance of the local market relative to the global market during the 1997–2001 volatile periods experienced by many Asian countries. Our results suggest the inclusion of real estate in a corporate portfolio appears to be associated with lower return, higher total risk, higher systematic risk and poorer abnormal return performance. It is therefore likely that non-real estate firms own properties for other reasons in addition to seeking improvement in their stock market performance. Further research is needed to explore the main factors contributing to corporate real estate ownership by non-real estate firms.     

What Influences Stock Market Behavior in Russia and Other Emerging Countries?

We empirically test the dependence of the Russian stock market on the world stock market and world oil prices in the period 1997:10–2012:02. We also analyze countries that can be considered to be relatively similar to Russia, e.g., Poland, the Czech Republic, and South Africa. First, we apply a rolling regression to identify periods when oil prices or stock indices in the United States and Japan were important. Surprisingly, oil prices are not significant for the Russian stock market after 2006. Second, we employ a TGARCH-BEKK model to assess the degree of correlation between the markets in question, taking into account the global market stochastic trend. Correlation between markets increased between 2000 and 2012.     

Ownership Dynamics of REITs

This paper studies the effects that benefits of control and moral hazard have on the evolution of large stakes in REITs. A large risk-averse shareholder trades off the net benefits of REIT business monitoring and control with the cost of bearing risk beyond the level compensated by the REIT return premium. In equilibrium, the large shareholder gradually adjusts his ownership shares level (as long as his marginal benefits from holding shares increase in his REIT stake) towards the long-run competitive equilibrium in which his marginal share valuation coincides with that of the market. Because of the moral hazard, such level of ownership (and monitoring) is, in general, inefficient. The speed of adjustment is positively correlated with the agents risk aversion and company volatility, and negatively correlated with his marginal benefits of control and beneficial monitoring effects.     

Cash holdings,risk, and expected returns

In this paper I develop and empirically test a model that highlights how the correlation between cash flows and a source of aggregate risk affects a firm's optimal cash holding policy. In the model, riskier firms (i.e., firms with a higher correlation between cash flows and the aggregate shock) are more likely to use costly external funding to finance their growth option exercises and have higher optimal savings. This precautionary savings motive implies a positive relation between expected equity returns and cash holdings. In addition, this positive relation is stronger for firms with less valuable growth options. Using a data set of US pubic companies, I find evidence consistent with the model's predictions.     

The Impact of Oil Price Shocks on the Returns in China’s Stock Market

The main goal of this paper is to study the relationship between oil price shocks and mainland China’s stock market. From empirical study, we have found that the impact of oil price shocks on stock prices in China has been mixed. In contrast to the conventional wisdom that higher oil prices may cause lower stock prices, positive shocks to oil-market-specific demand resulted in both higher real oil prices and higher stock prices, which helps explain the boom of the Chinese stock market as oil prices were increasing in 2007. However, global oil demand and supply shocks had no significant effects.     

Do emerging markets with consistent returns have better future performance?

Using monthly data for 25 emerging markets around the world, it is found that emerging markets with recently consistent stock returns tend to have future returns that continue in the same direction. The effects are long-lived for negative consistency, and imply that capital flows are much more sensitive to market downturns than market upturns. Additionally, the longer a market has had consistently negative (positive) stock returns, the more negative (positive) are future returns. These results serve as confirmation that the consistency effects of Grinblatt and Moskowitz [J. Finan. Econ., 2004 Grinblatt, M and Moskowitz, T. 2004. Predicting stock price movements from the pattern of past returns. J. Finan. Econ., 71: 541–579. [Crossref], [Web of Science ®] , [Google Scholar], forthcoming] and Watkins [J. Behav. Finan., 2003 Watkins, B. 2003. Riding the wave of investor sentiment: an analysis of consistency as a predictor of future stock returns. J. Behav. Finan., 4: 1–32.  [Google Scholar], 4, 1–32] exist in emerging markets around the world.     

Non-linear Dependence in Stock Returns: Does Trading Frequency Matter?

The UK has a quote-driven pure dealer market structure that is very different from order driven markets such as the NYSE and Japanese markets. This paper investigates non-linear dependence in stock returns for an exhaustive sample of UK stocks for a 21 year period. The results are analysed on the basis of trading frequency. It is found that non-linear dependence is highly significant in all cases for both individual stocks and stock portfolios formed on the basis of trading frequency. The non-linear dependence is primarily over a one day interval, although statistically significant non-linear dependence exists consistently even up to five trading days. Most of the non-linear dependence is in the form of ARCH-type conditional heteroskedasticity. However, statistically significant non-linearity in addition to an EGARCH(1,1) dependence also appears to be present. This additional non-linearity is greater for individual stocks than for portfolios and greater for smaller, less-liquid portfolios. Non-linear dependence does not appear to be caused by non-stationarity in underlying economic fundamentals or by non-linearity in the conditional mean. However, low dimensional chaos is not generally supported. The limited evidence on chaotic behaviour is stronger for portfolios with long price adjustment delays across component stocks. The main results are consistent with US studies on stock indices, suggesting that the process generating non-linear dependence is not dependent on market microstructure characteristics.     

On the predictive power of the surplus consumption ratio

This paper shows that the surplus consumption ratio, specified by Campbell and Cochrane [1999. Journal of Political Economy 107, 205–251], is a good predictor of excess returns at long horizons. We also provide empirical evidence that this variable captures a component of expected returns, not explained by the proxies for the consumption to wealth ratio, cay and cdy, proposed by Lettau and Ludvigson [2001a. Journal of Finance 56, 815–849; 2001b. Journal of Political Economy 109, 1238–1286; 2005. Journal of Financial Economics 76, 583–626]. Moreover, used as a conditioning information for the Consumption based Asset Pricing Model (C)CAPM, the resulting linear model helps to explain for the variation in average returns across the Fama–French (25) portfolios sorted by size and book-to-market characteristics.     

The impact of option introduction on the conditional return distribution of underlying securities

This paper combines several interesting econometric techniques to examine changes in the conditional return distribution of security returns following option introduction. An EGARCH model is used to characterize the return generating process. An intervention analysis is performed to determine whether the parameters of the EGARCH model shift following initial options listing. This paper finds that the conditional distribution of security returns is unaffected by option introduction. Estimation of a transfer function-noise model also shows that option introduction has no effect on conditional volatility.     

Option prices and stock market momentum: evidence from China

Option prices tend to be correlated to past stock market returns due to market imperfections. We unprecedentedly examine this issue on the SSE 50 ETF option in the Chinese derivatives market. To measure the price pressure in the options market, we construct an implied volatility spread based on pairs of the SSE 50 ETF option with identical expiration dates and strike prices. By regressing the implied volatility spread on past stock returns, we find that past stock returns exert a strong influence on the pricing of index options. Specifically, we find that SSE 50 ETF calls are significantly overvalued relative to SSE 50 ETF puts after stock price increases and the reverse is also true after the stock price decreases. Moreover, we validate the momentum effects in the underlying stock market to be responsible for the price pressure. These findings are both economically and statistically significant and have important implications.     

Time-varying risk preferences and emerging market co-movements

This paper examines how shocks can transmit across international stock markets through the channel of time-varying investor risk preferences. We highlight the effects of this channel by comparing the conventional constant relative risk aversion utility function with the habit-formation utility function of Campbell and Cochrane (J. Pol. Econ. 107 (1999) 205). Calibrating our model with data from Argentina, Korea and Mexico, we find that in the presence of time-varying investor risk preferences, market integration generates a substantial increase in cross-country co-movements of stock returns.